The authors' view is that any privatisation is better than none, regardless of whether a stable, competitive environment has been established first. However, private companies started from scratch perform best, followed by newly privatised firms run by outsiders, either local or foreign. Privatised companies dominated by insiders do less well, but even they regularly outperform state enterprises. Without an appropriate market environment though, managers may spend more time lobbying the government for support than undertaking painful restructuring measures.

A decade ago, with the breakup of the Soviet Union and the start of market-oriented reforms in many former socialist economies of Central andEastern Europe, the prospect of privatizing inefficient state-ownedcompanies figured prominently in both popular and academic writings. As the headline event symbolizing change from central planning to capitalism, privatization seemed to promise an end to the inefficienciesof central planning - the key to freeing the resources and talents of this huge area and lifting its living standards to those of the industrial countries. What broad lessons were learned from the experienceof the past ten years? Along with their successes, prominent failureshave also marked this recent history, especially in Russia and in othercountries of the former Soviet Union. The overall task ahead thus remains vast if the original vision of greater freedom and higher livingstandards is to be realized.

This paper reviews a selection of studies on privatization experiences in transition countries. Empirical studies almost invariably show privatized enterprises outperform state enterprises. Moreover, the literature identifies de novo firms as being clearly the best performers, followed by outsider-dominated firms, while insider-dominated firms are the least efficient among those newly privatized. The importance of de novo firms in enlarging the private sector in transition economies is reviewed, along with the question of whether privatization efforts support or hinder de novo private sector development. Finally, the paper discusses the importance of providing a suitable market environment for successful private-sector development.

Annotation.

Electricity, natural gas, telecommunications, railways, and water supply, are often vertically and horizontally integrated state monopolies. This results in weak services, especially in developing and transition economies, and for poor people. Common problems include low productivity, high costs, bad quality, insufficient revenue, and investment shortfalls. Many countries over the past two decades have restructured, privatized and regulated their infrastructure. This report identifies the challenges involved in this massive policy redirection. It also assesses the outcomes of these changes, as well as their distributional consequences for poor households and other disadvantaged groups. It recommends directions for future reforms and research to improve infrastructure performance, identifying pricing policies that strike a balance between economic efficiency and social equity, suggesting rules governing access to bottleneck infrastructure facilities, and proposing ways to increase poor people's access to these crucial services.