19 in the economy, including in parts of<sup>theeconomy that wereneverunderstatecontroland</sup> ownership. When properly carried out,<sup>privatizationandtheaccompanyingreformsleadto</sup> employment gains elsewhere in the economy<sup>asunproductivelaboris</sup> released for more productive activities. This can and should far outweigh the<sup>losses sufferedintheprivatized</sup> firms. Continued government support for<sup>stateenterprisesandtheiremployeesbenefitsasmall</sup> number of citizens and comes at the<sup>expenseof societyasawhole.Rapidprivatizationanda</sup> focus on creating productive jobs through<sup>the privatesector-ratherthanonpreservingjobsin</sup> less efficient areas-are important for<sup>securingeconomy widegrowth.</sup>

# **(v) Wealth and income distribution**

48. The question of privatization's effects<sup>onwealthandincome distribution,asubjectof</sup> intense public debate and many assertions<sup>and claims,isonly recentlyreceiving theconcerted</sup> attention of analysts. Knowledge of this<sup>issue isevolving,and the initialfindingsare as follows.</sup> 49. First, studies (cited above) that have<sup>measuredthewelfareconsequencesconcludethat</sup> privatization generally increases the total<sup>resources available in theeconomy. Second, thesame</sup> studies conclude that while a few<sup>privatizationsresultinwelfaregainsforalltherelevantand</sup> interested actors and stakeholders (sellers,<sup>buyers,consumers, workersand competitors), many</sup> produce gains for some and losses for others,<sup>dependingon how the transactionisstructured,and</sup> the level of institutional development<sup>andcompetencein theeconomy.</sup> For example, government sellers often underprice<sup>sharesof SOEsinordertoensurethatthesale proceeds</sup> swiftly and successfully, and that lower<sup>incomefirst-timeshareholdersarenotpricedoutof the</sup> market. This results in gains for the shareholders,<sup>new orotherwise,but oftenconstitutesa loss</sup> for the seller-and the taxpayers.<sup>Third,theincomedistributioneffectsof theprivatizationof</sup> infrastructure firms have been shown<sup>todependcruciallyonthefairness andcapacityof the</sup> regulatory system put in place prior<sup>tooratthetimeofthetransaction (Chisari,Estache,</sup> Romero, 1999).

50. The most salient aspects of the distribution<sup>issueareemployment,access,priceand</sup> ownership effects. The effects of privatization<sup>onemployment,bothintheprivatizedfirmsand</sup> in the economy at large, are discussed<sup>insection(iv)above.Regardingaccess,recentworkin</sup> infrastructure (covered in detail in<sup>theseparatebackground paperon infrastructure,seeGray</sup> 2001) points to a highly positive<sup>impactfromprivatization,asincreasedinvestmentleadsto</sup> expansion, and as sales contracts<sup>often requirethatthis expansionbe aimedatleastpartlyat</sup> previously unfavored groups or regions.<sup>Prices,asnoted,oftenrisefollowingprivatizationto</sup> offset below cost tariffs, but the effects<sup>ondistributionareoften mutedorskewedby regulatory</sup> frameworks aimed at protecting the<sup>less favored(forexample,theGovernmentofChile</sup> subsidized telephone costs in rural<sup>regions).</sup> Determining whether the gains from<sup>accessare</sup> more or less than the losses from price<sup>increasesisa primaryobjectiveof current research(see</sup> for example, Torero and Pasco-Font,<sup>2001).</sup> 51. Finally, despite innovations aimed<sup>atspreadingequityholdings-suchasvoucher</sup> schemes in transition economies, "capitalization"<sup>inBolivia,andtheawardingorsellingof</sup> shares to workers in privatized firms-there<sup>isawidespreadperception,evenamongobservers</sup> sympathetic to divestiture, that the<sup>effectsof privatizationon wealthand ownershipmay proveto</sup>