IPD AI

Capital Accumulation, State Intervention and Privatization

01/01/2002
Working Paper

The debate over privatization is essentially the debate over the relative efficiency of the state versus markets and private property in the allocation of resources. Where state intervention was previously justified on the grounds of market failure and other problems faced by developing countries in particular, privatization theory has viewed the state as the cause of inefficient allocation due to the vested interests of bureaucrats (or the possibility of states or public policies becoming ‘captive’ to the special interests of influential or powerful groups) and the lack of incentives in the absence of clearly designated property rights.

The state can play a part in privatization by ensuring that resources are allocated efficiently, not just to the best candidates but also to the most productive sectors. That is to say, privatization can be undertaken as part of a state’s development strategy and can be an important part of a development process. In these circumstances, privatization needs to be examined against state theory.