Privatization -- the sale of state-owned enterprises (SOEs) to the private sector -- must be properly structured, appropriate to a country's political and economic conditions, and allow market forces to operate, says Madsen Pirie of the Adam Smith Institute.

Some countries have pursued privatization in name only, selling minority shares of profitable SOEs to leading industrialists or friends of the government. They may maintain its monopoly or subject it to overregulation. For example,

• The Jamaican edible-oil company, Seprod, initially did well after its sale in 1985 to investors and employees, but it declined rapidly in 1987 after the government imposed price controls on its products.

• Several Latin American and Caribbean governments have sold telephone monopolies to foreign corporations -- in one case granting a 40-year monopoly -- but high telephone bills have created widespread resentment.

To make them salable, the debts of some SOEs must be forgiven or sale proceeds set aside to fund obligations. For example,

• In 1981 management and employees bought the National Freight Corporation in one of Britain's first privatizations.

• Sale revenue of £60 million was reduced to £9 million after the government provided for pension obligations.

• But eight years later, the company offered employees more than 100 times their initial investment and continues to pay large sums into the treasury every year.

However, restructuring of an enterprise should be left to the new owners.

• The UK National Audit Office determined many privatizations yielded lower proceeds because of badly managed restructuring prior to the sale.

• In many developing countries, the cost of consultants retained to restructure state enterprises exceeded their final sale prices.

• In addition, advice is often not heeded -- for example, Royal Nepal Airlines Corporation has conducted four separate restructuring studies over the last eight years, but hasn't implement any recommendations.