Neutralizing Opponents of Privatization
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Selling off state-owned companies in a democracy can sometimes be difficult,
since employees fear for their jobs and other stockholders see their interests
threatened by the change. But some free-market advocates see a way around
this: give some of the gains from privatization to workers and others involved
-- thereby neutralizing their opposition.
Political observers say that offering a share of the net gains to potential
losers was former British Prime Minister Margaret Thacher's stroke of genius.
- In 1981, she privatized the National Freight Corporation by turning
over 82 percent of its newly created stock to current and former employees.
- To get rid of government-owned housing -- rents on which were so low
as not even to cover maintenance costs -- she allowed existing tenants to
buy their units from the government at a discount from market value.
Privatization advocates say that some Latin American governments seem to
have learned Mrs. Thacher's lesson.
- In 1989, when Mexican officials wanted to privatize the government-owned
telephone monopoly, they lent funds to the workers' union to buy 4.4 percent
of the stock in the new, private company.
- When it privatizes the state-owned telephone company later this year,
El Salvador's government will let employees buy shares in it at a discount.
- In the 1980s, Chile privatized 52 percent of previously expropriated
farmland by selling it at below-market prices to the farm workers.
- In Argentina, labor opposition to reductions in excess labor has been
partially neutralized by generous severance benefits -- often more than
one year's salary.
Source: David R. Henderson (Hoover Institution), "Privatization Logic:
Divide the Spoils and Conquer the Opposition," Wall Street Journal,
September 13, 1996.
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