The Global Rush To Privatize

The price made some executives wince, but in August, Bankers Trust Co. bought a seat on the Buenos Aires stock exchange for an eye-popping $430,000--or $55,000 more than the value of a seat on New York's Big Board. Only last year, Argentine exchange memberships were selling for a respectable $300,000, but then, President Carlos Saul Menem shifted privatization into high gear. With billions flowing into the country as one state-owned industry after another moves into private hands, the stock market has already jumped 400% since Jan. 1. "Everything is going so fast," marvels Neil A. Allen, managing director of BT's Latin America merchant banking group.

Argentina isn't the only emerging economy being shaken awake by privatization. From Tierra del Fuego to the Rio Grande, and from eastern Germany to the Soviet Union, the sale of the century is off and running. Amid the failure of communism and other command-economy models, governments are vying to cut the best deals to unload countless state companies in dire need of cash.

WIDE WORLD. In the following pages, BUSINESS WEEK examines how privatization is proceeding, and why its progress varies so greatly from region to region. Many of today's privatizers look to the lead set by former British Prime Minister Margaret Thatcher and Spanish Prime Minister Felipe Gonzalez, who got the ball rolling in the 1980s. But the hottest action today is in countries where central planning long stultified growth.

It is in these economies where the grand experiment of privatization will record its most stunning success--or most glaring failure. Unless new investment helps fix the mess left by discredited central planners, burgeoning democratic movements in the former East Bloc, the Soviet Union, and Latin America stand little chance of taking root.

Indeed, privatization will be a main topic of discussion as bankers from around the globe jet to Bangkok for the annual meetings of the World Bank and International Monetary Fund on Oct. 15-17. On the eve of the meetings, the Group of Seven industrial countries likely will come up with an emergency aid package for the Soviet Union, worth as much as $8 billion and probably tied to pledges of wide-ranging economic reforms. And once the meetings get under way, new World Bank President Lewis Preston, former chairman of J. P. Morgan & Co., is expected to push to put more of the giant lender's $120 billion in assets behind promoting private-sector growth around the globe. Says former World Bank Treasurer Eugene H. Rotberg: "The U. S. Treasury wants the bank to use its leverage to make fundamental changes."

DAUNTING. How rapidly the bank can effect change is anybody's guess. In Poland alone, some 80% of industry remains in state hands. And even with their promises to rebuild what appears to be every road, sewer, and phone line in the region, Bonn still has been able to unload only a third of the 10,000-odd eastern German companies under state ownership. Sighs German Economics Minister Jurgen W. Mollemann: "The task is tremendous."

Everybody seems to have a different idea of how best to privatize an economy. But while theoretical debates rage on, many workers and managers are simply taking things into their own hands. Coca-Cola Co. certainly found that was true in the Soviet Union.

When the beverage giant wanted to take over the state-owned bottler of its Fanta soft drinks in Kiev, it cut a deal with employees in October to take control of the plant. Workers are also fending for themselves in Eastern Europe. Hundreds of thousands of small companies have sprung up in Poland, while Czechoslovakia expects to unload as many as 100,000 mom-and-pop-size state businesses by the end of 1991.

Selling off state assets has its disruptive side, to be sure. Inevitably, it means that secure jobs are destroyed and comfortable but inefficient practices are obliterated. But there isn't much choice anymore. Countries hanging out the "For Sale" sign have a common set of needs: to mobilize domestic savings, get foreign cash into their economies, and create jobs. Maybe every market won't boom like Argentina's. But in many other countries, full speed ahead is becoming the order of the day.