A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Goldstein, Andrea Working Paper Privatization in Italy 1993-2002: Goals, Institutions, Outcomes, and Outstanding Issues CESifo Working Paper, No. 912 Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Goldstein, Andrea (2003) : Privatization in Italy 1993-2002: Goals, Institutions, Outcomes, and Outstanding Issues, CESifo Working Paper, No. 912, Center for Economic Studies and ifo Institute (CESifo), Munich This Version is available at: http://hdl.handle.net/10419/76289 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu PRIVATIZATION IN ITALY 1993-2002: GOALS, INSTITUTIONS, OUTCOMES, AND OUTSTANDING ISSUES ANDREA GOLDSTEIN CESIFO WORKING PAPER NO. 912 CATEGORY 1: PUBLIC FINANCE APRIL 2003 Presented at CESifo Conference “Privatisation Experiences in the EU”, January 2003 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the CESifo website: www.CESifo.de CESifo Working Paper No. 912 PRIVATIZATION IN ITALY 1993-2002: GOALS, INSTITUTIONS, OUTCOMES, AND OUTSTANDING ISSUES Abstract This paper describes the privatization program in Italy during the 1990s and puts that policy in the context of macroeconomic adjustment, general market deregulation, and promotion of private investment in the provision of public infrastructure. The wave of state divestitures reached Italy later than other OECD countries. A deep-rooted tradition of state intervention, coupled with the use of public enterprises as a source of employment and political support, hindered the timid attempts at privatization of the 1980s, delaying until 1992 the start of largescale privatizations. These were imposed on Italian politicians and electorate by a host of factors: the financial crisis affecting both the general government and, sometimes irreversibly, state-owned enterprises (SOEs); the increasing aversion of the European Commission towards state aid to ailing firms; and the discredit thrown on public enterprises by their involvement in corruption scandals. An evaluation of its results in manufacturing, performed on the basis of a set of operative and restructuring performance indicators for a representative sample of privatized firms, indicates the lack of statistically significant improvements in efficiency scores. The analysis of the consequences of privatization on corporate governance show that, notwithstanding considerable changes in the structure of ownership and a sizeable contribution to capitalization and liquidity growth, the market for corporate control remains insufficiently transparent. These results appear to relect multiple factors – the preference accorded to quantitative targets in the context of EMU convergence, the weakness of the executive and its dependence on shaky parliamentary majorities in the Italian political system, and finally the resistance of politicians to relinquish control over SOEs. In the broader framework of fiscal decentralization, this last factor seems if anything reinforced by recent normative changes and proposals. JEL Code: H1, G3, L5. Keywords: privatization, regulatory reform, industrial restructuring, Italy. Andrea Goldstein OECD Development Centre 94, rue Chardon Lagache 75775 Paris CEDEX 16 France [email protected] I thank Fabrizio Gilardi, Luca Filippa, Francesco Nonno, Pietro Sebastiani, and other friends and colleagues in Italy for help in gathering data and information; Norberto Pignatti for careful research assistance; and Patrizio Bianchi, Reiner Fehn, Flavio Padrini, Hans-Werner Sinn, Ferdinando Targetti, and John Whalley, as well as participants at the CESifo conference “Privatization experiences in the EU” (10/11 January 2003), for comments and suggestions on earlier drafts. The usual caveats apply: in particular, the opinions expressed and arguments employed are my sole responsibility and do not necessarily reflect those of the OECD, the OECD Development Centre, and their Members. 0. Introduction In 1992, when a large-scale privatization program was launched in the midst of a dramatic political, economic and financial crisis,1 the Italian public enterprise sector was larger than in other major OECD countries. Although state owned enterprises (SOEs) may have made a significant contribution to growth in the 1950s and early 1960s (Barca and Trento 1997, over time they increasingly became the source of production inefficiencies and misallocation of resources. Non-economic goals were imposed upon public managers, effective incentive systems and monitoring devices were lacking, and the response to changes in market and technological developments was slow, due to the lack of competitive pressures in the sheltered markets where most of these enterprises were operating. On the basis of a complex legal framework, capped at least temporaly by the 1994 privatization law, successive governments completed large sell-offs, increasing both stock market capitalization and the number of shareholders and contributing substantially to the reduction of public debt and therefore to the convergence towards the Maastricht criteria. Quantitative results have been nothing short of outstanding: Italy has topped the OECD privatization ranking each year in 1995-99 (from number 9 in 1992) before falling to the second place in 2000. Annual proceeds averaged some US$ 12b during 1992-2000 (OECD 2002, Table 1, p. 46), equivalent to 1.1 per cent of 2000 GDP. Albeit only partial, the 1999 privatization of ENEL, the electricity utility, was the world’s largest initial public offer (IPO) ever at that time. IRI, the state-owned industrial holding that played such an important role not only in the country’s post-war catch- up, but was also a sort of model for policy-makers in many late-industrializing countries, was liquidated; control over ENI, the oil and gas group, was transferred to the private sector; the state exited almost completely from a wide range of manufacturing sectors; and in telecommunications not only was the historical operator sold off, but control over Telecom Italia (TI) has changed hands twice since privatization – an occurrence that is unheard of in the world history of utilities privatization! Finally, there are good reasons to believe that, on account of credibility gains and improvements in the size and efficiency of financial markets, privatization contributed to fiscal consolidation through positive effects on net debt service. This paper reviews the motives, methods, and results of Italian privatizations. The first section describes the role of the public enterprise sector in the Italian economy and the main problems hindering SOEs. The policy, legal and operational framework in which privatizations were implemented are analyzed in Section 2, while the following one provides a short history of state sell-offs. The fourth Section analyzes the performance of privatized companies using a variety of indicators such as profitability, technical efficiency, investment, employment, and productivity. Next come the bright and dark spots of the program: on the one hand, the success in increasing the size, depth, and sophistication of financial markets (Section 5); on the other 1 A decade later, a few data suffice to recall the crisis: the currency lost more than 20 per cent vis-à-vis the Deutsche Mark in May-September 1992; at the end-August 1992 auction the Treasury failed to place lire 3.3bn (€ 1.7m at today’s rate) bonds; the two top anti-Mafia prosecutors were killed in May and July 1992; in the 1992-94 legislature there were 685 requests to the Chamber of Deputies to remove immunities in a house with 630 members (Golden 2002, p. 15); and interest rates on 10-year bonds reached 14 per cent in March 1995. hand, the limits in liberalization and regulatory reform and the remaining uncertainties in the restructuring of the main assets still under public control – including those controlled by local authorities (Sections 6-7). A final section draws some conclusions. 1. The Public Enterprise Sector in the Early 1990s2 In terms of both scale and scope, in the early 1990s the Italian public enterprise sector ranked high among OECD countries. Shares of employment, value added, and gross fixed capital formation of public enterprises generally exceeded those of other founding members of the EU. Partly reflecting a model of state ownership which