Beatriz Cuadrado-Ballesteros & Noemí Peña-Miguel

New study finds that privatisation reforms tend to be implemented by governments with different ideologies when elections are not immediate; however, results support a greater orientation of right-wing governments towards privatisation reforms in election periods. After the elections, right-wing governments continue adopting privatisation reforms, but governments from ideological traditions tend to oppose such reforms.

Despite the question of privatisation was initially discussed during the 1920s in France, Switzerland, Germany, Belgium and Italy, aiming to remove the public monopolies on tobacco and railways, the most relevant privatisation waves were spread throughout the world since 1979, after the privatisations implemented by the Thatcher’s government in the United Kingdom (UK).  During the 1980s and 1990s, other countries in Europe implemented privatization programmes. Traditionally, they have been explained as a way of emulating the UK’s privatisation experience, but several scholars have advocated other, institutional, political, financial and economic reasons. Our Political Studies article focuses on the political and electoral factors, by taking the political business cycle (PBC) approach.

Political ideology has been one of the most studied factors in the privatisation literature. In general, previous studies have evidenced a greater orientation of right-wing governments toward privatisation (partisan model of PBC). That model considers that governments are ideologically driven, as each party represents the interests of different segments of the electorate (“right” vs. “left”). In general, the right-wing parties would foster market solutions and privatisation reforms should therefore be at the centre of their agendas, as they consider that the private sector is superior in terms of efficiency and productivity to public sector.

However, the behaviour of politicians is more complex, and it may be influenced by their desire to win the next election. As with several other policies, politicians will be in a hurry to implement the reforms if they expect to obtain some benefit from them (e.g. increasing the probability of winning the election); or they may delay the reforms if negative consequences are expected (opportunistic model of PBC). Privatisation could be considered a controversial reform. Despite the positive effects in terms of efficiency and economic growth, the general public has a more pessimistic view, due to negative consequences in terms of working conditions, unemployment, inequality and corruption. Politicians are aware of that controversial, so they may decide to implement privatisation reforms after the elections are held, to avoid losing votes in the polls.

Accordingly, we expect the existence of both partisan and opportunistic reasons to explain privatisation developed in Europe. That is, privatisation reforms may be explained by ideological motivations, by the proximity of the next election, or by both reasons together. To empirically test that idea, we use a sample composed of 22 European countries during the period 1995–2013.

Our findings suggest that right-wing governments tend to privatise SOEs to a greater extent than governments with other ideologies (partisan model), and that this becomes especially relevant when elections are coming (opportunistic model). This study contributes to the PBC literature, by showing a fluctuation in privatisation policies, which is induced by the cyclicality of elections and by partisan features. Previous studies on the PBC are focused on expenditure, revenue or debt; this paper contributes by showing partisan and electoral cycles in privatisations. In addition, it adds evidence to the political economy of privatisation literature by corroborating the relevance of the political framework in explaining privatisation reforms. Our empirical results suggest that partisan and electoral issues matter, and they should be taken into account (additionally to other factors) in explaining privatisations in Europe.Despite these contributions, this study is not free of limitations. One of them is that our data are at the country−year level and sectorial issues are not easy to control. In addition, the period of analysis ends in 2013, due to the availability of data; so this study does not take into account the most recent privatisations in Europe, promoted by the Troika, as a way to recover the financial situation in some countries

It would also be interesting to consider the replication of this study covering other regions, such as Latin America or Asia, which allows the controlling of contextual factors, such as the governance quality, the level of democracy, the economic development, etc. Finally, future research could consider the partisan preferences and the new challenges in the globalised world, such as the consequences of Brexit.

Author bios:

Beatriz Cuadrado-Ballesteros is Associate Professor of Accounting at the University of Salamanca, where she earned her PhD in Business. Her research interests are public management, and public sector reforms. In particular she focuses on the role of efficiency and informative transparency about local public services, accountability, financial distress and citizens’ quality of life. Her work has been published in such journals as the Public Management Review, International Public Management Journal, Online Information Review, or Government Information Quarterly. She has attended to several international conferences in accounting and public sector, as well as she was visiting researcher in Edinburgh University Business School (UK) and University of Salerno (Italy).

Noemí Peña-Miguel is Assistant Professor of Accounting at the University of the Basque Country where she earned her PhD in Business. She has worked as a Financial Administration Manager in companies in the service sector specializing in promoting social welfare. She was the professor responsible for Mathematics and Introduction to Statistics at the European Business School and the professor responsible for Corporate Finance at the European Business School in the MBA in Business Administration. She conducts her teaching and research activity on welfare, social security, and finance and accounting. She has published papers and books on welfare in journals such as Social Indicators Research, Basic Income Studies or Poverty and Public Policy.