The Dead Hand of Socialism: State Ownership in the Arab World

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Extensive government ownership in the economy is a source of inefficiency and a barrier to economic development. Although precise measures of government ownership across the Middle East and North Africa (MENA) are hard to come by, the governments of Algeria, Egypt, Libya, Syria, and Yemen all operate sizeable segments of their economies—in some cases accounting for more than two-thirds of the GDP.

International experience suggests that private ownership tends to outperform public ownership. Yet MENA countries have made only modest progress toward reducing the share of government ownership in their economies and are seen as unlikely candidates for wholesale privatization in the near future.

MENA countries need to implement privatization in order to sustain their transitions toward more representative political systems and inclusive economic institutions. Three main lessons emerge from the experience of countries that have undergone large privatization programs in the past. First, the form of privatization matters for its economic outcomes and for popular acceptance of the reform. Transparent privatization, using open and competitive bidding, produces significantly better results than privatization by insiders, without public scrutiny. Second, private ownership and governance of the financial sector is crucial to the success of restructuring. Third, privatization needs to be a part of a broader reform package that would liberalize and open MENA economies to competition.

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Dalibor Rohac is a policy analyst at the Center for Global Liberty and Prosperity at the Cato Institute.

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