In theory, privatization helps establish a free market and foster competition, which capitalists argue will give the public greater choice over products at a competitive price.
In the last two decades, economic reform has been the most important global issue. An increasing number of countries are going through the process in the form of privatization: transformation from planned to market economies, deregulation to stimulate competition, opening up to the world economy, and strengthening of property rights.
Experience shows that economic reform will benefit a country in the long term only if social and macroeconomic stability are preserved in the reform process. This is because reform, especially transition from a planned economy to a market one, is a process of change in people’s ideology, one in which relative interests change among groups, and opposing interests become more pronounced.
Economic reform needs social participation, and the process of reform is one of education. Without support from the majority of the population no profound reform is likely to succeed.
“É Privatization, if intended solely as a source of income for the state apparatus, is doomed to fail. But that is not the government’s intention. That has not been the underlying objective behind privatization, though it (privatization) automatically produces cash for the government. We have already decided how to spend the money; through privatization, the government aims to boost efficiency, reform economic structures and optimize its share in the economyÉ“
The remarks were made by managing director of the Management and Planning Organization’s office for economic agencies and privatization affairs, Hassan Khoshpour, in an interview with Iranian Student News Agency, wherein he discussed the plan’s successes and failures and the future prospects.

Privatization is not just the selling of government shares to the private sector, but rather a change of economic responsibility that can lead to greater social growth.

Fair Percentage
“From March 2004-05, privatization fetched the government nearly 7,000 billion rials, 60 percent of 12,000 billion rials the government was expected to earn from share handovers according to the annual budget law, Khoshpour said.
None of the companies whose shares were put up for sale made losses. Before being privatized, their registered profits were approved by a council in charge of facilitating transfers of shares as well as the cabinet.
“There were prospects for ceding the shares of banks and insurance firms as well but no measures were taken to this effect for certain reasons.
The figure would have been higher than 60 percent had legal grounds been prepared for more handovers, he noted.
“The government could have performed much better but has done a good job considering the facilities at hand especially taking into account the numerous factors involved in the process, including share supply and demand at the time as well as the willingness of public managers to let go.“
The MPO official further said the names of companies selected to undergo privatization are initially set forth by the managers, e.g. the first step is taken by the company itself.
“Several mother companies have complained about what they say is laxity on the part of the Privatization Organization for failing to put their shares on auction. The organization is not to be blamed for this because as mentioned so many factors are engaged and the absence of a single one could damage the whole process.“
Last year, the Privatization Organization underwent key changes at the managerial level that impinged on the process. This year, the organization plans to galvanize the process by putting high volume of shares up for sale.
Privatization will continue as planned, though strategies involved will differ a great deal to make it bear more successful results, Khoshpour said.

Economy is already burdened under a bloated administration plagued with depletion of financial and manpower resources.

Strategies
The strategies stated in the fourth five-year economic development plan (March 2005-2010) are hoped to be more inciting to stock owners since almost all the revenue will go back to the company with only 30 percent to be deposited with the State Treasury, he said.
“It would not be possible to give exact figures on share transfers for this year and the subsequent years. All we can say is that should things go properly the plan would progress as planned by further enhancing the role of the private sector in the macro economy,“ he observed.
The fourth plan does offer practical mechanisms for trimming down government’s share in the economy, which if implemented effectively would free the economy from the yoke of the state.
Working out operational strategies and capacity-building programs in the private sector will increase demand for shares.
The fourth plan focuses on the ’complete transfer’ in the sense that in addition to ceding shares to private ownership, it also encourages shifts at managerial and policy-making levels so as to attract higher private investments for major projects.
If things go according to the plan, privatization will definitely gather pace after a while, the MPO official maintained.

Mandate
Based on the general definition, privatization proper would mean giving the private sector the mandate to perform in the economy. This would make it independent from the state sector in management and organization.
“If that is to be the base of our evaluations, then privatization in Iran has not been happening properly and these companies have been privatized solely based on the legal definition; carrying on under the banner of ’privatized ownership’ but working along the same management and policy framework“, he said.
Limited financial resources and lack of practical experience could be cited among reasons for the uncertainty to give the private sector full control of affairs, further highlighting the need to boost private sector capacities.
A major fault with what has been happening so far is that under the pretext of privatization, shares of many companies have been transferred to the State Retirement Organization and retirement funds in return for state liabilities to these entities. This goes against the definition of ’privatization in principle’. The only advantage it has is ridding them of the administrative bureaucracy and red-tape.
The government needs to reassess its role in the macro economy and fulfill privatization by detaching itself from executive affairs and instead act as the supervisor.
Economy is already burdened under a bloated administration plagued with depletion of financial and manpower resources.
“Privatization has gone through many ups and downs ever since its initiation, at times facing stiff resistance by public managers who have held the authority for protracted periods and are not willing to let go.
Giving a time-table would also be self-deceiving for the government. We are doing our best to improve and make the plan progress as scheduled“, he emphasized.

Beyond Economics
The impact of privatization in any society can lead to change beyond economics. Privatization is not just the selling of government shares to the private sector, but rather a change of economic responsibility that can lead to greater social growth.
Privatization, in its broadest sense, is the transfer of assets or services from the tax-supported and politicized public sector to the entrepreneurial initiative and competitive markets of the private sector. All governments have some sort of inefficient or expendable operation that is guarded for political or special interest. Regardless of outcome or performance, in many cases, the results of such operations are usually mediocre at great expense.
“Infuse competition, accountability, and the fear of losing a valued customer into the task and mediocrity becomes the exception, and pursuit of excellence becomes the rule“, Khoshpour pointed out.
When it’s done properly and with care, privatization harnesses the powerful market forces of competition, accountability and incentive. State and local governments have routinely experienced cost savings through privatization, and often with improvements in the way an asset is managed or a service is delivered.
Like any venture, good management and strong policies lead to success, and privatization plans are no different. Privatization plans can fail if the conditions and policies surrounding the objectives, better service at lower cost to citizen-consumers, are not clearly defined and if participation in competition is weak, he added.
Entrepreneurship has driven economic growth in many advanced countries for decades. Entrepreneurship is inextricably linked to the success of privatization. Factors that contribute to entrepreneurship are a set of social and cultural values, along with appropriate social, economic and political institutions, that legitimatize and encourage the pursuit of business opportunities.

The new Iranian year has commenced with the economic prospects not looking so bright.
Although Iran’s economy has relied on oil revenues for decades, no analyst could predict that during the first half of 2005 the price of every barrel of oil would exceed $50.
Meanwhile, the main issue before oil producing countries when prices suddenly surge is how to inject the excess revenues into the national economy without creating tension. Excess oil revenues can serve as the best means for compensating budgetary deficits. Such income can help oil-rich developing countries experience transition from growth to development.
However, it is regrettable that excess oil revenues are not used efficiently in the country. As a result, the government continues to rely on oil revenues as its main source of income without contemplating reducing its huge size or its expenditures. Experience has it that governments that overspend or are oversized are less accountable and transparent to the public.
In the previous presidential races, the motto of all aspirants was downsizing the government. But, this has never been implemented and the government still dominates some 80 percent of the national economy. Moreover, excessive reliance on oil revenues has prevented the establishment of democratic institutions in the country. Currently, due to the prevailing circumstances political parties of the country pursue a policy of “blowing with the wind“ simply because the party-system is not institutionalized. Political factions merely become active on the threshold of general elections while being quite passive at other times.
At any rate, a democracy of sorts is prevailing in the country after all. It must be recalled that the constitution movement of 1906 came to the fore when the country had not yet discovered oil wealth.
Nevertheless, it cannot be denied that Iranians have perpetually been influenced by global developments. Let us recall that the constitution movement took place one year after the Communist Revolution in the former Soviet Union.
Today the conditions in the country are different from 1979. Right before the victory of the Islamic Revolution some 30 percent of the population lived in urban areas, while today the figure stands at 70 percent. Not to mention that presently some 70 percent of the population is below the age of 30. Experience has it that the youth always crave for improvement and betterment. Let us hope that in the ongoing process of reforms, fundamental changes will also take place in the way we spend the excess oil revenues.