BOOK REVIEW - Privatization: Successes and Failures:IN THE forward to this book, Nobel prize-winning economist Joseph Stiglitz says that "the theoretical case for privatisation is, at best, weak or non-existent".

In the areas where there may be a stronger case for privatisation - where market failures are more limited - these are the very sectors "where abuses can be controlled, incentives designed and benchmarks set".

This book is an overview of the successful and other privatisations in western Europe, south Asia and Africa and the costly mess of privatisation in central and eastern Europe. It argues that "privatisation is much more complex than the simple ideologues including the 'Washington Consensus' thought a decade ago. The theoretical presumption is at best much weaker than they thought and the theoretical and practical problems are greater."

Privatisation, one of the most radical and controversial economic policies of the last quarter of a century, is challenged by some of the world's foremost experts on the subject. As part of a group of 200 economists from around the world, under the Initiative for Policy Dialogue at Columbia University, they seek to "expose the ideological biases, ungrounded in theory or empirical practice".

Nationalisation and privatisation come and go. During and after the second World War there was massive nationalisation and it was not the "Commanding Heights" of economies, but often sunset industries in decline - steel, coal mining, shipbuilding and railways - that were nationalised, in a bid to preserve jobs with large and growing public subsidies. But growing unemployment in the 1970s and 1980s imposed budget constraints, which meant governments could no longer subsidise these state firms. The modern epoch of privatisation began.

Perhaps the most important lesson of this book is that good legal and institutional frameworks must be in place before privatisation takes place - the rule of law, good corporate governance, working stock exchanges and lack of corruption. The rapid drive to privatisation in eastern Europe meant that "virtually no country had succeeded in rapidly developing a legal system and institutions that would be conducive to the preservation of private property and the function of the market economy", although "some countries did better than others". The authors of this chapter found that "privatisation in the CEE and CIS - one of the largest transfers of wealth in history - did not have the strongly positive effect on economic performance that was expected".

The concluding chapter points out that "it is often overlooked that likely gains actually achieved are generally due to improvements in incentives - improvements that could mostly be made to publicly owned organisations through less obtrusive policies than a complete change of ownership".

I made this point in a book on Irish privatisation back in 1990 and fortunately it is visible in many semi-State companies today. Most are performing well, as were those privatised, prior to sell-off. With better regulation, the few poor performers could perform even better, particularly around services and pricing.

In Africa, the principle motivation for privatisation has been to "placate international financial institutions such as the IMF [ International Monetary Fund] and World Bank". John Nellis found that privatised firms did perform better "under private hands than they ever did under public ownership". He recommends more privatisation in Africa, but warns that institutional-building needs to be well established to make it work efficiently. He recommends outsourcing institutional provision, by contracting regulatory conception and monitoring, from skilled outsiders.

The authors of the chapter on South America find that, while a number of "ugly facts" surround South American privatisation, they conclude that it "delivered a lot more good than some critics say".

Privatisation of competitive industries went well but that of non-competitive activities did not. These are a major challenge, with weakness of competition and regulatory institutions being serious problems.

Vast sums of money have been accumulated by individuals and firms through the privatisation of public assets, especially in central and eastern Europe but also in many other countries. Boosting competition and efficiency, reducing prices and improving services are more difficult to achieve than many think, and all contributors emphasise the importance of regulatory and competitive institutions in delivering change. But it is clear that privatising monopolies generally does not work and it is better to regulate them in state ownership.

When former auditor general John Purcell warned recently that Ireland's public-private partnership programme under the National Development Plan may not give real value for money, citizens may sit up and listen, but officials have a duty to protect public interest.

This book should be compulsory reading for officials in the Department of Finance, especially those who did not try to persuade Mary O'Rourke and Charlie McCreevy not to privatise all of the fixed-line monopoly, Eircom, in 1999. Eircom was highly profitable, debt-free, and heavily investing in broadband and telecoms. The floated company was quickly taken over by a debt-laden private equity firm led by Anthony O'Reilly and George Soros, which proceeded to repay its loans by emasculating investment and paying out huge dividends to themselves from the now lossmaking private monopoly. Nine years later, we are all still paying for this ideological policy mistake, with poor broadband.

The pendulum is again turning back and State-owned, sovereign wealth funds are snapping up key firms all over the world. For example, UK energy firms are owned by French and Russian state firms. There is renationalisation "by the back door".

If privatisation is to be successful in delivering better services, a good institutional and regulatory framework has to be established. On the other hand, there is a "rerealisation" of the strategic role state firms can and do play in economies. Further, as this book, and we in Ireland, can demonstrate, state-owned firms can be made to work efficiently. This is particularly true in a small open economy where they have more strategic value, especially when times get tough.

Paul Sweeney's Selling Out: Privatisation in Ireland was published in 2004 by New Island, which also published his recent Ireland's Economic Success: Reasons and Lessons

Privatization: Successes and Failures
Edited by Gerard Roland.
Columbia University Press. £17.50 (€22)