Editing Privatization (section)

== Forms of privatization ==
{{more citations needed section|date=June 2016}}
There are several main methods{{citation needed|date=April 2010}} of privatization:
# [[Share issue privatization]]: shares sale on the [[stock market]].
# [[Asset sale privatization]]: asset divestiture to a strategic investor, usually by [[auction]] or through the [[Treuhand]] model.
# [[Voucher privatization]]: distribution of vouchers, which represent part ownership of a corporation, to all citizens, usually for free or at a very low price.
# [[Privatization from below]]: start of new private businesses in formerly socialist countries.
# [[Management buyout]]: purchase of public shares by management of the company, sometimes by borrowing from external lenders
# [[Employee stock ownership plan|Employee buyout]]: distribution of shares for free or at a very low price to workers or management of the organization.

The choice of sale method is influenced by the [[capital market]] and the political and firm-specific factors. Privatization through the stock market is more likely to be the method used when there is an established capital market capable of absorbing the shares. A market with high liquidity can facilitate the privatization. If the capital markets are insufficiently developed, however, it would be difficult to find enough buyers. The shares may have to be underpriced, and the sales may not raise as much capital as would be justified by the fair value of the company being privatized. Many governments, therefore, elect for listings in more sophisticated markets, for example, [[Euronext]], and the [[London Stock Exchange|London]], [[New York Stock Exchange|New York]] and [[Hong Kong Stock Exchange|Hong Kong]] stock exchanges.

Governments in [[developing country|developing countries]] and [[Transition economy|transition countries]] more often resort to direct asset sales to a few investors, partly because those countries do not yet have a stock market with high capital.

Voucher privatization occurred mainly in the [[transition economy|transition economies]] in Central and Eastern Europe, such as [[Privatization in Russia|Russia]], [[Poland]], the [[Czech Republic]], and [[Slovakia]]. Additionally, privatization from below had made important contribution to economic growth in transition economies.{{Citation needed|date=December 2023}}

In one study assimilating some of the literature on "privatization" that occurred in Russian and Czech Republic transition economies, the authors identified three methods of privatization: "privatization by sale", "mass privatization", and "mixed privatization". Their calculations showed that "mass privatization" was the most effective method.<ref name="methods" />

However, in economies "characterized by shortages" and maintained by the state bureaucracy, wealth was accumulated and concentrated by "gray/black market" operators. Privatizing industries by sale to these individuals did not mean a transition to "effective private sector owners [of former] state assets".  Rather than mainly participating in a market economy, these individuals could prefer elevating their personal status or prefer accumulating political power. Instead, outside foreign investment led to the efficient conduct of former state assets in the private sector and market economy.<ref name="methods">{{cite journal |last1=John Bennett, Saul Estrin, and Giovanni Urga |title=Methods of privatization and economic growth in transition economies |journal=Economics of Transition |date=2007 |volume=15 |issue=4 |pages=661–683 |doi=10.1111/j.1468-0351.2007.00300.x |url=https://www.econstor.eu/bitstream/10419/140745/1/514551011.pdf |access-date=18 June 2017|hdl=10419/140745 |s2cid=447407 }}</ref>

Through privatization by direct asset sale or the stock market, bidders compete to offer higher prices, generating more revenue for the state. Voucher privatization, on the other hand, could represent a genuine transfer of assets to the general population, creating a sense of participation and inclusion. A market could be created if the government permits transfer of vouchers among voucher holders.

=== Secured borrowing ===
Some privatization transactions can be interpreted as a form of a [[secured loan]]<ref name="roin">{{Cite journal |last=Roin |first=Julie |title=Privatization and the Sale of Tax Revenues |ssrn=1880033 |date=2011-07-06 }}</ref><ref>[https://www.chicagotribune.com/2011/07/22/u-of-c-professor-argues-privatization-of-public-assets-just-like-borrowing-money/ U. of C. professor argues privatization of public assets just like borrowing money], July 22, 2011, ''Chicago Tribune,'' Ameet Sachdev's Chicago Law, Ameet Sachdev</ref> and are criticized as a "particularly noxious form of governmental debt".<ref name="roin" /> In this interpretation, the upfront payment from the privatization sale corresponds to the [[debt|principal amount]] of the loan, while the proceeds from the underlying asset correspond to secured interest payments—the transaction can be considered substantively the same as a secured loan, though it is structured as a sale.<ref name="roin" /> This interpretation is particularly argued to apply to recent municipal transactions in the United States, particularly for fixed term, such as the 2008 sale of the proceeds from [[Chicago Parking Meters|Chicago parking meters]] for 75 years. It is argued that this is motivated by "politicians' desires to borrow money surreptitiously",<ref name="roin" /> due to legal restrictions on and political resistance to alternative sources of revenue, viz, raising taxes or issuing debt.