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Selling Public Enterprises: A Cost-Benefit Methodology.

As stated by the authors, this book is about public enterprise "divestiture"--sale to the private sector; however, practitioners who are pondering privatization and looking for a "how to" manual need to look elsewhere, as an analytic, not descriptive, approach is used.

The book builds an analytic framework around three "fundamental values of the enterprise:" social value under continued government operation, social value under private operation and private value under private operation. Formulas and equations are used to examine and explore the relationships among these values and the prices: the minimum acceptable price to the government, the maximum acceptable price to the private buyer and the actual price at which the sale is executed.

The "technocrat" view taken by the authors causes the discussion to be quite oriented to the quantitative throughout the book. While the framework is carefully laid down and the analysis remarkably detailed and thorough, this book is not for casual or bedtime reading. Indeed, the rigorous structure and mathematical manipulations may interest academics more than practitioners--the presumed target audience. For those who enjoy challenging technical materials, however, this book does provide some insight into the privatization process, especially when the political atmosphere and society's ideological preference are relatively neutral regarding the choice of buyer.

Those who would like to skim the book without getting too bogged down by the mathematical details should start with Chapter 1, which gives a good introduction of the subject matter and an overview of the book, and Chapter 2, which maps out basic concepts. The reader may then want to go ahead with Chapter 11 for summary and extensions. Any topic of further interest could be selected for in-depth study from Chapters 3 through 10, where welfare weights, competitive equilibrium, allocative and cost efficiencies, shadow pricing and a cost-benefit framework are discussed. Readers may also want to pay Chapter 9 a special visit--issues and consequences of divestiture are examined, at a more aggregated level, between less developed countries and more developed countries.

I think the framework presented in the manual, though theoretically plausible, will have a very limited acceptance rate among governmental officials, at least in the foreseeable future. There is never perfect information available when a decision needs to be made; and, given the short-term fiscal focus often practiced by many governments, the ex-post analysis--where the use of the proposed model may be more practical--rarely matters.

A couplet mentioned early in the book left a long-lasting impression on this reviewer. It portrays perfectly the dilemma of divestiture:

If a public enterprise is making money, the government won't sell it; if it's losing money, the private sector won't buy it.

Selling Public Enterprises: A Cost-Benefit Methodology is available for $29.95 from The MIT Press, 55 Hayward Street, Cambridge, MA 02142 (617/628-8569).

Reviewed by GFOA member Stanley Y. Chang, Ph.D., CPA, CMA, CIA, assistant professor, Arizona State University West.
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Author:Chang, Stnaley Y.
Publication:Government Finance Review
Article Type:Book Review
Date:Dec 1, 1992
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