Masteruppsats i offentlig frvaltning [VT/2012]

Frvaltningshgskolan, Gteborgs universitet

Seth Sander 870714-4930

Handledare: Lena Lindgren

Examinator: Patrik Zapata

Efficient Privatization of SOEs The Importance of Operationalization in Policy Evaluation.

Abstract

In the beginning of this thesis a problem regarding efficiency operationalization in previous studies of SOE privatization was introduced. The purpose of the thesis was then established as discerning in what ways various operationalizations of efficiency influenced the obtained results and their validity.

After a brief introduction to the history of privatizations and the progression of ideas and feelings regarding privatization previous empirical studies of privatization were detailed. It was established that these previously conducted empirical studies of privatization were quite similar in terms of their operationalizations of efficiency as well as their end results. From these previous studies an operationalization was derived based on their similarities, which was labeled operational efficiency. I then argued that these previous empirical studies were in fact evaluations based on the definition of evaluation supplied by Vedung. From the basis of evaluation theory I proceeded to question the operationalizations in the detailed evaluations of privatization and, by extension, the validity of their conclusions. The basis of the criticism of the operationalizations in the detailed evaluations of privatization was based primarily on the lack of adherence to goals. In order to identify what the potential consequences of the operationalizations in the detailed privatization evaluations could be two analyses of a recent case, Apoteket AB, were carried out. One of the analyses was carried through the identification and operationalization of the goals of the privatization; this process was labeled goal fulfillment. The other was carried out using the previously defined operational efficiency. The results of these two analyses were then compared. Despite the purposes of the analyses being the same the results provided information regarding completely different aspects of the privatization and the connection between operational efficiency and goal fulfillment was nonexistent. I then argued that the construct validity of the measurement operational efficiency was sorely lacking and that by extension the conclusions regarding the efficiency of privatization as a policy tool are questionable.

Abstract2

Introduction4

What is the purpose of this paper?4

Important Definitions and Distinctions6

What is an SOE?6

Can Apoteket AB be considered an SOE?7

What is a privatization?7

Can the reregulation of the Swedish pharmaceuticals monopoly be considered a privatization?8

Outline of the Thesis9

A Short Historical Background of Privatization11

Privatization and Efficiency, Defining Operational Efficiency and Goal Fulfillment.14

Empirical Studies of Privatization14

An Alternative View of Efficiency18

What, besides goal fulfillment, is needed in order to assess efficiency?27

Methodology Measuring the Effects of Privatization, Dual Approaches28

Sources and Collection of Data31

Data used to measure changes in operational efficiency32

Empirical Results, Goal Fulfillment Pre- and Post-Privatization Data34

Empirical Results Pre- and post-privatization operational efficiency47

Conclusions52

Reflections56

Thoughts regarding my choice of case56

The need for further research56

Summary58

References59

Printed Sources59

Public Sources, Annual Reports and other economic data.60

Web Based Sources62

Introduction

What is the purpose of this paper?

Privatization is a relatively new phenomenon often said to have started with the Thatcher government in Britain.[footnoteRef:1] Since then privatization has become widespread, primarily but not exclusively, in the industrialized world.[footnoteRef:2] Sweden has not been an exception to this, somewhat surprisingly considering a history of nearly unbroken rule by a social democratic political majority. [1: Megginson et.al (1998) p. 56] [2: Dyck (2001)]

Over the years a multitude of empirical studies regarding privatization of state owned enterprises (SOEs) have been conducted. In much of the recent empirical analysis of privatization efficiency has been assessed through various comparisons of SOE performance before and after a privatization.[footnoteRef:3] As I will show later in this thesis the pre- and post-privatization performance of former SOEs is generally measured through a number of key indicators of SOE efficiency. The more comprehensive studies repeat this process for a large number of former SOEs in different countries. An overview of these empirical studies of newly privatized SOEs shows very convincing evidence for the benefits of privatization in terms of increased efficiency and output of SOEs.[footnoteRef:4] [3: For a more detailed description see section 4 starting at page 13 of this thesis. A definition of what does and does not constitute an SOE is provided in the following section.] [4: Jordahl (2008)]

While these results are quite convincing and clear-cut I find that there is an aspect of this empirical research that warrants further investigation and it has to do with the way the term efficiency is operationalized in these previous studies. Closer examination of the term efficiency reveals that the factors taken in to account in the previous studies may be insufficient.[footnoteRef:5] Vedung for example describes efficiency in terms of The programs capacity to produce predicted outcomes that fulfill the goals of the program ().[footnoteRef:6] I do not believe that the operationalizations present in the previous studies account for goal fulfillment as an efficiency criterion and it is this problem that I have studied. [5: For a comprehensive discusison of this see pages 14 19 of this thesis.] [6: Vedung (2009) p. 31]

By analyzing a recent privatization through the use of the conventional operationalization and methodology found in previous studies as well as an alternative, theoretically derived, operationalization and methodology I will attempt to discern in what ways these operationalizations of efficiency can influence the obtained results and their validity. The central question guiding this thesis will therefore be: How does the operationalization of efficiency in the detailed previous empirical studies of privatization affect results?

In order to answer this question I will:

A: Analyze previous empirical studies of privatization in order to identify an established operationalization and methodology.

B: Theoretically derive an alternative operationalization and methodology.

C: Analyze a recent case of privatization using both operationalizations and methodologies separately in order to be able to compare the results to one another and analyze how results are affected by the disparate operationalizations.

Any research that can increase the general understanding of how the effects of privatizations of SOEs are affected by evaluation-methodology would be worthwhile and could potentially improve the quality of political decision-making on a national and supranational level. But perhaps more importantly this thesis has the potential to create awareness of the need for more interdisciplinary scientific analysis of privatizations as opposed to analyzing the economic and sociopolitical effects independently. In fact, large-scale privatizations are still being planned, for example in Sweden[footnoteRef:7] and in the interest of improving these future decisions more research on the subject of privatization is crucial. [7: Odell (2009)]

To this end I am going to examine the most recent privatization in Sweden, namely the state owned pharmaceutical retail monopoly Apoteket AB. Apoteket AB was, until July 2009, the sole provider of retail pharmaceuticals in Sweden. In 2009 the market was reregulated and a large section of Apotekets assets were sold. The privatization process will be described in more detail in a later section. The primary reasons for choosing this particular case were its size and the fact that it was recent. Completion of the thesis requires effects of the privatization to be measured and at the time I reasoned that these effects may be more evident for a large privatization as opposed to a smaller one. The fact that the privatization was quite recent meant that it had yet to be evaluated by any national government agency and I also assumed that data regarding the privatization would be abundant.

Before the examination of this case can begin there are some important definitions and distinctions that need to be made.

Important Definitions and Distinctions

A definition of the term efficiency is obviously very important for this thesis and such a definition will be forthcoming. Unfortunately placing a definition of efficiency in this section interfered with flow of the thesis as a whole and it is therefore part of a later section.

Another important questions is likely whether my chosen case, Apoteket AB, is even an example of an SOE privatization. This question has at least two parts:

1. Can Apoteket AB prior to the reregulation of the retail pharmaceuticals market be considered an SOE?

2. Was the reregulation actually a case of privatization?

Each of these questions in turn need to be answered in at least two parts:

1a. What is an SOE?

1b. Can Apoteket AB be considered an SOE?

2a. What is a privatization?

2b. Does the