Privatization Bolivian style: A cautionary tale

This article examines the long term impacts of Bolivia's partial privatization of state-owned enterprises, known as capitalization. Despite attempting to introduce an innovative social component to distribute the benefits of privatization to Bolivian citizens, the lack of an adequate government regulatory structure meant that capitalization was unable to meet most of its objectives. While foreign direct investment rose between 1995 and 2000, these investments created few jobs and the taxes paid by the privatized companies failed to replace the revenue they had previously provided to the government. Capitalization has not reduced corruption but, rather, shifted the locus of rent seeking from the public to the private sector. The perception of the privatization of public resources led to increased social protest and political instability. The cycle of protests culminated with the resignation of the president in October 2003 following protests that left over 70 civilians dead. Rather than create a climate favorable for free markets, capitalization served as a catalyst to mobilize popular protest against neoliberal restructuring and may threaten the neoliberal economic policies in Bolivia in the coming years.