Firstly, a serious problem facing our companies right now is the temptation for populist or weak governments, under pressure from social discontent, to give way in the process of structural reforms such as privatization. They have a huge ¿social debt¿ and do not possess the resources to cope with the required investments.
One of the main reasons for privatizing public services (the sphere in which large Spanish companies now find themselves) was to improve the efficiency of management and of the investment required to maintain certain standards. However, there was another motive: to take a large step forward in social investment using the money earned from the sale. The plan was to take a large step by reducing the poverty rate or creating the conditions necessary for this to take place. For example, education in the first instance, and roads in the second. It sounded logical. To sell assets in order to invest and wait for better conditions in the future. In reality, the money earned has been used to finance public deficits created by other reforms, e.g. of the education system, pensions and social security, etc. The end result is that there has been no great step forward in social investment. A historic opportunity to boost the development of a large part of the region has been lost. In this context, it is quite understandable that social pressure to curb privatization is arising everywhere.
Bolivia, a pioneer country in the region with regards the control of hyperinflation, the creation of major structural reforms of the economy and in the elimination of coca leaf plantations, etc. was also a pioneer in realizing ¿ in the mid 1990s ¿ that if it received the money from the privatization of the public companies all at once, it would not be able to manage it and take the expected step forward. Informally, politicians at that time said that, with the high levels of corruption in the Administration, this money ran the risk of ¿evaporating¿. They decided to sell 51% to a strategic partner and give each citizen over the age of 21 a share of the remaining 49%. This process was called capitalization and replaced the traditional privatization processes, in which shares or existing companies were sold. What was the difference? The fact that alliances and collaboration with large companies were sought out, in order to avoid the loss of a historic opportunity and of money through corruption.
In Bolivia today, almost ten years later, the results regarding company efficiency have been very positive. However, the strategic alliance with large companies has not solved the problem of debt with regards social investment. It is true that the money did not ¿evaporate¿ from the State¿s coffers, but it has not been invested into reducing poverty rates either.
Returning to the beginning of this article, there may be a third way. A way that still allows all companies to take charge of management and improve conditions in the workplace, as they have done up till now. A way in which the money from the sale of public companies is distributed gradually to the governments, so that they can embark upon systematic, long-term investment programmes: little by little each year, but in a sustainable manner.
This way could help solve at least two problems affecting countries in this region. The first advantage would be that the institutions would be strengthened, because of a long-term vision in investment management. At the same time, it would be necessary to develop the necessary management skills. Thus, the ability to help and control the multilateral organizations would be much more defined.
The second advantage is that the capacity for corruption to ¿evaporate¿ these resources would be greatly reduced and it would be possible to demand long-term accountability. The likelihood of scams involving insider trading would also be greatly reduced: it is far harder for corrupt individuals to generate a large amount of small scams in a sustainable manner in the same place than one quick, large scam.
To sum up then, the idea would be to establish a new three-part agreement: between the government, companies and multilateral organizations. The governments would receive the money gradually over a period of time and would be able to move forward. The companies would be better able to defend their interests. The multilateral organizations could support the strengthening of the institutions effectively by creating mechanisms, which limit the possibilities of corruption occurring.
There are still companies and countries with public companies that will probably choose privatization. The Spanish director who suggested this idea commented that it would be dangerous, when the time comes once again to go into Latin American countries, or other regions of the world, for the same mechanism to be followed. It is time to learn.
By the way, I forgot to mention that I am writing as someone from Spain and Catalonia, who is concerned about the situation our companies are facing in Latin America. However, I am also writing as a Bolivian, who is observing from a distance how we are wasting much of our historic opportunity to take a great step forward and, what is worse, we are wasting much of the democracy that we have struggled so hard to achieve.
Pedro Parada is a professor in the Department of Business Policy at ESADE.