Political Science

The study being analyzed here was taken out in June of 2003 and covers samples up till the year 2000. It is basically a study of the privatization program that has been initiated in Brazil as a part of the broader privatization process that has been followed by countries in Latin America and elsewhere in the world. The author put considerable emphasis on the fact that the program in Brazil has been on a massive scale and the extent to which it has gone stands unique as compared to most others. This is supplemented by instances of allusion to Brazils case in the broader literature which has been deemed as insufficient given the progress Brazil has been able to make and the money that has been raised by the government. This shortcoming has in part been associated with the majority of literature on the country being produced in Portuguese which is why this study aims to rectify that gap by producing results of the costs and benefits of the privatization program in English. Analyzing in detail the veracity of the conclusions drawn by the study and the adequacy of the methodology applied requires going into greater depth.

The study begins with an exposition of the history of the Privatization program in the country which came on the back of sluggish economy in the early nineties. This was built on inefficient state owned enterprises and eventually privatization reform and programs were able to take hold under the impression that the private sector would foster efficiency and better quality. There is little doubting that some successes have been achieved as highlighted in the study such as the massive amounts of capital raised by the government by privatizing enterprises and the program is large in comparison to others in the Americas. However, this optimism belies the fact that the proceedings in the power and electricity sector were flawed to a great extent. Privatization in that sector followed models inappropriate for the case of Brazil and the end result came out to be that the private owners set about extracting more profits rather than reduced costs via efficiency which saw electricity bills in Brazil climb higher than the United States, even though hydroelectric power generation was cheaper in the country. This is still compounded by the fact that according to the study itself, electricity sector accounting for almost 31 of the privatization undergone.

The sample taken for the study seems to be adequate to some extent as it includes both large and small companies. The accounting information also maintains integrity as Brazilian standards have not altered too much in the years the study aims to incorporate in its findings. There has also been an effort to incorporate as many sector enterprises as possible so as to get the relevant representation of firms from the electricity, power generation and manufacturing sectors. However one notable exception is firms from the financial sector. This is on the back of lack of disclosure by some of the banks as well as difficulty in finding publicly available information with regards to them. However this puts a dent in the study to a certain extent since although the representation of financial firms in the privatization program is quite small, completely leaving out the sector may bring an element of bias in the conclusions that are ultimately derived. Another major drawback is that the big enterprises such as Petrobras and Banco do Brasil have traditionally raised strong sentiments among the population and they would have encountered stiff opposition in their proceedings. Thus their performance would have been relevant to the progress of the privatization program and the support in the populace as well with regards to it.

The variables used in the data set for analyzing performance and efficiency changes involve accounting ratios such as ROA and ROE as well as those pertaining to operations and profitability. One notable absentee category are the liquidity ratios. These are relevant because they are a reflection of the cash handling ability of these new privately owned enterprises. Since an analysis of the cash flow statements of all firms in the sample would have been cumbersome, the liquidity ratios would have provided a glimpse of the cash position of the firms in question to ascertain that the sales and other figures are not manipulated by accounting but the cash position of the companies is also healthy.

The empirical analysis was conducted via mean and median tests at one end. This method can be seen to be pertinent for the case as it allows data from multiple years for multiple measures to be easily analyzed and even presented. It also has the advantage of allowing the most accurate average set of numbers to be extracted. However the mean and median tests and other measures of central tendency do tend to completely overlook the impact of outliers which could be significantly relevant in some cases. For example, spectacular drops in efficiency and returns may be experienced in some cases which may be area specific, housing a more volatile and emotional section of the population which would be overlooked by the study. Panel data analysis is the second methodology applied in the study which is a better mode of analyzing the impact of privatization in Brazil. It will allow the dynamics of change to be analyzed within short time series which will result in provide better results. The particular model employed is the dynamic model which does raise concerns of autocorrelation and the necessity to deal with it. Apart from that drawback, the study results also have to analyze for problems from correlation of the lagged endogenous as well as the disturbance term. These have the ability to provide falsified results if not dealt with properly.

Apart from the empirical results, the study supplements the outcomes by discussing the supplementary benefits and costs of the privatization program in Brazil. Use is made of records with RAIS to show that employment has broadly fallen after privatization although some sectors have shown rise as well. The conclusions drawn from this show that there has been reduced employment from the programs but this ignores the vast informal sector present in the country which is employed as domestic help and other jobs which would have been directly hit by the loss in jobs to workers which would have funneled through to the informal sector that is predominantly present in the urban centers. There are also effects on the spread of capital ownership which has becomes more concentrated as a result which is also a source of continued support for the privatization program from the elite while arousing mixed feelings from the rest of the population. Many other conclusions of a qualitative nature are drawn by the study which would have been better served had a qualitative research of a comprehensive nature had been conducted to augment the results of the empirical study. Thus while these supplementary conclusions are worthwhile, they are liable to miss many points as well as possibly not report properly the true impact of privatization in certain sectors of the economy.

Overall the study claims to provide a good initial look at the programs in effect in Brazil and bridge the gap in literature on the subject in English. This is true to a great extent. It provides a good initial look at privatization in Brazil and the methodology applied as well as the independence of the team makes the results appear acceptable. However there is room for follow up studies and greater depth to be applied to cover the boarder range of participants in the Brazilian economy and the impact of privatization on them. The sectors missed out on also deserve greater attention and the performance of the crucial ones can be compared in relative terms with others in Latin American countries as well. However it can be said that the study itself is a useful value addition to the subject of privatization in Brazil.