Chapter Twelve


The Trend That Can Bring Huge Opportunities

So how did privatization help transform markets such as Russia? It sounds like the driest of bureaucratic abstractions. Just say it—privatization—and those Latinate syllables literally drag on your tongue. But privatization is much more than an abstraction. It’s a revolutionary trend that has been sweeping the world for a number of good reasons, not the least of which is that it is the only way for long-dormant value to be pried out of moribund state industries, which have been black holes for capital instead of generators of it.

This has proven true not only in former Communist and socialist countries, and not only in emerging markets, but in developed markets as well. Great Britain and France made fortunes by privatizing their national phone companies, while achieving better service into the bargain.

Privatization has been the engine driving the lion’s share of the world’s emerging markets. For example, during the first half of 1997, Latin American stock funds produced some of the world’s highest annualized returns. The reason? Stock markets in Brazil, Argentina, Mexico, Venezuela, Colombia, Chile, and Peru were all fired up by a wave of privatizations.

In Brazil, the wholesale shifting from the public to the private sector of several key companies, including Telebras (the national phone company), Eletrobras (the national electrical utility), and Petrobras (the state petroleum company), was big news. ...

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