Public enterprises around the world have proved to be highly inefficie
nt, primarily because they pursue strategies, such as excess employmen
t, that satisfy the political objectives of politicians who control th
em. Privatisation of public enterprises can raise the cost to politici
ans of influencing them, since subsidies to private firms necessary to
force them to remain inefficient are politically harder to sustain th
an wasted profits of the state firms. In this way, privatisation leads
to efficient restructuring of firms. Moreover, privatisation is more
effective when combined with a tight monetary policy, and when the new
owners of firms are profit maximising investors, rather than their em
ployees or even managers.