Has privatisation of infrastructure services such as water, telephone, electricity and gas reduced inequality and poverty? More than a decade after the last wave of privatisations swept through Latin America, the authors in this volume evaluate the impact of privatisation on equity and conclude that privatisation has increased inequality slightly, but it has helped reduce poverty. Studies of privatisation have focused on the goals and implementation of reforms, the relationship between privatisation and liberalisation, impact on fiscal balance and employment, the entry of foreign multinational enterprises, opposition to privatisation, etc. Reality Check encourages researchers interested in poverty issues to shift their analysis away from privatisation. The authors suggest that we can learn more about poverty by looking at the progressive/regressive structure of tax systems, fiscal policies and the relationship between macroeconomic stability and poverty.

The book looks at ten case studies in Latin America (Argentina, Bolivia, Brazil, Mexico, Nicaragua and Peru), Eastern Europe (Russia and Ukraine) and Asia (China and Sri Lanka). It considers three industries in Argentina, Bolivia, Mexico and Nicaragua, namely, electricity, telephone and water. There is also a chapter on electricity, telephone and gas in Brazil and one on telephone in Peru. The rest of the chapters do not look at specific industries.

To measure inequality, the authors calculate the Gini coefficient and Atkinson inequality indices before privatisation. Then they take each household's per capita expenditures before privatisation, add the estimated per capita change in consumer welfare, and recalculate the inequality measures. For poverty they use household income or expenditures. They regard changes in budget shares of services as an approximation of the relative welfare effect of a change in their price. To measure the price elasticity of each service, the authors use the concept of virtual price for consumers who did not have access to the service before privatisation. This is the lowest price at which a household would have chosen to consume zero units of the service before privatisation if it had had access to the service in question. The welfare change is calculated by looking at the change in price from the virtual price to the price after privatisation.

The main conclusion in the book is that privatisation has increased inequality slightly (change in the Gini coefficient is 0.02), but has reduced poverty. The effect of privatisation on prices varied. In Argentina it fell in all of the industries by an average of 23%. Telephone and water services fell by ten percent in Bolivia (except in Cochabamba), but electricity increased by 26 percent. In Mexico, telephone increased by 48 percent and water by nine percent and in Nicaragua electricity increased by 24 percent. The authors attribute these hikes to two factors: price subsidies before privatisation and lack of competition after. Prices have a strong impact on inequality, especially because they affect the share of expenditures by the poor families. However, even where prices rose, privatisation resulted in welfare gains thanks to expansion of service. Access to telephone increased by an average of 32 percent, water by eight percent and electricity by six percent.

The effects on employment were significant in the short run, especially in Mexico and Argentina, where layoffs following privatisation were the equivalent of one percent and two percent of the economies' workforce, compared to only 0.12 percent in Bolivia. However, a significant proportion of laid-off workers found employment in the same industry (50 percent in less than a year in Mexico and 90 percent within four years in Argentina). Wages tended to be lower in the private sector and many employees decided to work longer to compensate. Demand for skilled labour increased, contributing to the increase in wage inequality.

The effects of privatisation on fiscal policy were significant. Proceeds from the sale of state-owned enterprises (SOEs) amounted to one percent of GDP, but the fiscal impact of privatisation goes beyond the one-time payment states received from the sale. Since many of the SOEs were heavily subsidised and poor people lacked access to the services they provided, SOEs were an instrument by which the poor subsidised some of the services of the upper and middle classes. Privatisation reduced, but did not eliminate, this regressive tax system. The tax revenue collected by national, regional and local governments from the privatised firms is one percent of tax revenue for all levels of government. Since these services are heavily taxed and the poor need to devote a high share of their income to pay them, the poor who gained access to these services are still taxed more heavily.

Reality Check also includes chapters on Russia, Ukraine, China and Sri Lanka, but they focus mainly on the effects of privatisation on capital and labour productivity and to a lesser extent on wages and prices, so they do not provide such a thorough analysis of the impact of privatisation on inequality and poverty. However, some of their conclusions are similar to those of the chapters on Latin America, mainly with regards to the expansion of access and improvements in quality of service, gains in capital and labour productivity and reductions of employment in the short run. There are also important differences, such as significant hikes in wages and inequality, mainly in Russia. This is due in part to the long history of state planning. For more meaningful comparisons and conclusions all of the chapters should look at the same variables, using equivalent data when available.

In spite of this, Reality Check is a great volume that provides a thorough look at the impact of privatisation on inequality. It raises very important questions that need further research. If privatisation has reduced poverty, why has it not been more popular? Why do politicians have such a hard time pushing privatisation programs? Why are the main beneficiaries of privatisation (the poor) so critical? Should income considerations be introduced as part of future infrastructure reforms? What fiscal reforms are needed to make the tax system more progressive?