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Examines the economic problems that arise when governments own and operate enterprises that could be managed by the private sector. Despite more than a decade of divestiture, state-owned enterprises account for nearly as large a share of developing countries' economies today as twenty years ago. This report examines the economic problems that arise when governments own and operate enterprises that could be managed by the private sector. It finds that such enterprises are often inefficient and shows how the resulting losses to the economy hinder growth, making it harder for people to escape poverty. Why have reforms had such little impact? In an innovative study of the political economy of state enterprise reform, the report describes common obstacles to reform and describes ways that some countries have overcome them. Drawing on a rich database and detailed country case studies, the report provides the most comprehensive assessment yet of a decade of divestiture and reform of state-owned enterprises. It evaluates the experiences of 12 countries: some of these countries reformed successfully and some did not, but all tried to improve the incentive structure by changing the contract between the government and state- owned firms. The report offers guidance for successful reform and suggests ways that foreign assistance can more effectively support reform efforts. The countries covered in the case studies are Chile, China, Czech Republic, Egypt, Ghana, India, Republic of Korea, Mexico, Philippines, Poland, Senegal, and Turkey. Published for the World Bank by Oxford University Press