The Role of Beliefs and Trust in Gaining Public Support for Private Sector Market Reforms

The study from the IMF explores public skepticism toward product market regulation reforms in electricity and telecommunications sectors across Mexico, Morocco, and South Africa, highlighting that beliefs, perceptions, and trust in institutions significantly influence support for reforms. Providing factual information and offering compensatory measures can increase public backing for these reforms.

A comprehensive study by Silvia Albrizio, Hippolyte Balima, Bertrand Gruss, Eric Huang, and Colombe Ladreit from the International Monetary Fund (IMF), explores public attitudes toward product market regulation (PMR) reforms in two key network sectors: electricity and telecommunications. Conducted across three emerging market economies, Mexico, Morocco, and South Africa, the research aimed to understand the public's skepticism toward reforms that encourage private participation in these sectors, despite their documented benefits such as increased productivity, improved service quality, and lower prices for consumers. Using large-scale surveys that involved 6,300 individuals, the study examined the role of beliefs, socioeconomic characteristics, and perceptions in shaping support or opposition to such reforms. The paper also tested whether providing the public with factual information about the need for reforms could influence their support and whether tailored compensatory or complementary measures could reduce public resistance.

Understanding the Root of Public Skepticism

The study finds that, although PMR reforms generally improve efficiency and service coverage, they often face significant opposition due to concerns over equity, affordability, and potential adverse effects on certain societal groups. This opposition, which has led to protests and policy reversals in many countries in the past, including in Latin America and parts of Africa, is rooted in complex socio-political dynamics. The authors sought to disentangle these dynamics by focusing on three main objectives: understanding why people are skeptical of PMR reforms, assessing whether providing accurate information can change public opinion, and evaluating the impact of offering complementary measures to gain broader support.

The Role of Beliefs and Perceptions in Shaping Support

One of the key findings of the research is that individual beliefs, particularly those related to how policies work and market economy views, are strong predictors of support for reforms. For instance, individuals who believe that private sector competition will lead to lower prices, higher quality, or better access to services are much more likely to support PMR reforms. Conversely, concerns about social equity, such as the fear that reforms might disproportionately harm poorer populations by raising service prices, significantly reduce support. In fact, the study found that socioeconomic characteristics, such as income or employment sector, accounted for only a small portion of the variance in support for PMR reforms. Instead, beliefs about the role of private firms and perceptions of how market economies function were much more influential in shaping attitudes.

Can Information Shift Public Opinion?

To test whether providing factual information could influence public opinion, the researchers conducted randomized experiments where respondents were given different types of information. In one experiment, individuals were informed about the costs of maintaining the status quo, such as high service prices or poor quality in the absence of reforms. This "status quo" treatment had a positive impact on support for reforms in the electricity sector, with support increasing by 0.08 standard deviations among respondents who received the information. However, in the telecommunications sector, the impact was less significant, likely because respondents perceived higher levels of private participation in this sector already. A second experiment provided additional information on the positive effects of PMR reforms, drawing on cross-country evidence that showed improvements in service quality, access, and prices following reforms. This "status quo plus" treatment had a much stronger effect, significantly increasing public support for reforms in both sectors. The impact was particularly notable in the electricity sector, where support increased by a factor equivalent to 1.6 times the policy support gap between left- and right-leaning respondents.

Complementary Measures to Mitigate Resistance

The research also explored whether offering compensatory and complementary measures could help reduce opposition to PMR reforms. These measures, such as government commitments to ensuring affordable access to services for the poorest households or providing job protection and retraining programs for affected workers, were found to significantly shift public opinion. Among initially skeptical respondents, between 50% and 80% indicated that they would change their stance and support the reforms if such measures were implemented. This finding highlights the importance of addressing societal concerns directly, as social preferences such as concerns about equity and fairness play a major role in shaping opposition to PMR reforms.

Trust in Institutions is Crucial for Reform Success

Despite the effectiveness of these measures, the study found that a significant portion of the population remained opposed to reforms even after being offered compensatory policies. For these individuals, the primary reason for continued opposition was a lack of trust in the government and private firms. Respondents expressed doubts about the government’s ability to implement reforms fairly and transparently, as well as concerns that private companies might prioritize profits over public welfare. This lack of trust underscores the importance of building strong, transparent institutions that can effectively manage reforms and ensure that their benefits are distributed equitably across society.

The research demonstrates that while PMR reforms can offer substantial benefits, public resistance is often driven by deep-rooted concerns about fairness, equity, and trust in institutions. To successfully implement these reforms, policymakers need to not only communicate the benefits clearly but also address societal concerns through targeted compensatory measures and build public trust in the institutions responsible for managing these changes.