Despite more than a decade of privatization, state-owned enterprises account for nearly as large a share of developing countries' economies today as twenty years ago. Often inefficient government firms and the resulting deficits hinder growth, making it harder for people to escape poverty. Drawing on extensive data and detailed case studies, this report shows how divestiture and other reforms can improve the economy, why politics often impedes reform, and how countries that reformed successfully overcame these obstacles. The authors begin their analysis of why reform has had such a small impact by comparing state-owned enterprise policies in twelve countries. They proceed to analyze three types of company contracts: performance contracts between a government and a public manager, management contracts between a government and the private manager of a government firm, and regulatory contracts between a government and a privatized, regulated monopoly. The authors then study the reasons that so few countries have reformed. The final chapter draws on these findings to present detailed guidance on how to reform state-owned enterprises successfully. The book concludes with a message to donor governments and multilateral institutions about what outsiders can do differently to help.