Non-standard methods in the privatization strategies of the Czech Republic,Hungary and Poland1

The Czech Republic, Hungary and Poland followed different strategies in the use of non-standard methods of privatization. In regard to restitution, the Czech Republic carried out physical return of property, Hungary weakly implemented financial compensation and Poland has not yet approved a programme. Management and employee buyouts were eschewed in the Czech Republic, took the form of employee stock ownership plans in Hungary and were accomplished chiefly by lease-purchase in Poland. The Czech mass privatization programme distributed a considerable amount of joint-stock company shares free through voucher auctions in which citizens participated directly or through financial intermediaries. In contrast, the Polish programme provided citizens free shares in investment trusts that exercise corporate governance over operating companies and restrure them for divestiture. Hungary's programme, which offered people only interest-free loans to buy some shares in intial public offerings, was abandoned soon after its start.     

Priorities and sequencing in privatization: Evidence from Czech firm panel data

While privatization of state-owned enterprises has been one of the most important aspects of the economic transition from a centrally planned to a market system, no transition economy has privatized all its firms simultaneously. This raises the question of whether governments privatize firms strategically. In this paper we examine the determinants of the sequencing of privatization. To obtain testable predictions about the factors that may affect sequencing, we investigate the following competing government objectives: (i) Maximizing efficiency through resource allocation; (ii) maximizing public goodwill from the free transfers of shares to the public; (iii) minimizing political costs; (iv) maximizing efficiency through information gains; and (v) maximizing privatization revenues. Next, we use firm-level data from the Czech Republic to test the competing predictions about the sequencing of privatization. Consistent with the hypotheses of a government priority on revenues and public goodwill, we find strong evidence that more profitable firms were privatized first. The sequencing of privatization is also consistent with maximizing efficiency through information gains. Our results indicate that many empirical studies of the effects of privatization on firm performance suffer from a selection bias.     

Voucher Privatization: A detour on the road to transition?

We explore an overlooked aspect of the design of the Czech voucher privatization programme, namely, the consequences of allowing individuals to distribute their vouchers among the voucher privatization funds (VPFs). We develop and analyse a model of voucher privatization in which we study the problem facing individuals who invest their vouchers in VPFs which, in turn, are able to use their skills to alter the performances of the firms in which they acquire shares. The VPFs have different skills and, by their bids and subsequent joint ownership patterns, affect the performances of the firms in their funds. We show that even in the case in which voucher holders have identical and full information, and wish to allocate their vouchers to the VPFs in a manner consistent with the maximization of economy–wide profit, a coordination failure generally prevents the implementation of this efficient outcome. Uncertainty, as well as differing payouts by the VPFs, is shown to exacerbate the problem. We conclude that there was an inherent flaw in the design of the Czech voucher scheme. JEL classification: D44, L33, P21, G11.     

Management and employee buy-outs from the Austrian public sector

This paper seeks to extend our understanding of the nature and effects of privatization to the case of Austria, a relatively small economy in which management buy-outs have been a numerically important but neglected part of the privatization programme. The study reviews the development of privatization in Austria and sets management and employee buy-outs within this context. The paper identifies 35 privatization buy-outs, analysing their form and industrial distribution. Evidence from detailed interviews with the 22 largest is used to analyse the effects of buy-out on corporate change, the role of insiders and performance. Comparisons are made with the UK, where management and employee buy-outs have also been an important part of the privatization programme.     

Monopolistic wages or efficient contracts?

Using a representative sample of medium and large firms, this paper explores the process of employment and wage bill determination in the Bulgarian manufacturing sector. The results suggest that, during 1997–2001, the labour market behaviour of these firms was consistent with weakly efficient contracting and employment elasticity with respect to both sales and wages similar to that of the fastest‐reforming Central and Eastern Europe economies. Although a case study using data on sell‐off deals by the Privatization Agency suggests that the largest firms selected for cash privatization may have exhibited higher preference for wage enhancement than employment protection, the results do not bring into question the efficient performance of the post‐crisis labour market in Bulgaria. Importantly, the study rejects the hypothesis that either persistent government stakes or mass privatization may have led to efficiency deterioration.     

经济转型理论评析

经济转型之初 ,一些经济学家基于新古典经济学信条提出 ,可以通过“激进”措施将原来的计划体制一次性破除而重建一个全新的市场经济。但迅速私有化并没有带来企业治理结构的改善和原国有资产的有效重组。与此形成鲜明对照的是 ,中国的渐进改革却取得了成功 ,并得到了越来越广泛的认可。 2 0世纪 90年代中期以来 ,经济转型理论开始发生变化 ,“制度演进主义”的影响日渐扩大 ,经济学家开始强调市场经济支持性制度的重要性以及制度变革的长期性 ,认为分权、激励、竞争、良好的司法和会计制度等比私有化更重要 ,并在政治经济学层面上分析了不确定性、利益集团、政府、改革秩序与步骤对制度变迁的影响。     

The influence of owners on voucher provatized firms in the Czech Republic

This paper analyses evidence gathered via a survey of former state enterprises in the Czech Republic to investigate how far these now privatized firms have been subject to the influence and control of their new owners, principally investment privatization funds. The paper summarizes the survey evidence and sets out its findings under two broad headings: First, the extent and nature of the way these funds have sought to exercies control over the firms they own; and second, the various facets of a firm's operations that have, or have not, been altered by the change of owner. The paper discusses the reasons behing the findings, arguing particularly that Czech voucher privatization, although in itself complete, should be seen and judged as the real privatization and not the finish.     

Evaluating Partial Reforms in the Chinese State Industrial Sector: a stochastic frontier cost function approach

China's phenomenal economic growth since 1979 is seen by many as a challenge to the belief that the clarification of property rights is a necessary step of successful transition from a planned economy to a market economy. Instead of mass and rapid privatization, reforms in the Chinese state industrial sector in the 1980s were attempted to reconstruct the incentive structure of enterprises by linking rewards to performance, expanding managerial freedom and exposing enterprises to market influences. This paper investigates the extent to which the partial reforms have transformed the behaviour and performance of state-owned enterprises (SOEs). Using a panel of observations on 769 SOEs from ten manufacturing industries during 1980 and 1989, a stochastic cost frontier function is estimated to measure the effect of various reform measures on both technical and allocative efficiency. We found that the average cost efficiency level increased by 1.18% per annum during the decade. The efficiency effects of the industrial reform programme are mixed. While performance-related bonuses and market competition appear to have had the intended impact, there is evidence that devolution of decision-making power to the firm level has led to deterioration in efficiency. Therefore, although the partial reforms have met with some success, the issue of an adequate structure of incentives for SOEs remains unresolved.     

DEMOCRACY IN REFORMING COLLAPSED COMMUNIST ECONOMIES: BLESSING OR CURSE?

From a political standpoint, post-communists systems include both democratic and non-democratic nations. From an economic standpoint, they include both collapsing and expanding economies. All four logical possibilities exist for post-communist political and economic systems. The Czech Republic is an example of a democratic political system and an expanding economic system. Russia is an example of a democratic political system and a collapsing economic system. China is an example of a non-democratic political system and an expanding economic system. North Korea is an example of a non-democratic political system and a collapsing economic system. The fact that all four logical possibilities exist suggests that democracy is neither necessary nor sufficient for good economic performance. However, democracy is certainly a value in itself that requires certain basic institutions, including free and fair elections, the orderly transfer of power to those elected, the rule of law and the separation of powers, and the protection of individual freedoms and basic liberties, including those of speech, press, religion, assembly, property, and economic opportunity. Economic policies, rather than the form of government, determine the results for an economy. Russia and China, the two largest socialist economies, followed very different economic policies and experienced radically different outcomes. The failure of “shock therapy” economic policies for transition to a market economy in Russia is related to its use of the Washington Consensus SLP package of stabilization, liberalization, and privatization, as recommended by the World Bank and the IMF. The success of Deng's economic policies for transition to a market economy in China is related to its rejection of the SLP in favor of the ICG approach of institutions, competition, and government. Other interesting cases are those of the Czech Republic and North Korea. Those nations in which both political and economic reforms have been simultaneously successful, such as the Czech Republic, are generally small, homogeneous European nations with a historic work ethic, with a relatively short period of socialism, and with support from neighboring advanced industrialized nations. There is great difficulty in simultaneously establishing both democracy and a market economy without a very special set of circumstances. Thus, it is necessary to determine a sequence for political and economic reform. Ultimately, however, the ideal of both democracy and a market economy may be attained even in nations without special circumstances and external assistance, with Russia eventually turning its economy around and with China eventually reforming politically into a democratic nation.     

经济转轨、跨国公司进入与国有企业改革

任何转轨国家向市场经济过渡都要面临改革与开放的问题.因此,本文在经济开放的背景下,着重突出跨国公司与转轨国家之间经济的紧密联系,建立跨国公司、转轨国家政府、国内企业三者之间的混合寡占博弈模型,并以市场开放、自由化、私有化等政策变量作为影响转轨进程的外生变量,分析开放程度和经济调控手段以及跨国企业的投资策略等对转轨国家国有企业民营化进程和转轨国家国有企业竞争力的影响.研究表明,转轨国家在经济开放的条件下,对国有企业完全民营化并非是改革的最优方案,而对国有企业的部分民营化效果反而会更好,也符合社会福利最大化的原则.而税率、技术、转移价格等也是影响转轨国家社会福利和转轨国家企业产量和竞争能力的重要因素.     

The impact of Czech privatization methods on enterprise performance incorporating initial selection-bias correction1

Governments with transitional economies have applied different privatization methods, from an almost free distribution to the direct sale of state assets. While a free distribution was believed to ensure the political feasibility of the programme and its fairness, direct sales, (or more generally, standard privatization methods) had a significant advantage in creating concentrated ownership structures as the prerequisite to corporate control and restructuring. Many economists believe that the two goals of mass privatization, political feasibility and the creation of proper ownership incentives, contradict each other and recent empirical comparisons of enterprises seem to support this view. However, all empirical works have been based on the weak assumption that privatization methods were applied on a randomly selected sample of enterprises, which then allowed for a direct comparison between these enterprises. Our main claim is that governments actually selected enterprises non-randomly and therefore, the resulting selection-bias must be incorporated into the analyses. To show this, we apply a Heckman two-step regression method on a sample of 559 Czech enterprises. The main point of this paper then is that performance is influenced by the selection process and that the combination of vouchers with outsider owners is preferred over 100 per cent voucherization.     

Divestitures,privatization and corporate performance in emerging markets

We use new firm‐level data to examine the effects of firm divestitures and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, we control for accompanying ownership changes and the fact that divestitures and ownership are potentially endogenous variables. We find that divestitures increase the firm's profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure – sometimes improving performance and sometimes bringing about decline. The effects of privatization are thus more nuanced than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing divestitures and to control for endogeneity, selection and data attrition when analyzing the effects of divestitures and privatization.     

民营银行发展的重要之源：城市商业银行民营化

在中国经济高速增长的同时,经济与金融结构都在发生巨大的变化。金融市场的竞争、金融体系的完善都迫切需求开放和发展民营银行。另一方面,在新的经济形势下,众多城市商业银行原有的模式已不适应其发展,银行问题突出,改革势在必行。而民营化改革因为其独特的优点应成为城市商业银行较好的改革途径,这同时又为民营银行发展创造了条件。因此,发展民营银行的一个重要之源便是城市商业银行民营化,与此同时,做好民营化改革相应的配套工作也是极为必要的。     

The impact of privatization on firm performance in a transition economy

The Vietnamese privatization programme, launched in 1992, differs from the usual Western privatization programmes in terms of the residual percentage of shares owned by the state and the portion of shares owned by insiders. This begs the question whether these differences influence the effects of the programme on firm performance. This study measures the impact of privatization on firm performance in Vietnam by comparing the pre‐ and post‐privatization financial and operating performance of 121 former state‐owned enterprises (SOEs). We find significant increases in profitability, sales revenues, efficiency and employee income. Results of applying the ‘difference‐in‐difference’ (DID) method, wherein a control group of firms is used to pick up the influence of other determinants of firm performance, suggest that the performance improvements may indeed be associated with equitization. Regression analyses reveal that firm size, residual state ownership, corporate governance and stock market listing are key determinants of performance improvements.     

Voucher privatization: implications for macroeconomic policy1

This paper analyses the impact of voucher privatization schemes on the behaviour of households and the consequences for macroeconomic policy. The stylized facts of the voucher privatization scheme are described for the Czech case. The consumption as well as portfolio decision of households during the voucher scheme are modelled within the framework of a consumption function and a system of demand functions for financial assets. The envelope theorem is used to modify the standard Almost Ideal Demand (AID) system. The empirical results are presented. The paper concludes that the interdependence between privatization and macroeconomic stability should be better understood by policy-makers in transitional countries that are going to adopt a similar approach to privatization to that applied in the Czech Republic.     

Corporate governance following mass privatization

Using vouchers to privatize state-owned firms was an innovative but controversial aspect of transition. In the Czech Republic, voucher privatization created a large group of minority shareholders who coexisted with large shareholder–managers who controlled firms. Critics allege that the structure of shareholdings and regulatory failures allowed pervasive theft of corporate assets, much of it financed by irresponsible bank lending, and led to a financial crisis and an economic downturn. I argue that neither anecdotal evidence of managerial malfeasance nor the theories of tunneling and looting provide strong evidence for this view of corporate governance in the Czech Republic. A lack of small shareholder protection seems to have imposed small costs on the economy, and it may have facilitated rather than hampered the restructuring of firms.     

Opening up for foreign banks: How Central and Eastern Europe can benefit1

This paper analyses the role of foreign banks in the Czech Republic, Estonia, Hungary, and Poland. With respect to their planned EU membership, these countries have to consider the full implementation of free trade in financial services. Generally, liberalizing the market access of foreign banks allows the production of financial services according to comparative advantage, it fosters competition, it promotes bank privatization, and it facilitates a transfer of know-how into the emerging financial systems. The most important sequencing issue that arises is that the incumbent banks should have been recapitalized for their truly inherited bad loans before markets are opened up. In view of the reform progress that has already been made in the countries under review, abolishing remaining entry barriers is unlikely to put the stability of banking systems at risk while allowing the benefits of open markets to be exploited.     

New technology and restructuring in the UK energy industry: the case of renewable energy

Among the justijcations for the UK government's electricity privatization programme was the suggestion that it would stimulate the development of a range of new supply options, including the UK's extensive renewable energy resource. This paper assesses the prospects for renewable energy technologies i n the UK after privatization. It finds that there is enthusiasm for renewables, but that the market alone will not stimulate renewables effectively or develop them appropriately, and that state support and regulation will be necessary.     

The restructuring of large firms in the Slovak Republic1

This paper examines case study evidence of large Slovak firms chosen to represent a wide range of initial conditions, privatization techniques and success with restructuring. We document the ownership changes and restructuring actions of firms. We then re-examine several hypotheses about firm restructuring in the light of this new evidence. In particular, we show that the majority of large Slovak firms have successfully restructured in the absence of foreign investors and government-led restructuring programmes. The study also generates some new queries on the effectiveness of different privatization methods in enhancing corporate governance and improving access to skills and capital. We find that privatization to insiders through management-employee buy-outs did not hamper firm restructuring, at least in the initial years after privatization, as the new owners (old managers) invested heavily in new technology, laid off a substantial part of their workforce, sought foreign partnerships, and were prepared to sell controlling stakes to outsiders in return for fresh financial resources. The evidence also suggests that the mass privatization programme in the Slovak Republic did not result in weak corporate governance since it was followed by a rapid consolidation of outsider ownership. This is in contrast to the anecdotal evidence for Georgia, Russia and Ukraine which opted for mass privatization to insiders (managers and employees)     

Uncovering asset stripping during China's privatization

This paper empirically studies the occurrence and extent of asset stripping via undervaluing public assets during the mass privatization of state-owned and collectively owned enterprises in China. Using three waves of a national survey of private firms, we provide evidence that state-owned and collectively owned assets were substantially underpriced, indicating the presence of corruption during privatization. Further analysis shows that the extent of underpricing is more severe in regions with less market competition or weaker property rights protection, and more pronounced for intangible assets such as intellectual property rights and land use rights. When comparing firm efficiency between privatized firms and de novo private firms, we find that the former group continues to enjoy considerable preferential treatments, yet significantly underperforms the latter, possibly due to continued government control and intervention. Finally, we provide evidence that insider privatization is an important source of corruption during the privatization process.