Summary
The current drive towards privatisation by transitional economies of central and eastern Europe is based on the same expectation as privatisation in Western countries, i.e. greater efficiency through changed and improved incentives. This expectation is not controversial in the centrally planned economies in transition, because it is believed that privatisation will inject life into the inert traditional system, de-politicise economic life and harden budget constraints. In addition, private property was never completely abolished and a limited regime of private property seems to be inherently unstable, given the strong logical arguments and actual pressures for its extension.
There are three main general issues raised by privatisation of the transitional economies of central and eastern Europe. First, in the early stages of economic reform and in order to free enterprise there is the danger of divesting central organs of their powers without transferring those powers to other agents. This raises on the one hand the problem of “re-subjectivisation” of ownership before privatisation, and on the other the problem of workers’ self-management institutions. Next, there is the risk of unfair private appropriation—whether legal or “wild”—of state assets. Last, when should privatisation occur in the sequence of reform measures relative to stabilisation, demonopolisation, and partial financial and productive restructuring?
In Poland, privatisation has been facilitated by a long-standing tradition of private enterprise, but rendered difficult by the necessity to reconcile the sale of shares with the self-management institutions active in Polish enterprises (to be accomplished perhaps by reserving 20 per cent or so of shares to enterprise employees on privileged terms, or by a contractual package involving forms of profit sharing and “Mitbestimmung”). The debate in Poland has revolved primarily around the adverse distributional impact of privatisation, which sectors to begin with, the small size of the potential market, how to finance share purchases (free shares, credit or foreign capital), and the scope for debt-equity swaps. These issues reflect political struggle: the 15th version of the privatisation law was presented to Parliament in April 1990 and was met by a parliamentary counter-proposal. Although the law was finally approved in July 1990, it left open both the pace and modality of privatisation, further delaying progress towards privatisation .
Published in H. Blommestein, M. Marrese (Eds.), (1991). Transformation of Planned Economies: Property Rights Reform and Macroeconomic Stability. OECD, Paris, pp. 51–68.
An earlier version of this paper was presented at the OECD Conference on “The Transformation of Planned Economies”, Paris, on 20th–22nd June 1990. Acknowledgements for useful comments and suggestions are due to Grzegorz Kolodko and to Conference participants, in particular to William Even as discussant, and to the Proceedings editors Hans Blommestein and Michael Marrese. Responsibility for opinions, errors and omissions rests solely with the author.
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Notes
- 1.
According to Strumilin, a sufficient condition of full communism is that free consumption should be the larger share. However in order to measure the relative shares of free and non-free goods—unless all goods are subject to a two-tier (free and non-free) regime—it is necessary to use a set of weights, i.e. actual or shadow prices. Yet it is not clear from where the necessary price system would come. In principle prices could come from a system of marginal valuations with reference to a central body, were it not for the fact that under full communism presumably central bodies “wither away” with the state.
- 2.
If I consume a quantity c(i) of good i per unit of time and that good has durability T(i), I can carry a revolving stock of c(i)*T(i); if v(i) is the storage volume required per unit of consumption good i and I have a maximum storage space V, then I will have a maximum command on a stock of consumption goods given by a vector c with elements c(i)*T(i) subject to the scalar product of c and v (the corresponding vector of storage requirements per unit of consumption) being equal to or less than V. Here “durability” means 100 per cent conservation for a period of time T(i), which is equivalent to a zero real own rate of return on storage; this already gives rise to an optimisation problem, in that the rational consumer, given his expected future claims to consumption c(i, t) will equate his real rate of time preference, implicit in his rate of intertemporal substitution, to the zero own rate of return on storage. As a result of this maximisation problem actual stocks of goods C(i, t) may well be lower than the maximum allowed by storage space and durability characteristics. In practice the consumption goods stored have a rate of decay d(i) which is a function of storage time, i.e. d(i)=d[i, T(i)], giving rise to a more complex optimisation problem, simultaneously determining d(i) and T(i) as well as C(i, t); now there can be different real rates of time preferences for each good, being equated to the rate of decay which is an implicit negative rate of (own) real interest.
- 3.
Even paper money could be made perishable if an early enough date were fixed by which it had to be spent, or its liquidity could be reduced if its validity as legal tender were subject to some inconvenient procedure of official validation. Keynes (1936), for instance, suggested that cash should be stamped at frequent intervals; for a history of the idea of money “melting” or “reabsorbing”, see Morley-Fletcher (1980–1981).
- 4.
This cost is virtually equal to zero, or a small amount taken with a negative sign; if interest-earning liquid deposits are possible, they are treated here as financial assets different from money.
- 5.
Except for contracts involving the delivery of future labour services, which would not be capitalistic but feudal, as they would imply the compulsory subjection of individuals to other individuals or firms.
- 6.
China appears to have been an exception, at least until recently.
- 7.
The March 1990 Soviet legislation on property prohibits one-man-owned enterprises employing wage labour, but allows joint-stock companies, somehow regarded as “collective” forms of ownership. This is an absurd distinction, co-ownership being no less private than one-man ownership of a whole asset. Soviet legislators literally are preventing “exploitation of man” by one other man but allow it when it is done by several men together.
- 8.
In the Soviet economy in 1990 excess liquid assets in the hands of the population are estimated to be of the order of an average four months’ wage bill; enterprises’ inventories were 82 per cent of national income in 1985, compared with 31 per cent in the United States (Shmelev and Popov 1989, p. 305).
- 9.
In this respect my own views have radically altered with respect to Nuti (1974), where the possibility of group entrepreneurship in the traditional socialist model was considered with excessive optimism.
- 10.
Gomulka envisages a special role for banks in the privatisation process: public shareholdings in state enterprises would be entrusted to the management of banks, which would earn a share of dividends and realised capital gains; Gomulka regards privatisation of those banks as equivalent to the privatisation of the public assets entrusted to them but this is a misconception: if I buy shares in Merrill Lynch I do not acquire a stake in the portfolio of their clients. Moreover, emphasis on realised capital gains rather than on the increase of portfolio evaluation is bound to unduly inflate turnover (by encouraging a special case of so-called “bed and breakfast” transactions, i.e. sales followed by quick repurchases).
- 11.
In early 1979 the provincial government of British Columbia set up a new Crown Corporation, the British Columbia Resources Investment Corporation, with $151.5 million in assets, and distributed five free shares to any citizen who asked for them, plus additional shares at $6 each; 170 000 persons were involved. However the new company made some bad investments and soon incurred substantial losses; the operation is not judged to have been a success (see Stanbury 1989, pp. 282–283, in MacAvoy et al. 1989) .
- 12.
The loss of potential collateral on the part of creditors may be thought to be overcompensated by the greater potential productivity which could derive from privatisation and the further impulse to economic reform. Certainly no international creditor has publicly argued against free distribution of state assets in debtor countries.
- 13.
The auto-appropriation of state assets by the nomenklatura has been facilitated in Poland by the extraordinary growth of joint stock and limited liability companies founded in Poland, which were almost 30 000 in 1989. Some transactions, in which managers appeared on both sides as sellers on behalf of their state enterprises and as buyers for their own companies or even joint ventures naturally have been declared void by the Supreme Court, but the bulk of this kind of transaction are unlikely to be challenged especially when foreign buyers are also involved (Chilosi 1990). A famous case is that of Igloopol, the largest Polish agro-industrial complex, valued at 145 billion zlotys and artificially liquidated and transferred for 55 billion zlotys to a joint stock company with the same board of directors, whose shares—transferable at their discretion—were sold mostly to Party organisations and activists. The Ministry of Agriculture (of which the Igloopol Managing Director was Deputy Minister) approved the liquidation procedure in spite of a Ministry of Finance report which declared it illegal and economically unjustified (Grosfeld 1990). A recent decree of the Mazowiecki Government has now made illegal the participation of state enterprise managers and workers’ councils in the companies founded by their own enterprise (Chilosi 1990).
- 14.
Kolodko (1990) reports that a million zlotys invested in these bonds at the end of 1989 were worth by the end of the first quarter of 1990 2.5 million zlotys, compared with 1.3 million zlotys if invested in three-month deposits at the National Savings Bank (PKO) and 1.06 million zlotys if invested in dollar-denominated deposits. This is an indication of the lack of credibility of government policies.
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Nuti, D.M. (2023). Privatisation of Socialist Economies: General Issues and the Polish Case. In: Estrin, S., Uvalic, M. (eds) Collected Works of Domenico Mario Nuti, Volume I . Studies in Economic Transition. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-12334-4_18
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