Abstract
All economic change, especially viewed in the long term, is connected with structural change. Its course brings changes in the Gross Domestic Product (with dominance passing from the primary sector to the secondary sector and finally to the tertiary sector). Hand in hand with this go major or minor changes in the sectoral structure of the overall economy and corresponding shifts in total employment. Worker qualification demands change, and geographic shifts in production take place. Economic growth is inconceivable without constant change in the economic structure—in other words, new distribution of production factors among sectors, industries and regions. It can be said that economic development means constant economic structural change.
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Notes
After 1989, Czech employment fell from 5.4 million to 4.7 million in 1993. In the same period, the number of people employed in the state and coop sectors fell from 5.3 million to 2.6 million. The number of privately employed rose from 79,000 in 1989 to 2.2 million in 1993 that is, from 1.3 to 47.1 percent.
As noted above, foreign investors can buy for the market price, which may differ from the book value.
In 1991 the book value of the 5,400 enterprises involved in large-scale privatization was estimated to be 1,500 billion crowns. The savings of the population was less than one-quarter of this amount.
The research was undertaken with the support of PHARE-ACE Programme (1992).
Upper margins had been lowered in the meantime to 42 percent for physical persons and 39 percent for businesses, with further cuts expected.
Monopoly was a ubiquitous element of not only economic but also social life during the communist era.
The establishment of monopoly by a state can be justified not only economically: it can be motivated by concerns for the safety and protection of the state; for the care of the health, education, and culture of its inhabitants; and last but not least for more legitimate division of incomes.
The four-firm concentration ratio (CR4) is the share of output (domestic supply) accounted for by the four largest sellers. The one-firm concentration ratio (CR1) is the share of output accounted for by the largest seller.
The average number of plants for an enterprise in 1988 was 10.6 (in local industries the average was 17 plants). Analogical indicators are 1.25 and 1.38 for Austria and Great Britain, respectively.
The structural hierarchy of management was characterized by an up to six-tier management, the central body being the Ministry of Interior.
For details on the forms and methods of enterprise negotiations with the center, see Mlčoch (1989) and Chapter 2.
For empirical evidence on the link between financial system development and economic growth, see Fischer (1993) and King and Levine (1993)
Arguably, the prevalence of household savings is not a general feature of transitional economies. In the Czech Republic, however, the main crediting sector are households.
The theorem postulates that the financial policy of a firm (dividend and retained profit policies, volume and structure of external fmancing, and so on) has no impact on firm’s real decisions, including investment decisions. The real decisions are determined by technological and marketing considerations.
See Calvo and Coricelli (1994), who emphasized the link between credit crunch and industrial output decline in Poland.
The firms privatized by traditional methods (mainly through management and leveraged buyouts) need a strong cash flow to repay the buyouts, see (Tůma, 1994). These privatization contracts implicitly assume that annual repayments will be around 20 to 25 percent of the selling price—that is, the whole firm is to be repaid within 4 to 5 years. The implied profitability is unrealistically high.
In the most simple case those costs consist of interest-rate repayments and depreciation.
The collateral requirement would be, of course, identical too.
In his classic article on X-efficiency, Leibenstein (1966, p.397) wrote: “managers determine not only their on productivity but the productivity of all cooperating units in the organization. It is therefore possible that the actual loss due to such a misallocation might be large.” More recently, see Leibenstein and Maital (1992).
See. Flanagan (1995) for some empirical support of this assertion.
At the margin, the opportunity cost is equal to the unemployment benefits.
We assume, of course, that contracts in economies in transition are both legally binding and enforceable.
The author observed this when sitting on the supervisory board in one large commercial bank in 1992 and 1993.
We are aware that this is a potentially controversial claim. On the one hand, some of the new loans to “bad” debtors are clearly prompted by so-called domino effect concerns. Default of an important debtor might expose the whole loan portfolio of a bank. On the other hand, the expected future market valuation of many seemingly “not-so-good” firms in the long term is much higher than their current capitalization on the Prague Stock Exchange. Some commercial banks, especially those considering themselves as “too big to fail,“ view debt-equity swaps of large firms as a strategic investment.
Had Czech banks been lending according to Western standards, the volume of credits would likely be even smaller and interest rates higher.
Accidentally, the only new significant issues on the Prague Stock Exchange in 1993 and 1994 were those of commercial banks (Komercní banka, Ceská sporitelna, and Ivesticní a postovni banka). Those issues mopped up almost all available liquidity, ousted nonfinancial firms out of the primary market, and, most likely, eventually contributed to a bear market Notwithstanding the size of those issues, this development was aggravated by significant legal constraint: foreign investors cannot buy new issues of bank shares, and the full issue has to be obtained from domestic investors, (see PlanEcon, 1994).
As elsewhere, interest costs are tax deductible, while dividends are paid after-the-tax. Unless the banking system is very inefficient or corporate income taxes are very low, external financing through bourses is rather unusual outside the Anglo-American model (see Corbett and Mayer, 1991).
In 1994, CEZ, the power-generation monopoly, became the first semiprivate firm from a transitional economy to tap directly into the Eurobond market. Its five-year bond, under the condition of virtually no currency risk, appears to be a significantly cheaper way of financing than domestic loans or bonds.
In December 1995, the year-on-year growth of foreign-exchange denominated loans topped more than 130 percent, double the growth in 1994 and 1993.
Trade credit is beneficial when stable collaborative relationships exist between companies (reputation problems do not exist) but may create harmful rigidities when dealings between firms are instead based on an ad hoc contractual basis. See, for example, Mondello (1994).
Horizontally (combinates) and vertically (production-economic units, VHJ) integrated firms were established in the former Czechoslovakia. Although financial economies of scale were not the main argument for their existence, especially in the 1980s, during the period of more restrictive credit policies, this motivation might have played some role.
As of July 31, 1994, the total loan guarantees approved by the Czech government amounted 30 billion crowns or 4 percent of total loans (see Finance aúvěr, 1995, p.14).
This is perhaps the main policy conclusion offered by the development economics (see Bardhan, 1993).
Sectors controlled by the MIT dwindled between 1992 and 1993. Due to privatization, bankruptcies, and labor shedding, the number of workers declined from 118,000 to 106,000, and value added declined from 263 billion to 248 billion crowns.
Profits on sales in 1993, data of the Czech Statistical Office, and ratio of “bad loans” to total loans in each sector change between 1993 and 1993, according to data from the Czech National Bank. This figure uses data published by the above institutions. In all other cases we use data published by the Ministry of Industry and Trade. Hence, Figure 7.1 and Figures 7.2 through 7.6 are not directly comparable.
Equity and cash flow in 1993, where cash flow is equal to profits and depreciation, and value added per capita change between 1992 and 1993, respectively. The higher the equity to cash flow ratio, the longer it would take to reproduce this sector. For simplicity we eliminated sectors with negative cash flow as well as one industry that, given 1993 profits and depreciation, would reproduce itself in 4,000 years.
“Effective” interest rates are measured as sectoral interest payments per total liabilities and show what proportion of their liabilities firms have to surrender to service their debts. As the sectoral credit variable is not available, we were forced to use a broader measure. It is, of course, very strong assumption: some firms hold almost no debt, and some are hopelessly indebted.
Equity per cash flow in 1993 and liabilities per value added change from 1992 to 1993.
As the shown later, this is not likely the general case.
Alternatively, one can hypothesize that the demand for credits is a decreasing function of lending rates. The credit-rationing literature seems to support the former hypothesis.
Primary interenterprise arrears normalized by value added change between 1992 and 1993. The primary interenterprise arrears are the difference between overdue payables and receivables for a sector. The so-called secondary arrears is the difference between all overdue payables and primary arrears.
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Urban, L. et al. (1997). Privatization, Postprivatization, and Structural Problems. In: Mejstřík, M. (eds) The Privatization Process in East-Central Europe. International Studies in Economics and Econometrics, vol 36. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-6351-8_7
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DOI: https://doi.org/10.1007/978-1-4615-6351-8_7
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