Privatization

Abstract

The cornerstone of a capitalist market economy is the private enterprise operating in a competitive environment. Private sector development can be divided into two components. First, the state must be taken out of the decision-making on the allocation of assets it nominally owns by transferring the ownership of state property to other agents. The second part of private sector development concerns the emergence of entirely new private companies. In Latvia the bottom-up expansion of a private sector has been encouraging, while the privatization of a state sector has been troubled with many difficulties. The government sees its main task as the stimulation of new private activity rather than as the divestiture of state enterprises, because state companies are usually in such a bad shape that their privatization will not improve the economic situation. Privatization is only a step toward their liquidation. Hence, Latvia’s slow progress in the privatization of state enterprises has not had a dramatic impact on the marketization of the economy.⁴⁶