Privatization: Challenge of the 1990s
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Authors
Rusen, Angela
Issue Date
1991
Type
Thesis
Language
en_US
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Abstract
The act of transferring state-owned enterprises to the private sector,
commonly known as privatization, has become a popular but controversial topic
in the wake of the current political and economic reform in Eastern Europe.
Privatization, a concept which is now practiced throughout the world, was
originally popularized by Great Britain's Thatcher Administration during the
1980s. After years of increasing frustration with unprofitable state-owned
enterprises, coupled with budgetary problems during a period of economic
hardship, officials began to search for a solution. By transforming inefficient
enterprises into private competitive firms, and by earning substantial revenue
for the government, privatization solved both problems.
A variety of methods have been used by governments in the past in their
efforts towards privatization. Theories range from selling the whole enterprise
directly to a private buyer, to giving the firm away to its employees. A
comparative analysis of state versus private ownership reveals that whichever
method is chosen, the result is certain to lead to a more efficient firm. In terms of
management, private firms have the advantage over public enterprises due to
the profit motive, natural monitoring mechanisms, and decision-making based
on market forces. Studies also show that a state-owned enterprise's
production, labor and capital costs are likely to be higher. Finally, the
competitive environment which surrounds private firms insures a greater degree
of consumer input and innovation.
After more than forty years under a command economy, Eastern Europe
now has the opportunity to experience the benefits of private enterprise. But
before privatization can become a success, essential requirements must be
met. For example, the necessary policy, legal and structural framework must be
established; ownership laws and anti-monopoly laws must be drafted. In
addition, certain key issues must be discussed. These issues include the pace
of privatization, degree of ownership dispersion, restitution possibilities, and
steps to prevent privatized monopolies. Once these decisions have been
made, a successful privatization is still uncertain. A host of obstacles including
workers and government bureaucrats may attempt to halt the move to privatize.
Another question of extreme importance in the case of Eastern Europe is which
privatization method to use. The lack of capital held by private citizens has
made free distribution using a voucher system an attractive option. Others
propose methods which are customized to suit each country's individual needs.
One such method is the holding company proposal where individual holding
companies set up by the government are given the responsibility to restructure
and then sell a portfolio of state-owned enterprises to any buyer they can find.
Both Poland and Czechoslovakia have developed their own privatization
schemes involving vouchers for free distribution. In addition, the Soviet Union
hopes to benefit from the process of privatization. Numerous setbacks created
by the much touted communist system indicate that the prospect for a successful
privatization reform in the USSR as a whole is not very promising. However,
the outlook for the individual republics is quite good. The pursuit of the
republics to become independent states, autonomous from central Soviet
authority, demonstrates the eagerness of the citizens to start anew and to catch
up with the rest of the liberalized world.
Overall, privatization in Eastern Europe is and will continue to be a very
difficult and painful process. The short-term costs may cause citizens as well as
the government to question its. merit, however, in the long run, the existence of
private enterprise will allow Eastern Europe to enjoy a higher standard of living
and to become a more productive and prosperous region of the world.
Description
vii, 82 p.
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