No. 32, 1995 - Privatisation and Distribution in Central and Eastern Europe: Theory from Evidence

Following the collapse of the Soviet empire privatisation was universally seen as the single most important means of transforming the inherited command planning systems into a liberal market order. In other words, besides the more conventional theoretical argumentation and the established technical, efficiency-based argument the postsocialist context offered a broader macroeconomic interpretation of what is basically a microeconomic process. It has become not only a code word for ‘enhancing the commercial spirit also in public companies’ (Kay, 1993) but also a synonym for all the means and objectives of systemic change.
It were difficult not to see a fair degree of command economy mentality in the emergence of this approach. First, the central role of property rights as the single point of orientation in the macrosystem is palpable. Second, the attempt of social engineering, of remodelling actual societies according to a specific theoretical project comes to the fore. Third, international organisation like the IMF and the EU tend to see privatisation as one of the major success indicators in their attempt to measure and quantify, even control with cross-country validity the progress made by individual countries on their journey to the market. As a consequence, a typical form of socialist labour contest emerged, in which individual contenders go out of their ways in their attempt to outperform the quantitative indicators reported by the others. Finally, and also typically for the mental heritage of the command system, very little if any attention is paid to the substance that should be reflected by the quantitative indicator released for public use.
But over and above this paradox, the macro-interpretation conveys an important message. Namely that systemic change is not yet another attempt to stabilize economies in disequilibrium, nor is it about current account readjustment. The core of the problem is redistributing power, i.e. the disenfranchising a rent-seeking nomenklatura, whose resistance was known to have been responsible for thwarting all socialist reforms (Winiecki, 1988).
These fundamentals gather new momentum with the deceleration in the pace of transformation since 1993. In one election after the other political forces hostile to, or reserved against, the private market economy return to power or get reaffirmed in Eastern Europe. As a consequence the pace of ownership change has also been decelerating from Lithuania to Hungary, whereas in other countries like White Russia or Bulgaria privatisation tiptoes. The idea of controlled ownership change, especially if foreigners are involved, has gained official endorsement across the region. Forms that would allow for swift and decentral spread of private ownership are pushed to the background, whereas governmental attempts to specify who the (desirable) capital owner should be and how he should combine the factors of production continuously gain in significance, from Slovakia to Croatia. Labour and environmental constraints (East Germany), sectoral limitations (Russia), specific investment and organisational concerns of the government (Czech Republic), non-enforcement of existing rules (Romania) or governmental price setting for individual large deals (Hungary) join to the usual bureaucratic barriers to foreign entries. Each of the cases reflects attempts by influential segments of the power holders to retailor the distribution of incomes that would (have) result(ed) from the unconstrained workings of the free markets. In sum, the distributional aspect of privatisation seem to have unanimously overwhelmed the previously dominant technological, procedural and other microeconomic approaches in each and every transforming economy. For good or bad, this is a fact of life in the mid-1990s.

The paper is available here.