Making a market: Mass privatization in the Czech and Slovak Republics

Shafik, Nemat

doi:10.1016/0305-750x(95)00037-d

Cited by 60 publications

(32 citation statements)

References 2 publications

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Section: Medvedev 2000; Ganev 2007mentioning

confidence: 99%

“…Given this combination of factors, it is thus highly unlikely that states would have been able to use detailed information on firm performance as a criterion for firm selection. The Czech Center for Coupon Privatization, for example, published information on the firms to be included in mass privatization with the explicit caveat that "much of the data [are] of dubious quality and may not be relevant in a rapidly changing economic situation" (Shafik 1995(Shafik : 1144.The greatest obstacle to constructing a suitable dataset, however, is the inherent difficulty in using market economy performance evaluation criteria to measure the performance of firms prior 29 to privatization. Although accounting records of late-socialist state enterprises included metrics of revenues, costs, profit, and productivity, these data cannot be analyzed through the "performance" lens used to evaluate firms in a free-market economy.…”

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confidence: 99%

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Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

2012

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Why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others? Three main arguments have been advanced: (1) successful countries rapidly implemented neoliberal policies; (2) failures were not due to policies but to poor institutional environments; and (3) policies were counterproductive because they damaged the state. We present a state-centered theory, and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance: mass privatization programs, where implemented, created a massive fiscal shock for post-communist governments, thereby undermining the development of private sector governance institutions and severely exacerbating the transformational recession. We perform cross-national panel regressions for a sample of 30 post-communist countries between 1990 and 2000, and find that mass privatization programs negatively affected economic growth, state capacity, and property rights protection. These findings are corroborated with firm-level data from a representative survey of managers in 3,890 companies operating in 24 post-communist countries. We show that within countries which implemented mass-privatized programs, newly privatized firms were substantially less likely to engage in industrial restructuring but considerably more likely to use barter and accumulate tax arrears than their state-owned counterparts.3 Between 1989 and 1991, the Soviet empire disintegrated. Western-trained neoliberal economists provided the blueprint for constructing capitalism amidst the ruins of state socialism, advocating "shock therapy": rapid privatization, liberalization of prices and trade, and fiscal and monetary austerity (UNDP 1999). Although sociologists and economists critiqued these policies and their pace (e.g. Stark 1992; Burawoy and Krotov 1992; Kornai 1990 Kornai , 1995, a group of neoclassical economists at Harvard believed that they were necessary; this perspective was also dominant among economists working for international financial institutions (Cohen 2001;Wedel 2001). 1 As Lawrence Summers put it, "Despite economists' reputation for never being able to agree on anything, there is a striking degree of unanimity in the advice that has been provided to the nations of Eastern Europe and the former Soviet Union. ... [P]rivatization, stabilization, and liberalization ... must all be completed as soon as possible " (1994: 252-253). Most postcommunist countries implemented versions of the shock therapy package. Of the three major policies, privatization proved to be the most difficult to implement and yielded the greatest variance in outcomes.Despite initial optimism, economic performance was disastrous in most post-communist countries, as shown in Figure 1. Between 1990 and 1996, per [Insert Figure 1 here]To evaluate the competing explanations of this variation, we first review the initial theories of transition and the leading 'post-mortem' explanations ...

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Section: Medvedev 2000; Ganev 2007mentioning

confidence: 99%

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confidence: 99%

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

2012

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“…In a country such as the Czech Republic, where Shafik (1995) reports the state owned 98 percent of all property in 1989, the reduction in SOE involvement to the 30-50 percent range common throughout the region today must seem nothing short of miraculous--even if declining state ownership does not necessarily mean a commensurate decline in state influence. economies, and have declined in importance only slightly in Africa--where they retain the highest fractional share of GDP (over 13 percent) of any region.…”

Section: Economic Impact Of Privatizationmentioning

confidence: 99%

“…mass privatization is a viable alternative to a case-by-case approach to divestment. Two other primarily descriptive papers are Drum (1994) and Shafik (1995), who examine mass privatization programs in the Ukraine and the Czech Republic, respectively.…”

Section: Voucher Privatizations In Transition Economiesmentioning

confidence: 99%

From State to Market: A Survey of Empirical Studies on Privatization

2001

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper was developed with financial support from the SBF Bourse de Paris and the New York Stock Exchange, and the assistance and comments of George Sofianos, Bill Tschirhart, Jean-Claude Cosset, Kathy Dewenter, Ranko Jelic, John Nellis, Rob Nash, Marc Lipson, Harold Mulherin, and Annette Poulsen is gratefully acknowledged. Earlier drafts of the authors' privatization works cited herein have benefited from comments received from participants at the 1993 National Bureau of Economic Research corporate finance conference, the 1994-1998 American Finance Association annual meetings, the 1994 American Economic Association meeting, the 1994 Political Economy Research Center Privatization Forum, the 1995-1998 Financial Management Association annual meetings, the 1995 European Finance Association meeting, the 1997 NYSE Cancun Conference on Global Equity Issuance, and seminars at the Copenhagen Business School, the Norwegian School of Management, the University of Chile, the Federal Reserve Bank of New York, Emory University, the University of Georgia, Florida State University, Virginia Tech, Indiana University, The University of Houston, and Tulane University. All remaining errors are the authors' alone. This study surveys the academic and professional literature examining the privatization of stateowned enterprises (SOEs), with a focus on empirical studies. The paper is written from the perspective of a policy-maker weighing the adoption of a national privatization program, who seeks answers to the following questions: (1) How large an impact have privatization programs actually had thus far on state involvement in different national economies?; (2) Has the decision to privatize been based on dissatisfaction with the economic performance of SOEs, and is there a viable policy alternative to divestment?; (3) Have privatization programs significantly improved the operating and financial performance of the companies divested?; (4) Terms of use: Documents in EconStor mayOnce the decision to privatize is made, how do governments select the appropriate method and sequencing of selling state-owned assets?; (5) How do governments price the SOEs they wish to sell and how do they decide which potential buyers to favor?; and (6) Have investors who purchase the shares of privatized firms experienced positive short and long-term returns?Privatization has been instrumental in reducing state ownership in many countries and had a transforming effect on global stock markets, al...

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“…This conflict of interest is well recognized. (see also Anderson and Makhija [6], Bekhaert [7], Boyco et al [8,9], Laffont et al [10], Begg [11], Blanchard et al [12], BosnerNeal et al [13], Carlin et al [14], Classens [15], Classens et al [16], Fluck et al [17], Frydman et al [18], Hingorani et al [19], Lopez-de-Silanes [20], Makhija et al [21], Maskin [22], Pohl et al [23], Shafic [24], Zijlstra [25]). However, as witnessed from the privatization experience of the Eastern European countries, the implemented privatization scheme, such as the voucher system, failed to protect the interests of the citizens.…”

Section: Introductionmentioning

confidence: 99%

The Alignment of Interests of the “Private Sector” and the Citizens During a Transition Period in Transition Economies

Ang¹,

Kraizberg²

2009

TOBJ

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Abstract:The ownership of over 1600 firms in the Czechoslovak Socialist Republic has been transferred to the private sector in the early 90's. Twelve years later, less than 5% of the firms are still public companies and it is estimated that the assets of over 90% of the firms have been stripped and sold to various operators [1][2][3][4][5]. When governments decided to privatize state owned enterprise and distribute shares to the citizens, it needs to solve two problems. The first is how to level the playing field for the disadvantaged citizens, who are less sophisticated and too diverse to organize against expropriation by others. The second is to obtain new financing for the privatized firms. We propose an original scheme in which the less sophisticated citizens make 'sidecar' investment along side the sophisticated, but with a right to redeem their shares. The scheme assures the citizens do not misallocate funds to less valuable firms, or pay more than what the sophisticated pay. It also align the interests of the citizens and the sophisticated investors such as investment funds.

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Making a market: Mass privatization in the Czech and Slovak Republics

Cited by 60 publications

References 2 publications

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

From State to Market: A Survey of Empirical Studies on Privatization

The Alignment of Interests of the “Private Sector” and the Citizens During a Transition Period in Transition Economies

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