Transformation is

1
Transformation is?
2
Transformation of the Economic System

• we want to discuss, because
• we want to discuss
• we like discussion

3
Transformation of the Economic System

• we want to transform, because
• we want to transform
• we like transformation

4
Transformation of the Economic System

• Private is

5
Transformation of the Economic System

• sexy

6
Transformation of the Economic System

• and / or

7
Transformation of the Economic System

• The major difference between
• Poland, Hungary, Czech Republic, Slovenia, GDR,
• and
• Russia, White Russia, Ukraine,
• in 1990 was?

8
Transformation of the Economic System

• The major difference between
• Poland, Hungary, Czech Republic, Slovenia, GDR,
  
• and
• Russia, White Russia, Ukraine,
• in 1990 was
• the experience in a market system!

9
Goals of the privatisation

• Efficiency increase
• Safeguard of the transformation process
• Capital and know-how inflow
• Incomes for the national budget
• Distributive justice

10
Privatisation strategies

• fast versus slowly
• sell versus for free
• Insider (worker, manager) versus outsiders
• Native versus foreigners

11
Adjustment of the enterprises

• State approach
• restructure first and then denationalize
• advantage
• Cross-subsidisation
• Protection from competition
• disadvantage
• Fewer incentives for restructuring
• No know-how inflow

12
Adjustment of the enterprises

• Market approach
• denationalize first / restructuring by private
  owners
• advantage
• Incentives for restructuring
• Competition creates new ideas
• Know-how and money transfer
• disadvantage
• No Cross-subsidisation
• Added value abroad

13
Privatisation methods

• Restitution
• Sale (direct or vendue)
• Mass privatisation
• Insider privatisation

14
Restitution

• Retransfer of state enterprises to the former
• owners
• Drawn-out  process
• Quality of the new management uncertain

15
Sale

• Advantage
• income for the national budget
• capital and know-how inflow
• higher efficiency by sales to strategic investors
  
• Disadvantage
• relatively drawn-out process
• lack of political acceptance

16
Mass privatisation

• Advantage
• can be very rapidly realised
• high political acceptance no sell-out to
  foreigners
• Disadvantage
• no income for the national budget
• no influence on corporate governance.
• no know-how inflow

17
Insider privatisation

• Advantage
• to realise very rapidly
• very popular by insider
• Disadvantage
• very unequal distribution
• no income for national budget
• no capital and know-how inflow
• no improvement of the corporate governance

18
Overview

• Primary methods of the privatisation

19
Privatisation progress and economic development
- Privatisation by sales -
GDP 2001 / GDP 1990 (in )
Privatisation progress of major companies (4 75
)
20
Privatisation progress and economic development
- Privatisation by coupons -
GDP 2001 / GDP 1990 (in )
Privatisation progress of major companies (4 75
)
21
Privatisation progress and economic development
- Insider privatisation -
GDP 2001 / GDP 1990 (in )
Privatisation progress of major companies (4 75
)
22
Privatisation progress and economic development-
Summary -
23
Privatisation - selected example of countries

• Privatisation by sale
• Poland
• Hungary
• Bulgaria

24
Privatisation - Sale

• Poland
• Weaker planning system
• Enterprises controlled by management and workers
• Backslide to communism no threat
• International competition
• Restrictive budget and monetary policy
• Sale only with approval of the insider
• Only 22 soled in 1996 (60 in 2001)
• Labour productivity growth 5,4 (annual 92 95)
• Partly state approach

25
Privatisation - Sale

• Hungary
• Weak central planning system
• Backslide to communism no threat
• High national budget deficit
• Threat of exploitation of the enterprises by the
  management
• Labour productivity growth 6,8 (annual 92 95)
• Sale to strategic investors, also foreign

26
Privatisation - Sale

• Bulgaria
• Strong political interference
• Former communist longer in power
• Backslide to communism not impossible
• Labour productivity growth - 1,4 (annual 92
  95)
• Privatised in 1995 only 8

27
Privatisation - selected example of countries

• Privatisation by coupons
• Czech Republic
• Russia

28
Privatisation - Coupons

• Czech Republic
• Socialistic economy
• State controlled companies
• Backslide to communism no threat
• Good economic situation
• Shares sold to investment funds
• No foreign investment
• Labour productivity growth 6,8 (annual 92 95)

29
Privatisation - Coupons

• Russia
• 70 years socialism
• Backslide to communism not impossible
• Coupons with insider (management) preferring
  rules
• Loans for shares program
• 2/3 of the shares of 2/3 of the companies were
  owned by Insider
• No foreigners
• Lack of management control

30
Privatisation - selected example of countries

• Insider privatisation
• Ukraine
• Slovenia

31
Privatisation - Insider

• Ukraine
• 70 years socialism
• Some elements of a free market and competition
  order
• No transformation strategy
• Corruption
• No security for private property
• Now foreigners

32
Privatisation - Insider

• Slovenia
• high level of economic development in 1990
• Market system since 1952
• International competition
• 2 Mio. inhabitants

33
Privatisation progress and economic development-
Summary -
34
Privatisation progress and economic development

• Conclusion
• Poland, Hungary (sale)
• on the same level
• Czech Republic (mass)
• Insider (except Slovenia) worse

35
Privatisation progress and economic development

• Similarities between
• Poland, Hungary (sale) Czech Republic (mass)
• Ownership concentration
• High labour productivity growth
• International competition

36
Privatisation White Russia

• ?