Environmental Economics & Policies; Economic Theory & Research; Agribusiness & Markets; Water and Industry; Trade Policy; Free Trade
(Historic)Private Sector Development
Europe and Central Asia
Summary: What kind of privatization program is best suited to stimulate enterprise restructuring in former centrally planned economies? One view, expressed by most Western business and political leaders, is that privatization is best pursued case by case, with emphasis on sales to new owners, including foreign investors. Another view, espoused by a minority of "radical" economists and economists-turned-politicians, was that restructuring is best pursued through economic incentives, combined with "mass privatization of state enterprises so that they become widely held (public) joint stock corporations. The ultimate test, of course, is future productivity growth and rising welfare standards. We cannot yet measure these. The disaggregated data on production and employment by industry required for such a measure either are not available or are unreliable. The only objective measure available - comparable across countries - is export performance. Trade data reveal to what extent firms have been able to reorient themselves to create and exploit competitive advantages. We now have four years of data, enough to get an idea of what is going on, and to compare one Central or Eastern European country's performance against another's. The data suggest that the Czech Republic, the country that has pursued mass privatization most actively and credibly, has also done best in restructuring its industries and reorienting them toward world markets. Those that pursued a gradualist approach - Hungary being the main example - have changed their export structure less, but export growth has also been above average.
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