Crucial relationship between the privatized sector and the generic private sector in post-communist privatization: Determinants of economic performance

Abstract

This article looks at the issue — largely neglected in the transition literature — of the relative weights of the privatized sector and the generic private sector (of de novo private firms) in the emerging private sector of post-communist economies in transition. The present writer posits that the relative weight of each in the aggregate share of a private sector (generally expanding over time as transition progresses) strongly influences economic performance, both during correctional recession and during recovery and expansion period. Another, interrelated issue considered here is the interaction between the evolving institutional framework and the expansion of the generic private sector, that is the most dynamic one in the transition economy. It is true that the interaction between institutions and performance has been a staple of a very large number of books, articles, and papers. However, this article concentrates on one component of a private sector only, that is the generic private sector. But at the same time it looks beyond the ‘Holy Trinity’ of transition (stabilization, liberalization, and privatization) towards a wider institutional framework of political liberty, law and order. The foregoing wider framework, and the emerging general trust, matters as much — if not more — for the present writer as the standard transition program. It is the relative dynamics of both components of the private sector, affected by both standard transition programs and the above-mentioned wider institutional framework, that is of primary importance for the economic performance in post-communist transition. In the last part of the article I will try also to answer, tentatively, the question under which circumstances the wider institutional framework may emerge in the transition process.