Domestic Privatisation and its Effects on Industrial Enterprises in East-Central Europe: Evidence from the Czech Motor Component Industry

Abstract

PRIVATISATION OF FORMERLY STATE-OWNED ENTERPRISES (SOEs) has been considered one of the most important issues of post-communist economic transformation into market-based economic systems in East-Central Europe (ECE). Privatisation of all economic sectors (i.e. industry, agriculture, services) and the development of the private sector in the economy was the central element of all economic ‘transition’ plans. According to the liberal view, the ‘transition to capitalism’ would fail without successful privatisation and development of the private sector because a market economy cannot function properly without private ownership (e.g. Claudon & Gutner, 1992; Economist, 1991). In the early 1990s ECE governments prepared conditions for the development of private capital by establishing private property rights and legalising private ownership. New laws were put in place designed to equalise tax treatment with state-owned e rms, remove restrictions on private e rms’ size and activities, free private procurement and distribution, and reduce bureaucratic requirements for establishing new e rms (Gelb & Gray, 1991). While these government policies supported the development of new small-scale private enterprises, they did not solve the problem of privatisation of the SOEs. 1 A major discussion emerged around the techniques, speed and time frame of privatisation of SOEs. 2 The selection of privatisation strategies typically represented