External Advisors and Privatization in Transition Economies

Abstract

This paper analyzes privatization and enterprise reform of three major countries in the transition region; Poland, Czechoslovakia (subsequently the Czech Republic), and the Soviet Union (subsequently Russia). For each, it discusses the prevailing ideologies of advisors prior to and during the transition process, the initial conditions faced by reformers and advisors, the policy frameworks that evolved, the results achieved, the mistakes made, and the opportunities missed. The ultimate conclusion is that while privatization could have and probably should have been done better, it nonetheless had to be done. The Czech Republic and Russia, and others in the region, are better off after the flawed privatizations they carried out than they would have been had they avoided or delayed divestiture. Poland, which did quite well at first in the absence of mass and rapid privatization, now finds itself burdened with a number of expensive and unproductive state firms. This paper shows how and why these outcomes came about, and what was the role of the external advisor community in the process.