Secondary Privatization in Transition Economies: The Evolution of Enterprise Ownership in the Czech Republic, Poland and Slovenia by Barbara Blaszczyk Iraj Hoshi Richard Woodward (review)

Abstract

REVIEWS 379 tryingto conceptualizethis along a two-dimensionalspectrum.Thus the book could have benefited from a final chapter offering critical perspective on the idea of 'soft' and 'hard' borders, seeking to reach some conceptual and theoreticalconclusions in the light of the wealth of empirical and case-based data and analysispresented here. Nevertheless, this is a welcome addition to the literature,notable for the consistentqualityof the chaptersand, often a problem with edited collections, the clarityof the organizationalstructureof the book as a whole. School of Government andInternational Affairs JOHN WILLIAMS DurhamUniversity Blaszczyk, Barbara; Hoshi, Iraj and Woodward, Richard (eds). Secondagy Privatization in Transition Economies: TheEvolution ofEnterprise Ownership in the CzechRepublic, PolandandSlovenia. Palgrave Macmillan, Basingstokeand New York, 2003. xvi + 268 pp. Figures. Tables. Notes. Bibliographies. Index. ?55 ??o THE sixteen economists contributingto this study of the early phases of the privatizationof the economies of the three countries covered in this volume provide some interestinginsightsinto the differentapproachesto the transformation process adopted in each of these erstwhile Communist economies. What they don't do is address in any depth the political constraints that informed the choice of transformationmodel in the three countries.For, parallel to the marketizationof their economies was the democratizationof their political systems,which imposed certain limits on the speed and characterof the privatizationprocess, particularlyin Slovenia and Poland. Thus, the fear of 'un-election'and of blatant 'nomenklatura-capitalism' (whereformerCommunist officialsused theirposition to acquireand/or asset-stripthe enterprises being privatized)caused the new political leaders to delay and institutionally constrainthe privatizationprocess. Interviewsof individualsinvolved in this processin Slovenia and Poland by this reviewerin the early I990S indicated the extent of the fear of such distortions of the market and the political sensitivityof the issues. In the Czech Republic, which was led by more ideologically committed economic purists, such considerationswere less in evidence, and the privatizationprocess was much less carefullyregulated.In all three cases, however, the expectationwas that the ownershipchanges thatwould occur subsequentto the initialdistribution of assets to the population (via vouchers or certificatesof share entitlement ) would rationalize the fragmentationof ownership and lead to a more efficientconcentrationof ownershipand, hence, better corporategovernance. To some extent this has happened and, as the authors show, the residual influence of the state on economic processeshas steadilydeclined. Moreover, they show, through economic and econometric analysis,that the modes and effects of secondary privatization were ultimately quite similar, despite the differencesin the models of privatizationinitially adopted. One of the most significantdevelopmentsin the laterprogressof the three economies has been 380 SEER, 85, 2, 2007 the opening up of the respective economies to foreign direct and portfolio investments, which have entailed the introduction of international product and quality standards. On the other hand, the authors occasionally point out that the effect of multinationalpenetration has sometimes run counter to the fiscal needs of the individual countries because of the common resort to transferpricing and other methods of concealing the true profitabilityof the in-country enterpriseand, thus, its taxability. Among the more interesting aspects of the primary and secondary privatization processes were the various state-sponsored investment funds. These were set up in all three countriesto restructureindividualstate-owned enterpriseswhich were not immediately saleable and prepare them for eventual sale to private individualor corporateowners. The institutionsproved to be very inefficientand unprofitablein all cases. They did not have the capital to make significant improvement in the viability or performance of the enterprisesassigned to them, and they operated under strong pressuresfrom the state and tradeunions, which were unwillingto accept the drasticrestructuring and labour-forcecuts, let alone liquidation, that were often requirecl. In most cases they continued to operate long aftertheir expected use-by date. In Poland these so-called National Investment Funds were kept alive by the very high management fees they contracted to pay to domestic and Western management companies, for whom they representedan importantcash cow. Moreover, the fee structurethat was mandated involved a surprisinglysmall performancebonus component. It was littlewonder that the NIFs themselves became the object of competition for both domestic and foreignstrategicand portfolio investments. While the book offers many interesting and detailed perspectives on the transformationprocess,a few mildlycriticalobservationsare in order.For one thing, although econometric analysesare often helpful in indicating causality or the lack thereof in statisticalterms, they rely on data sets which are...