Separation of ownership and control in transition: The case of Bulgaria

Abstract

SINCE THE BEGINNING OF THE 1990s state enterprise transformation in Bulgaria has encountered three difficulties. First, the unestablished property rights and enterprise autonomy create the conditions for discretionary managerial behaviour. At first glance this is the problem of inefficient insiders. Second, the withdrawal of the state from enterprise control and the lack of new owners generate conditions for strong political influence on the managers. This is the problem of unproductive outsider control by interest groups. Third, the state preserves its role of formal owner of company assets without assuming economic liability and residual risk from the economic reform. This is the issue of inefficient state bureaucracy behaviour. In the Western literature on this topic the dominant view is that privatisation must play a key role (Fisher, 1993) and the chief criterion for the different privatisation schemes is 'effective private control after the transfer of ownership' (Blommestein, Geiger & Hare, 1993). In this general framework there are different opinions on how efficient managerial behaviour in large privatised former state-owned enterprises could be achieved-through core personal investors (Komai, 1990), or financial intermediaries (Frydman & Rapaczynski, 1992), or employee control and bank control as in Japanese-type organisations (Acs & Fitzroy, 1994). Surprisingly however, Bulgarian practice follows neither the good objectives formulated in the different recommendations put forward by privatisation advisers nor even the privatisation programmes themselves.' There is another logic of economic reform of state enterprises and it can be seen in Bulgaria's peculiar separation of ownership from control among insiders, state bureaucracy and interest groups. The purpose of this article is to examine the specific type of control and managerial discretion established in state-owned enterprises after the communist collapse and their reflection in the enterprises' responses in the transition. First I briefly discuss the general theoretical framework of the study. Then I propose a historical property-rights approach to the evolution of control structures in the Bulgarian economy. Next I describe practical evidence of the specific ownership and control structures of 'sole-trader companies'. Finally I draw some conclusions about different types of managerial strategies in the transition. The empirical object of study is the Bulgarian economy, but by extension the results can explain post-socialist managerial behaviour in general.