REVIEWS 793 Schutte, Clemens. Privatization andCorporate Control intheCzech Republic. Studies in Comparative Economic Systems. Edward Elgar, Cheltenham and Northampton, MA, 2000. xx + 322 pp. Tables. Notes. Bibliography. Index. ?6s.oo. CZECH voucher privatization, implemented in two waves between I992 and 1995, won accolades for the speed with which state propertywas transferred into private hands. Internationalagencies enthusiasticallygave the country a top rating as a leader in economic transformationand the same method was recommended for others. This book follows that argument through, ending with a broadly favourable assessment, but also a number of substantial criticisms.The researchappearsto have been undertakenmostly in I995 and I996, with a few points added up to I998. The use of more recent evidence would almostcertainlyhave led to a more pessimisticconclusion. Formerstate enterprisesprivatizedby thevouchermethod have generallyperformedbadly. A study by the Ministry of Industry that laid the basis for the Czech government's assessment of the state of economic transformation in I999 shows them doing consistently worse than those left under state ownership and farworse than those sold to majorforeigncompanies. Clemens Schutte's study outlines the privatization process and follows through the development of corporate governance structures. Those parts that deal with events in mid decade are accurate and detailed. There is information not previously available in English and useful discussion of key issues. For example, he demonstrates how banks, through investment funds they set up, establishedstrongpositions as ownersof industrialenterprises.He shows how the legal framework failed to contribute towards satisfactory corporate governance. There are lengthy sections demonstrating the inadequacy of bankruptcylaws and of protection for minority shareholders.To some extent, his criticismshave been supersededby revisionsto the laws, but these parts make the book a valuable addition to the history of economic transformation. The book is weaker on more general backgroundpoints where there are unnecessarymistakesand over-simplifications.Klaus became Prime Minister in I992, not i990 and the debates over economic reform and privatization were more lengthy and complex than the author acknowledges. Subsequent experience might also shift the focus in a chapter discussing corporate governancewhich followsa traditionaleconomist'sapproachof concentrating on structuresthat create incentives for maximum managerial efficiency.The more seriousproblem has been the danger of outrighttheft. The Czech term 'tunnelling', meaning the removal of a firm's assets by the management, appearsonly twice in the book. It has been crucialto varyingdegrees to many of the investment fundsthat emerged with voucher privatization(a point that was already very clear by I997), to new small banks (a point Schutte acknowledgesand documents),to one of the biggestbanksand to a numberof small, and even some very large, industrialenterprises.Voucherprivatization put effective power in the hands of people who in many cases lacked the ability,and in some also the moral qualities,for thejobs they had acquired. There are also alternative interpretations on the core points of Schuitte's empirical argument. His belief is that owners were exercizing effective 794 SEER, 79, 4, 200I corporate governance and ensuring active restructuring. Changes within enterprisesthemselves are not his centraltheme, but the evidence he presents actuallypoints to some failuresto assertcontrol and only a few casesof owners changing management teams. There are otherswhere theywere more passive and effectively supported the incumbent management. They lacked the expertise tojudge managerialdecisions and also to find a better management team. Schutte'sevidence suggeststhattheywere able to influencesome simple decisions such aspayment of dividends,but only a very smallminorityof firms actually paid any dividends at all. Some other research suggests that banks and their funds sought majority control largely because that increased the value of the shares they held. They took seats on boards partly for the handsome financial rewards they received and partly to limit the danger of anyone else 'tunnelling'the company. Schutte's concluding recommendations could have avoided many of the problems that have emerged with Czech privatization. He criticizes the postponement of bank privatization and the failure to develop a strong legal framework. The trouble is that these points, if meant seriously, could have ruledout the elements of the transformationthat he likes.Banks,as he argues, were pressured from the government into offering unsound credit. This, however, was crucial to financing privatization, much of which was done on credit, to the subsequent concentration of ownership and to the survival of...