On the Political Economy of Privatization in Eastern Germany

Privatization in Eastern Germany has largely been deemed very special, efficient and unpolitical in the sense that the government and its privatization agent, the Treuhand, behaved in a welfare-maximizing manner (Brüicker. 1997; Dyck, 1997; Fischer et a!., 1996; Freest. 1995). The government and/or Treuhand were right to choose privatization as the major aim to promote efficiency and to pursue other aims as well, to choose negoliiitioiis as the major privatization method and to choose a state organization somewhere between a bureau and a public firm (Anslull) as the organizational form for the privatization agent. There were no other real and better alternatives available, given the conditions for the privatization in Eastern Germany. Efficiency aims dominated equity aims, il political conditions were taken into account in this economics of privatization approach they were explained ad hoc and exogenously given to the government and/or Treuhand, This seems to be an incomplete picture of eastern German privatization, because the Jasinski-Yarrow privatization paradox applied in Eastern Germany as It applied in other countries: Like public ownership itself, privatization is a policy of the state and is determined by political decision makers. The motives that drive privatization will be those of politicians and bureaucrats, which, as a consequence of the political agency problem, can not in general be identified with the public interest, social welfare or economic efficiency. This leads to the paradox (or dilemma) of privatization: the process of privatization is liable to be subject to the same kinds of inefficiencies — deriving from the political and enterprise agency problems — as the SOEs that it seeks to eliminate. Put another way, government failure is both a motive for privatization and an obstacle to its efficient implementation. (Jasinski and Yarrow, 1996, p. 18)