Privatisation of Socialist Economies: General Issues and the Polish Case

Summary The current drive towards privatisation by transitional economies of central and eastern Europe is based on the same expectation as privatisation in Western countries, i.e. greater efficiency through changed and improved incentives. This expectation is not controversial in the centrally planned economies in transition, because it is believed that privatisation will inject life into the inert traditional system, de-politicise economic life and harden budget constraints. In addition, private property was never completely abolished and a limited regime of private property seems to be inherently unstable, given the strong logical arguments and actual pressures for its extension. There are three main general issues raised by privatisation of the transitional economies of central and eastern Europe. First, in the early stages of economic reform and in order to free enterprise there is the danger of divesting central organs of their powers without transferring those powers to other agents. This raises on the one hand the problem of “re-subjectivisation” of ownership before privatisation, and on the other the problem of workers’ self-management institutions. Next, there is the risk of unfair private appropriation—whether legal or “wild”—of state assets. Last, when should privatisation occur in the sequence of reform measures relative to stabilisation, demonopolisation, and partial financial and productive restructuring? In Poland, privatisation has been facilitated by a long-standing tradition of private enterprise, but rendered difficult by the necessity to reconcile the sale of shares with the self-management institutions active in Polish enterprises (to be accomplished perhaps by reserving 20 per cent or so of shares to enterprise employees on privileged terms, or by a contractual package involving forms of profit sharing and “Mitbestimmung”). The debate in Poland has revolved primarily around the adverse distributional impact of privatisation, which sectors to begin with, the small size of the potential market, how to finance share purchases (free shares, credit or foreign capital), and the scope for debt-equity swaps. These issues reflect political struggle: the 15th version of the privatisation law was presented to Parliament in April 1990 and was met by a parliamentary counter-proposal. Although the law was finally approved in July 1990, it left open both the pace and modality of privatisation, further delaying progress towards privatisation .