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The Pros and Cons of Banking Socialism

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Author Info
Martin Gregor () (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

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Abstract

When nominal wage rigidity is large, and banking sector oligopolistic, the benevolent government may prefer to regulate interest rates to boost labor demand. A government of a transition economy may postpone bank privatization to keep credit provision under control, as long as inefficiencies of state ownership are not prohibitive. We model a transition economy where the government initially owns enterprises as well as banks. The economy features constant wage, and strong market power of banks. Under these conditions, we identify when the government has incentive to privatize enterprises and/or banks. We derive conditions under which the banking socialism (the government owns banks, but privatizes enterprises) dominates other institutional modes: socialism, industrial socialism, and capitalism.

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Publisher Info
Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2007/03.

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Length: 18 pages
Date of creation: Jan 2007
Date of revision: Jan 2007
Handle: RePEc:fau:wpaper:wp2007_03

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Related research
Keywords: privatization banking transition

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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References listed on IDEAS
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  1. Börner, Kira, 2004. "The Political Economy of Privatization," Discussion Papers in Economics 296, University of Munich, Department of Economics. [Downloadable!]
    Other versions:
  2. Megginson, William L., 2005. "The economics of bank privatization," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 1931-1980, August. [Downloadable!] (restricted)
  3. Desai, Raj M. & Olofsgard, Anders, 2006. "The political advantage of soft budget constraints," European Journal of Political Economy, Elsevier, vol. 22(2), pages 370-387, June. [Downloadable!] (restricted)
  4. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March. [Downloadable!] (restricted)
  5. J. Kornai & E. Maskin & G. Roland., . "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki".
    Other versions:
  6. Rudiger Ahrend, 2002. "Beyond Machiavellism : The Political Economy Of Privatisation," DELTA Working Papers 2002-12, DELTA (Ecole normale supérieure). [Downloadable!]
  7. Bortolotti, Bernardo & Fantini, Marcella & Siniscalco, Domenico, 2001. "Privatisation: politics, institutions, and financial markets," Emerging Markets Review, Elsevier, vol. 2(2), pages 109-137, June. [Downloadable!] (restricted)
  8. Jones, Steven L. & Megginson, William L. & Nash, Robert C. & Netter, Jeffry M., 1999. "Share issue privatizations as financial means to political and economic ends," Journal of Financial Economics, Elsevier, vol. 53(2), pages 217-253, August. [Downloadable!] (restricted)
  9. P. Lian & S.-J. Wei, 1998. "To Shock or Not to Shock? Economics and Political Economy of Large-Scale Reforms," Economics and Politics, Blackwell Publishing, vol. 10(2), pages 161-183, 07. [Downloadable!] (restricted)
  10. K. Balla & G. Kertesi, 2005. "Privatization, Unemployment and Subsidy," 2005 Meeting Papers 75, Society for Economic Dynamics. [Downloadable!]
  11. Lorand Ambrus-Lakatos & Ulrich Hege, 1998. "Delegation and Delay in Bank Privatization," William Davidson Institute Working Papers Series 181, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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