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The Pros and Cons of Banking Socialism

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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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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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Keywords: privatization; banking; transition;

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  1. Wadim Strielkowski, 2006. "People of the Road: the Role of Ethnic Origin in Migration Decisions. A Study of Slovak Roma Asylum-Seekers in the Czech Republic in 1998-2006," Working Papers IES 2006/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2006.
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