On the privatization of "Stolen Goods" in Central and Eastern Europe

Many scholars assert that the process of privatizing state-owned firms in Central and Eastern Europe has been a success because privatized firms are performing better than they did before. The assertion is an empty piece of poetry. To begin with, privately owned firms are more efficient than state owned firms. Hence, the evaluation of the process of privatization in Central and Eastern Europe does not depend on some measured efficiency of privatized firms. The evaluation of privatization should be based on the contribution of privatized firms to the attainment of two major initial objectives of institutional restructuring in post-communist Central and Eastern Europe: the acceptance of capitalism and the development of free-market, private-property institutions. The paper argues that the privatization of state-owned firms has failed to contribute to those two objectives. Analysis attributes this failure of privatization to the neoclassical model, the absence of de-communization in the region, and the unwillingness of new rules to assign the value of state-owned firms to their rightful owners.