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In search of owners : lessons of experience with privatization and corporate governance in transition economies

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  • Gray, Cheryl W.
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    Abstract

    The author reviews the goals of privatization and evaluates various methods used to achieve them in different transition settings. The task is not only to change ownership but to create corporate governance and to further the development of legal norms and supporting institutions needed in full-fledged market economies. Initial results of privatization programs are only part of the picture. How they foster further evolution of ownership is equally important. Experiments in privatization abound, from extensive efforts at sales to strategic owners (as in Estonia and Hungary), to programs based primarily on insider buyouts (as in Russia and Slovenia), to innovative mass privatization programs involving the creation of large and powerful new financial intermediaries (as in the Czech and Slovak Republics and Poland). Each approach has inherent strengths and risks. But if the objectives are to severe the links between the state and the enterprise, to school the population in market basics, and to foster further ownership change, the initial weight of evidence seems to favor significant reliance on voucher privatization, especially given the difficulty most countries have finding willing cash investors. Formal programs of enterprise privatization are often only a small part of the picture, although they get the most attention. Even where formal privatization has been slow (as in Bulgaria and the Ukraine), a process of asset"recombination"is occurring, often behind the scenes - whether a recombination from state to private firms or from some private firms to others. In the Czech Republic, for example, the ownership of enterprise shares by funds or fund shares by individuals will change through formal and informal trading, but the ownership of enterprise assets may also shift to some extent as owners or managers sell or spin-off assets into new companies. In Russia, this shifting of assets to new, more closely held firms may be quite widespread, as managers with small minority ownership stakes in newly privatized firms try to gain greater control over assets. As one Hungarian observer noted, this is the period of"primitive capital accumulation"in the post-socialist world. Formal programs may lay important ground rules but uncertainties of every type overwhelm most formal efforts at privatization. The final outcome is far from predictable.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1595.

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    Date of creation: 30 Apr 1996
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    Handle: RePEc:wbk:wbrwps:1595

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    Related research

    Keywords: Banks&Banking Reform; Financial Crisis Management&Restructuring; International Terrorism&Counterterrorism; Economic Theory&Research; Municipal Financial Management; Economic Systems; Economic Theory&Research; Banks&Banking Reform; Municipal Financial Management; Financial Crisis Management&Restructuring;

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    1. J. Earle & S. Estrin & L. Leshchenko, 1996. "Ownership structures, patterns of control and enterprise behavior in Russia," LSE Research Online Documents on Economics 20642, London School of Economics and Political Science, LSE Library.
    2. Barberis, Nicholas & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(4), pages 764-90, August.
    3. J Earle & S Estrin & L Leshchenko, 1996. "Ownership Structures," CEP Discussion Papers dp0315, Centre for Economic Performance, LSE.
    4. Maxim Boycko & Andrei Shlelfer & Robert Vishny, 1993. "Voucher Privatization," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 85, Chicago - Center for Study of Economy and State.
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