IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Enterprise reform in Eastern Europe

  • van Wijnbergen, Sweder

Enterprise reform is emerging as the core economic problem in Eastern Europe. As privatization has been delayed, a new problem has emerged, largely unanticipated by outside advisers: It is probably possible to run a clear-cut state enterprise efficiently, and it is certainly possible to get efficient performance from a private enterprise. But it is utterly impossible to get anything like efficiency from an enterprise for which the current and future ownership status are in limbo. What has happened in Poland, where reform started earlier than elsewhere, is probably a harbinger of things to come. Two years after the crumbling of central authority that used to exercise both ownership and control, ownership of state-owned enterprises remains ineffective and control diffuse. Lacking sharply defined control rights, various groups (workers, incumbent managers, and local authorities) often had no other way of demonstrating their clout than by disrupting the enterprise. And with changes in ownership announced but not implemented, managers and workers councils alike have every incentive to decapitalize the enterprise and increase its debts. Eastern Europe is not well served with straight textbook advice. The common wisdom on privatization fails to address the problems created by diffuse ownership and conflicts over control that exist before privatization. Regular cash auctions may fail to match managers and capital stock efficiently because of pervasive wealth constraints. Standard service on enterprise restructuring does not allow for the sheer scale of the problem or the special reasons why, in Eastern Europe, current profits are a poor guide to potential profitability. Simply applying Western bankruptcy procedures based on current data about enterprise profitability introduces a destructive bias toward liquidation and delay. And, the author argues, introducing Western style unemployment insurance, although it would lower the social costs of unemployment, could also contribute to its indefinite extension. The author sketches how these problems can be addressed by incorporating all the incentive problems specific to Eastern Europe into the design of the policies to be implemented. Sometimes the advice that results is novel and as yet untried; sometimes examples exist of its successful implementation. But the alternative is a long period of declining incomes and, presumably, increasing social unrest as the consensus underlying the reform programs begins to erode.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1993/01/01/000009265_3961004001134/Rendered/PDF/multi_page.pdf
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1068.

as
in new window

Length:
Date of creation: 31 Jan 1993
Date of revision:
Handle: RePEc:wbk:wbrwps:1068
Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters, in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
  2. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1068. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.