PRIVATIZATION IN CENTRAL AND EASTERN EUROPE
Winter Term 1996
Joel Turkewitz
Privatization Project
for the Department of International Relations and European Studies
Central European University


Course Description

Five years after the tumultuous events of the winter of 1989, when the "realities" of the world seemed to change before our eyes, observers have learned to be more cautious in their expectations for the future. Gone are the confident predictions of rapid change from state-controlled economies to efficient systems based on private property, replaced by a grudging acceptance that "privatization" in Eastern Europe has little in common with a large garage sale, or some other process of distribution. In 1994, participants and observers speak of privatization as a contingent process, replete with complexities both theoretical and technical.

This course will examine some of these complexities, focusing on the concept of what is property, and how it is possible for a functional and efficient property system to develop.

In order to approach these issues, the course will begin with a discussion of definitions of property. It will then move to an exploration of how property and ownership did or did not exist in the planned economies of the communist period. An analysis of some of the different privatization strategies that have been implemented in the region will follow, highlighting the experiences in the Czech Republic, Hungary, Poland, and Russia. Finally, we will explore the problems faced by each of the countries due to the privatization mechanics they have selected to implement. It should be stressed that this is not a "how to" course about how to privatize assets, not will there be a final judgment on which is the best privatization strategy. Rather, the course will concern itself with why privatization is important, and look at how ideas of property are being translated into systems of property.

Given the incomplete nature of the privatization process, emphasis will be placed on reading current research in the field and on relevant legislation. Case studies will be used extensively as will the comparative research work of the Privatization Project. No prior economics or legal training is required.


Outline:

Week 1: Introduction to Privatization
-Define privatization?
-What is the importance of privatization in the on-going economic transformations.

Readings:
Clarke, Fairbrother, Borisov, & Bizyukov, "The Privatization of Industrial Enterprises in Russia: Four Case Studies, " Europe-Asia Studies, vol. 46, No. 2, 1994, pp. 179-214.
Frydman and Rapaczynski, "Markets and Institutions and Large-scale Privatization: An Approach to Economic and Social Transformation in Eastern Europe," in Frydman and Rapaczynski, Privatization in Eastern Europe: Is the State Withering Away?, 1994, pp. 10-44.

Optional:
Hartley and Parker, "Privatization: A Conceptual Framework," in Ott and Hartley, Privatization and Economic Efficiency, 1991, pp. 11-24.


Week 2: Property and Ownership
-What is property?
-How do "efficient" property regimes function?
-Structure and functioning of private firms

Readings:
selections from Williamson, O.E. Markets and Hierarchies: Analysis and Antitrust Implications: A Study in the Economics of Internal Organization, 1975
Coase, R.H. "The nature of the firm," Economica, November 1937


Week 3: Property Under Communism
-Does property exist under communism?
-The mechanics for handling coordination problems in state enterprises

Readings:
Selections from Kornai, Janos, The Socialist System, 1992
Sajo, Andras, "Diffuse Rights in Search of An Agent: A Property Rights Analysis of the Firm in the Socialist Market Economy," International Review of Law and Economics, 1990, pp 41-59


Weeks 4, 5: Strategies for Privatization
-Division of privatization structures: small v. large; fast v. slow; standard v. non-standard
-Country analysis:
-Small: Czech v. Poland v. Hungary v. Russia
-Fast: Czech v. Russia
-Medium: Hungary
-Slow: Poland

Readings: (selections from)
Frydman, Rapaczynski, Earle, et al, The Privatization Process in Central Europe, 1993
Frydman, Rapaczynski, Earle, et al, The Privatization Process in Russia, Ukraine and the Baltic States,1993
Earle, Frydman, Rapaczynski, Turkewitz, Small Privatization: The Transformation of Retail Trade and Consumer Services in the Czech Republic, Hungary and Poland, 1994
Stark, David , "Path Dependency and Privatization Strategies in East Central Europe," East European Politics and Societies, 1992, vol. 6, no. 1


Week 6: Experiences: Small Privatization
-Small privatization as creating owner-manager establishments.
-The keys to success of failure.
-The meaning of success.

Readings (selections from)
Earle, Frydman, Rapaczynski, Turkewitz, Small Privatization: The Transformation of Retail Trade and Consumer Services in the Czech Republic, Hungary and Poland, 1994


Weeks 7, 8: Experiences: Large Privatization
-The outcome of privatization
-Quantitative data
-Amount privatized
-Distribution of ownership
-Qualitative data
-Creation of effective corporate governance mechanisms
-Incentives for restructuring

Readings:
Stark, David , "Privatization in Hungary: From Plan to Market or From Plan to Clan," East European Politics and Societies, 1990, vol 4, no 3.
Stark, David, Recombinant Property in East European Capitalism, unpublished manuscript, May 1993.
Charap and Zemplinerova, "Restructuring in the Czech Economy" EBRD Working Paper No. 2, March 1993
Pinto, Belka & Krajewski, "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms," Brookings Papers on Economic Activity, 1993, no. 1, pp 213-255
Frydman, Gray, Rapaczynski, Turkewitz, Ownership and Performance: A comparative study of medium and large size firms in the Czech Republic, Hungary and Poland, unpublished manuscript, 1995.


Weeks 9,10: The Ambiguity of Privatization
-The developing economic trajectories.
-Ownership and institutional development

Readings:
Frydman, Rapaczynski, Earle, "Ambiguity of Privatization and the Paths of Transition to a Private Property Regime" in Frydman, Rapaczynski, Privatization in Eastern Europe: Is the State Withering Away?, 1994.
Pistor, Turkewitz, "State Ownership After Privatization," in Corporate Governance in Eastern Europe, CEU & WB Press, 1995.


Week 11: Conclusion


CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: April, 1996


Tur_Privatiz.W96IR.v2

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