The Rise and Fall of Investment Companies in Slovakia
Hake, Eric R., Journal of Economic Issues
In the early period of post-communist reform, many authors were optimistic about Czechoslovakia's prospects for rapidly privatizing its state property. Unlike Poland or Hungary, Czechoslovakia had experienced little liberalization of its economy: as late as 1989, the private sector share of net material product was only 3.6 percent [Mladek 1993, 127]. It was assumed the strong presence of the state in firm ownership would allow government coordination of reform efforts without requiring concessions to existing management or labor interests [Frydman, Rapaczynski, and Earle 1993, 51-52; Frydman and Rapaczynski 1994, 103-106]. This interpretation was supported by Czechoslovakia's wholesale adoption of voucher privatization, a technique that promised to rapidly convert state-owned property into privately held assets through the creation and public distribution of state enterprise stock.
Unfortunately, the results of voucher privatization did not justify this optimism. The transformation of industrial ownership required the creation of financial markets and agents to supplant the linkage of government and industry. Despite the passage of laws defining these new institutions, lax enforcement allowed concentration of ownership among newly created financial agents. Following the Velvet Divorce of 1993, the division of Czechoslovakia into the Czech and Slovak Republics, legislative reform in the Czech Republic has sought to strengthen the regulation of its nascent financial sector, and a literature describing financial/industrial ownership in the Czech Republic has developed [Kenway and Klvacova 1996; Pistor and Turkewitz 19961. The Slovak response to voucher privatization, however, has not received such close attention.
From 1993 to 1998, the policies of Slovak Prime Minister Vladimir Meciar sought to minimize the influence of the new system of industrial ownership by reconstructing the institutions associated with privatization. This paper focuses on one component of this reconstruction--the independence and function of financial intermediaries created during the first wave of Czechoslovakia's voucher privatization. While financial intermediaries were designed to represent outside interests and to facilitate the process of reorganization, some have seen their licenses revoked for unclear reasons, while others have prospered through their affiliation with government agencies, state-influenced financial institutions, and the management of key industries. The resulting domestic industrial policy of state-supported financial/industrial conglomerates is Slovakia's response to the first wave of voucher privatization and the forces it unleashed.
In 1998, opposition parties were finally successful in joining together to unseat Meciar by forming the multiparty Slovak Democratic Coalition (SDK) for the purpose of the general election. Uncovering and reversing the privatizations carried out under the former government is part of Prime Minister Mikulas Dzurinda's stated goal of making Slovak business and society more transparent to the international community. Despite this clean-hands campaign and the fact that Meciar was arrested on abuse of power charges in April 2000, it remains to be seen whether the new government will be able to successfully reform the domestic government/industry linkages promoted by Meciar or will simply replace Meciar affiliates with allies of the Slovak Democratic Coalition.
It is hoped the focus of this paper continues the institutional analysis of the transforming Central European economies by asserting that the evolution of institutional agents can be explicitly manipulated by government policies subject to the time specific constraints of path-dependent evolution. For this reason, privatization should be recognized as a fundamentally political process. Despite the new government in Slovakia, the legacy of Meciar's policies will continue to have a lasting effect on the development of Slovak economy. …