The Political Economy of Transition: Coming to Grips with History and Methodology

By Jozef M.Van Brabant | Go to book overview

6

PRIVATIZATION AND THE MARKET ECONOMY

As indicated, I restrict the notion privatization to all means available to take the “state,” including its serving bureaucrats and political actors, out of the allocation of most resources. Of course, the state has a role in steering resource allocation, such as through its macroeconomic policy (see Chapter 9). But it should not decide on the nuts and bolts of production and consumption, barring exceptional circumstances. On the transition’s eve that is not the case, given the prevalence of state property. So one critical element of transition concerns what should be done with state assets to improve resource allocation soonest. One reason is that the state’s potential function as owner is heavily contested in virtually any economic setting (Helm 1986; Kay 1986). The passions about divesting state ownership have been particularly virulent in the transition economies, although state ownership cannot altogether be avoided (Frydman and Rapaczyński 1991, pp. 254-5). Not only that, rapid progress with some classes of privatization must be made early on to anchor the rudiments of an emerging market economy and thus improve resource allocation.

This chapter presents the case for and against privatization from various angles. I first justify the choice of the compass of privatization advocated. Then I examine the motives for and goals of privatization pursued in transition economies. The alternatives to outright divestment are considered next. Thereafter I look at the obstacles to privatization. Following this, I sketch the various techniques of divestment in some sense used up to now. Before dealing with the remaining problems of privatization at this juncture, I assess the achievements to date.

Section 1:


Privatization defined

Definitions should in the end reflect the type of remit the investigator finds most appropriate. Privatization has been used in a broad sense of fostering the market economy based on private property. This purpose of transformation is undoubtedly important. But its broad canvas for projecting privatization is not quite congruent with the core tasks faced by policy makers in transition economies early on, given the legacy of nonprivate property. Certainly, private institutions

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