Voucher Privatization with Investment
Funds: A Reappraisal
A rough consensus view of privatization prevails among postsocialist reformers and their Western advisers. The stylized story goes something like this: privatize quickly and irreversibly to prevent a comeback of the nomenklatura. The quickest and most politically popular technique is mass voucher privatization. 1 Without intermediaries, however, this would spread the ownership too wide and would thus create the problem of "corporate governance." Therefore, voucher privatization needs to be augmented by voucher investment funds to provide the necessary corporate governance for restructuring the privatized enterprises.
The purpose of this chapter is to consider the likely behavior of the voucher funds and the potential effects of their development on a transitional economy. Since much Western policy advice has been in favor of voucher privatization with investment funds, my intent is to play "devil's advocate" by developing the other side of the argument. My approach is institutional, not statistical. The point is not just that reliable economic statistics are difficult to obtain and interpret in a transitional economy but rather that policy making requires institutional foresight -- insight into how institutional structures will tend to function.
The main line of the conventional argument is that the investment funds are needed to provide corporate governance for the restructuring of privatized enterprises. But what are the options for a voucher investment fund in a transitional economy? Is it the postsocialist analogue of a mutual fund or a holding company -- or is it perhaps some new creation socially engineered especially for the transition? In a developed market economy such as the United States or the United Kingdom where economic institutions have had time to evolve, one finds two extremes: the mutual fund and the (venture capital) holding company, which