Oskar Vuorinen (76130), Jonathan Suchocki (76140) Privatization in CEE Oskar Vuorinen (76130), Jonathan Suchocki (76140)

Structure: Introduction Explanation of term and basic concept 2) Main objectives 3) Methods of Privatization Private vs. Public sector Results

Explanation of term and basic concept Process of transfering ownership or public property from the public sector to the private sector Especially common in the CEE countries after the downfall of USSR Privatization made an important contribution to economic growth in CEE especially after the fiscal crisis (1990/91) Still a relevant topic today

Main objectives Establishing market economy Forming competition Increasing efficiency Financing budget deficit The transformation happened either gradually or as a shock

Methods of Privatization Direct Sales Directly selling the firms Initial public offering (IPO) Making firms public and selling the shares on stock exchange Public tender Popular for privatization of large firms (mostly foreign investments) Self privatization Merger of state and private companies Auction Auctioning state property (small firms) Coupon or voucher privatization Coupons indicating ownership distributed to citizens Management-Employee Buyout (MEBO) Transfer of shares to employees at low prices or for free Restitution Giving back property to it´s original owner National Investment Funds Funds to manage the profits gained from the sales

Private vs. Public sector Pros Cons Private Sector Higher efficiency More competition lower pricess Less hierarchy faster decision- making May not lead to better quality or cost reduction Higher unemployment rate Externalities Public Sector Rationalization Natural monopolies Corruption Political agendas Short sightedness

Private Sector Share of GDP

Results Ca. 75% of GDP made of private sector in Poland GDP in Poland has grown from 66 Billion to 470 Billion Privatization is strongly associated with organizational restructuring Foreign or outside ownership is associated with greater performance improvement Progress in privatizing small firms has been rapid in several East European countries, but privatization of large firms has been slow

Questions ?

References Dennis Mueller, Evgeni Peev, ”Corporate governance and investment in Central and Eastern Europe” Journal of Comparative Economics, 2007 World Bank Data (GDP in Poland) OECD Data Jean Tirole, ”Privatization in Eastern Europe: Incentives and the Economics of the Transition” NBER Macroeconomics Annual 6, 1991 Lecture 2 slides, Business in CEE Stephen Cohen, Andrew Schwartz, ”Privatization in Eastern Europe: The tunnel at the End of the Light”, The American Prospect, 1993