2. TRANSITION Privatization Macroeconomic stabilization

CHANGES OF THE ECONOMIC SYSTEM Ownership Management State or socialPrivate Centralisedstate/ centralised Soviet Union private/ centralised South Korea Decentralisedsocial/ decentralised Yugoslavia private/ decentralised USA

COMPONENTS OF TRANSITION 2.1. Privatization - objectives - efficiency, justice, democracy - complexities of privatization - privatization models - outcomes of privatization 2.2. Macroeconomic stabilization - assumptions and Washington consensus - transformational depression 2.3. Microeconomic restructuring 2.4. Creation of a new economic system A Case: Slovenia; Could SEE countries follow Slovenian experiences?

DILEMMAS OF PRIVATISATION MECHANISM DistributionSales to whomto whom to everybody - to employeesto citizens - to foreigners - equally- Patterns - by age- stock market - by years of employment- auctions -Patterns- workers-managers by outs -direct- debt equity swaps -indirect- direct sales -Restitution- increase of capital - in kind -compensation

Privatizations in CEE Countries Czech Republic: a rigid socialist system, 96.7% of production in state industries, Vaclav Klaus, shock therapy to market without adjectives, restitution ( units), small privatization - sales (12300 units), large privatization – public auctions, public tender, direct sales, sales of shares for vauchers, employees stock ownership plans; vauchers collected by private investment funds, direct sales of companies Avia Praha, Skoda auto, Tabak Kutna Hora, banks, telecomunications etc. To foreign owners Estonia: small scale privatization in 1990, large scale Privatization Act of direct sales to foreign investors, vauchers in 1994 marginal, Eesti Telekom, Estonian Air (Denmark), Estonian Shipping Company (American/Norwegian), Tallina Vesi (utilities), electricity, banking sector Hungary: “gulash socialism”, centralized privatization for small scale privatization, management by-outs, former owners, new phase in 1995 by selling companies to multinationals, golden share in some companies PRIVATIZATION BAROMETER

SHARES OF FOREIGN STOCK IN CEE COUNTRIES Countrystock FDI/GDP in %Share of foreign banks in assets 2001 Czech Republic Estonia Latvia Lithuania Hungary Poland Slovakia Slovenia

MACROECONOMIC STABILIZATION Assessment of economic situation: D>S, Washington consensus; Increase of Supply: liberalization of imports, pure socialist production goods; Decrease of Demand: price liberalization, restrictive credit policy, restrictive fiscal policy; freeze of wages, fixed exchange rate; Results: economic depression, measured and actual, unemployment, social diferentiation; Slovenian transition model; ignorance of Washington agreement, gradualism, floating exchange rate

ASESSSMENTOF ECONOMIC SITUATION IN SOCIALIST COUNTRIES Aggregate supply and demand curves Demand Supply Shortage output Prices Equilibrium price SupplyDemand Price in socialism

TRANSFMATIONAL DEPRESSION CEE CIS

TRANSITION MODELS IN CEE 1.Baltic2.Visegrad 3. Slovenia Starting positionEE, LT, LVCZ, HU, PL, SKSI Privatizationsales tosales tofree distribution foreignersforeignersMW by-outs Stabilizationfixed ex.rateswitchingfloating fiscal disciplineadaptableadaptable Social Considerationsabsentpresentimportant Restructuringabsentby FDIdecentralized ProblemsCA deficitCA deficitbalance emigrationbudget deficitEMU problems MODELneoliberalemmbededneocorporativist neoliberal

PUBLIC EXPENDITURES AND SOCIAL COHESION

EXPENDITURES FOR HEALTH AND EDUCATION

GINI COEFFICIENTS,

SOCIAL COHESION INDICATORS IN NMS Public expenditures/GDP Gini coefficient Inequality coefficient Social Security Expenditures/GDP

ECONOMIC PERFORMANCE IN 2007 (1)(2)(3)(4)(5)(6)(7)(8) EU BG CZ , EE LT LV HU PL RO SI SK ( 1) GDP/capita, (2) GDP growth, (3) inflation, (4) unemployment, (5) budget deficit/GDP, (6) public debt (7) current account, (8) inequality coefficient

EMPLOYMENT FUNCTION rE=a+b*rQ+c*D Labor market “a”“b”“c”consequences traditonal+00no labor market, high hidden socialismunemployment selfmanaged00.3-growing hidden unemployment socialismlow open unemployment classical (US) -10flexible labor market capitalismopen unemployment traditional European-0.5-low hidden unemployment capitalismhigh social protection neo-evropean-0.7+growth of open unemployment capitalismhysteresis rZ- growth of employment, rQ – growth of GDP, D- dummy, a-autonomous growth, b-elasticity, c- assymetry

EMPLOYMENT MECHANISMS Centraly planned economy Selfmanagement Pure capitalism Neo-European capitalism Social market economy OUTPUT

JOBLESS GROWTH?

RESTRUCTURING BY FDI SPILL-OVER EFFECTS OF FDI THEORETICALLY POSITIVE (OECD 2003) FDI transfers technology and know-how; FDI contributes to enterprise development and restructuring; FDI contributes to international trade integration; FDI bolsters competition; FDI supports human capital formation; IN REALITY. FDIs were acqusitions rather than greenfield investments, thus not investments in the macroeconomic sense; FDIs concentrated to finance, trade, and communications; FDIs increased imports more than exports; FDIs increased specialization within a multinational cutting links with the rest of the economy; FDI brought strong monopolies forcing small emerging domestic firms out of business; FDI creates addiction, income account deficit, and gap between GDP and GNP;

SUSTAINABLE GROWTH?

RESTRUCTURING BY FDI FDI, CURRENT ACCOUNT, AND INDEBTEDNESS CA/GDP FDI/GDP Net externalstock FDI/GDP foreign banks 10 years average position in assets 2003 Czech R Estonia Hungary Latvia Lithuania Poland Slovakia Slovenia Average

THE STRUCTURE OF CURRENT ACCOUNT IN CEE COUNTRIES

SHARE OF INCOME ACCOUNT IN CURRENT ACCOUNT DEFICIT