BASIC ECONOMIC QUESTIONS DISTINCTION AMONG ECONOMIC SYSTEMS -PROPERTY RELATIONS -DECISSION MAKING WHAT- maximization of utility, product market, consumers, restrictions, planner HOW- maximization of profit, labor and capital market, producers, restrictions, planner TO WHOM- product and factors market, planner WHEN- capital market, planner

THE 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 Privatization - objectives - efficiency, justice, democracy - complexities of privatization - privatization models - outcomes of privatization Macroeconomic stabilization - assumptions and Washington agreement - transformational depression Microeconomic restructuring Creation of a new economic system A Case: Slovenia

DILEMMAS OF PRIVATIZATION MECHANISM Free distributionSales to whomto whom to everybody - to employeesto citizens - to foreigners - equallyPatterns - 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 “OLD” EU COUNTRIES (1) (2)(3)(4)(5)(6) A ustria Belgium Denmark Finland France Greece Ireland Italy Germany Netherland Portugal Spain Sweden UK (1) Number of companies; (2) the year of utmost activity; (3) share of government before privatization; (4) share of government after privatization; (5) value of privatized assets bill €; (6) value of privatized assets in GDP of 2000

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

THE OWNERSHIP STRUCTURE OF LISTED COMPANIES IN SOME EU COUNTRIES Country(1)(2)(3)(4)(5) EU average Slovenia Poland Hungary Lithuania Norway Italy Sweden Finland Denmark UK Greece Germany ( 1) public, (2) non-financial companies, (3) financial companies, (4) households, (5) foreigners

SHARES OF FOREIGN STOCK IN CEE TRANSITION 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 agreement; 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

THE ASSESSMENT OF ECONOMIC SITUATION IN SOCIALIST COUNTRIES Aggregate supply and demand curves Demand Supply Shortage output Prices Ps P Qds Qss Q

TRANSITION MODELS IN CEE COUNTRIES 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 MODELneoliberalembeddedneocorporativist neoliberal

TRANSFORMATIONAL DEPRESSION CEE CIS countries

JOBLESS GROWTH?

SUSTAINABLE GROWTH?

EXPENDITURES FOR HEALTH AND EDUCATION

GINI COEFFICIENTS,

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