PRIVATIZATION IN NACC COUNTRIES Defence Industry Experiences and Policies and Related Experiences in Other Fields COLLOQUIUM 1994 ********* COLLOQUE 1994 PRIVATISATION DANS LES PAYS DU CCNA Experiences et politiques des industries de defense et experiences comparables dans d'autres secteurs Colloquium 29-30 June, 1 July 1994 Brussels --------------------------------------------------------- PRIVATE SECTOR AND PRIVATIZATION IN SOME CENTRAL AND EAST EUROPEAN COUNTRIES: PECULIARITIES IN HUNGARY Eva Ehrlich Hungary, Poland, and the Czech Republic have all made good progress in bringing business and commercial activities back into the private sector. But Slovakia has a long way to go, and large-scale privatization in the three other countries may take at least ten years, says Eva Ehrlich. The pace is slowing now that all the best companies have been sold off. Those in charge of the sell-off - the managers and directors from the old regime - are also holding things up. They're nervous. It will take an economic recovery to calm them down. Eva Ehrlich is Research Director of the World Economic Institute of the Hungarian Academy of Sciences and professor of economics at Budapest University. Czech and Slovak Republic, Hungary and Poland: Visegrad Four (hereafter V4). ---------------------------------------------- First of all let me emphasize that by now there exists an abundant Eastern and Western literature on the spreading of the private sector in the East Central European countries and on various issues related to the privatisation of state property. Given the limited scope of the present paper, it can only touch upon rather than elaborate and discuss in detail, with references, the most important aspects of these far-reaching and rather complex topics. In the V4 countries, as in all the former socialist countries, one of the basic issues of social and economic transformation, the change of regime, is the dissolution of state property and gradual establishment of the primacy of private property. Irrespective of party affiliation, the political elites and economic experts of the countries in question share the general view that only the predominance of private property, the personal interest of the proprietor to multiply his/her capital and the personal financial liability involved can put an end to economic squandering, improve the efficiency, competitivity and productivity of the economy and lead to a rational reform of its structure, that is, help overcome the economic crisis and launch modernisation. All V4 countries emphasize that, apart from its strictly economic consequences, privatisation alone can broaden the stratum (class) of property owners, an essential prerequisite of the long-term viability of democracy. What were the main difficulties the V4 countries had to face in the course of privatisation? How did the private sector extend and how much progress did privatisation make in the countries under scrutiny? What are the characteristic forms of privatisation and the main advantages and drawbacks of the forms implemented so far? In what follows, we shall make an attempt to answer the above questions. Difficulties of Privatization ----------------------------- At the time of the change of regime, politicians and economic experts alike expected that three to four years would suffice to break the dominance of state property in Central and Eastern Europe. This illusion was shattered by the very first privatisation measures. It became obvious that the decomposition of state property involved problems of an unprecedented order of magnitude. Unlike the partial privatisation in the market economies and the developing countries, which involves no more than a few big state-owned enterprises in one or another branch of the national economy, the decisive majority, 60 to 70 percent, of all business assets had to change owners, i.e., undergo privatisation. The scarcity of domestic investment capital, the lack of a property-owning class and lack of experience made the commonplace market economy practice of "first improve, then sell" applicable to a very limited extent only. On the supply side, the most serious problem was the inadequacy of the inherited economic structure adapted to the needs of COMECON cooperation in every country and rendered totally inadequate by the collapse of the COMECON market and the Soviet one within it. Other onerous aspects of the heritage were the many wasted big investments, the accumulated debts of the big state companies, over-manning (latent unemployment), a centralised administration and the high level of income withdrawal. The situation was further aggravated by the first market economy measures, namely the liberalisation of foreign trade, the cut-back on allocations and severe financial policy measures producing higher interest rates. In the short run, these factors decreased the competitivity and profitability of enterprises and, consequently, the value of state assets awaiting privatisation and valued (devalued) according to their income - generating potential as well. Demand was hit by the continued shrinking of the national economies, and the ensuing decline of the standards of living and of domestic demand, as well as by the recession in the developed market economies and keen international competition for investments. Moreover, there were no methods to coordinate supply and demand, that had been tested under similar circumstances. The institutions necessary for the adaptation of procedures - the legal system, Stock Exchange, investment funds, venture capital societies, social security and pension funds - were underdeveloped or non-existent.(1) As a result of the above-mentioned primary difficulties, the prevailing unfavourable global economic climate and various political considerations, the governments in office since 1989-1990 experimented with the most various forms of privatisation and applied highly different methods and technique. Extension of the Private Sector(2) ------------------------------- The most significant measure of the spread of the private sector is the growth of the number of private businesses that has taken place in recent years (in Hungary and Poland already from the second half of the 1980s on). Some private businesses are extremely successful and increase their staff and capital fast. There are already some in every V4 country that had started out as small businesses, grew to medium-sized ones and are now expanding abroad with the assistance of foreign partners (or co-owners). Some joint-venture and foreign companies are even capable of capital exports. The number of joint-venture (foreign- and national-owned) businesses is quite significant and on the rise in every country under scrutiny, especially in Hungary. In spite of this, however, the spread of private businesses in the V4 countries is still rather limited, albeit now for economic rather than political reasons. These reasons are: the tightness of national investment funds, the embryonic state of the capital market, an atmosphere of overall economic uncertainty, inflation, a lack of the necessary market experience required for successful operation and depression of solvent demand. For the same reasons, private business is often and to a growing extent a secondary activity in every one of the V4 countries; primary jobs offering greater financial and social security are retained wherever possible. Dummy small businesses established to evade taxation, conceal revenue or stow away property are on the rise in all V4 countries and especially in Hungary and Poland. In Hungary, for instance, 40 percent of the 850 thousand small businesses registered at end-1993 are "dummies, paper organisations" or "phantom firms". The registered small enterprises often never start operation or suspend it for a shorter or longer period to postpone payment obligations.4 This means that a significant proportion of the newly founded private businesses - some foreign but mostly national ones - are only testing the water. The Hidden Economy ------------------ From the l980s on, the non-official (i.e., non-registered) economic sector appeared and began spreading (in different degrees) in the V4 countries as well. Various estimates suggest that the proportion of the non-official, or hidden, economy kept growing in the countries under scrutiny (especially in Poland, Hungary and Slovakia). Unfortunately, relevant official data are available for Hungary only.(4) It seemed logical to expect that once the constraints imposed on the private sector were abolished, the non-official sector would die out or at least retreat considerably. This tendency, however, has asserted itself but partially: the hidden, grey and black economy beyond the reach of taxation and income declaration is flourishing and spreading. Tourism concentrating on buying and selling, that is, profiting from the discrepancies of prices and the exchange rates has proved a most profitable business (impossible to tax). With the opening of the borders, smuggling, the dodging of tax and tariff regulations, became much more frequent. With the contribution of various international mafias operating in the European, Arab and Asian market economies, it covers goods originating not only from the V4 countries but from other developed and developing countries all over the world, including drugs and weapons. The syphoning-off of goods originating in the state sector and the organised theft, robbery and looting of individual property (valuable goods kept at home, motor cars etc.) to resell them is also on the rise. It should be noted, however, that the existence of "dummy" organisations and small businesses at the periphery of the economy is also motivated by the wish to be ready to grasp any business opportunity that may arise. In the production sector, especially in agriculture, construction and personal services, it is general practice to leave a considerable proportion of the activities of the registered organisation out of the books, to operate unregistered private organisations and employ unregistered workers, often foreigners looking for casual work. The anomalies of small businesses and the extent of the hidden (grey and black) economy induce uncertainty, disorganisation and legal chaos in the economies in question. Moreover, the illegal units often operate in the most dynamic sectors of the economy, thereby depriving the state of considerable tax revenue and aggravating the already acute problems of the state and budgetary financing of public expenses caused by the shrinking of the economy. Despite significant endeavours to cut back the unofficial economy, to stop its spreading and integrate it into the legal economy, no breakthrough has occurred in this field so far. Proportions of the Private Sector in the V4 Economies ----------------------------------------------------- The current private sector/GDP ratios are shown in Tables 1, 2 and 3, respectively, for Poland, Hungary and the Czech Republic. As for Slovakia, a single datum is available: in 1992, the private sector contributed 4.7 percent only of the total industrial output.(5) This minuscule share suggests that the privatisation of state property has hardly begun as yet in Slovakia. In Poland, on the other hand, in 1992 the private sector contributed as much as 47.2 percent of the official GDP, while in the Czech Republic (first half of 1993) the corresponding figure was 44%. In Hungary in 1992 the combined contribution of the domestic and foreign private sector made up 44 percent of the official GDP, not including the production of the hidden economy, while their share in the so-called "extended GDP" including the production of the hidden economy as well amounted to as much as 50 percent. With the strengthening of private property, the unit size structure of the economies in question is being transformed. The "inverted pyramid"(6) that used to characterise it (few small- and medium-size economic units, many large ones) is being demolished, although so far mainly by the rapid growth of small (and to a lesser extent medium-size) business entities, especially in the services sector. Recently, the "inverted pyramid" of the manufacturing industry,7 too, has begun to turn the right way up.(8) As for the contribution of foreign capital in the privatisation process, no data are available except for Hungary. Given the fact that half of the total amount of foreign capital entering the East Central European countries so far went to investments or the purchase of state-owned companies in Hungary, it seems reasonable enough to assume that, of all the V4 countries, it played a significant role in the privatisation processes of Hungary only. However, big transnational firms with widespread international networks are already present in practically every V4 country, and the number of small and large joint-ventures (foreign and national) companies is rising fast everywhere. In 1988-1993, the amount of foreign functioning capital investments totalled USD 6 billion.(9) Estimates suggest that approximately one third of that amount was spent buying state-owned companies and on restructuring, developing and modernising of companies or parts of them.(10) In Hungary, in the period 1990-1993, the privatisation of state-owned property to foreigners brought in $1.8 billion revenue,(11) 56% of which was paid in cash (60% in foreign currencies, 40% in HUF).(12) Although at the time of its inauguration, the present Hungarian government promised to channel the total privatisation revenue to investment and development projects, budgetary constraints obliged it to use a considerable amount on financing the budget deficit. Information suggests that the privatisation of state property (with the assistance of foreign capital in Hungary) has made good progress in all the East Central European countries except Slovakia. All three countries are close to the point where state property will no longer dominate the economy. The following paragraphs survey the main types of the privatisation of state property. Privatization Forms: Advantages and Drawbacks --------------------------------------------- The transformation of state-owned companies is a precondition of privatisation. The legal frameworks of the transformation of state companies into joint-stock and limited liability companies have been established in all three countries (in Poland and Hungary already in 1987-88, before the change of regime). This has made it possible to attract both domestic and foreign capital to buy the transformed state companies. So far the V4 countries have adopted two main forms of privatisation: - Privatisation by sale: state-owned companies are offered for sale to domestic and foreign investors. - Privatisation by distribution or allocation of assets: parts of the state assets are distributed among the population free of charge or at a favourable, price in the form of property vouchers. So far the first form prevailed in Hungary and the second in the Czech and Slovak Republics. Poland has already tried out both. Both forms and many combinations of the two exist not only in Poland, but in the rest of the East Central European countries as well. In the Czech and Slovak Republics, for instance, where so far distribution was the order of the day,(13) the various forms of sale at market price are also present. Both basic forms of privatisation have their specific advantages and drawbacks.(14) Firstly, experts think that privatisation by sale is the most promising alternative from the point of view of the restructuring and modernisation of the economy. It adapts best to the demands of the market mechanism, and the impoverished Central and East European states giving significant revenue to cover. Finally, privatization creates true owners - whose own capital is at stake. The main drawback of this form is its slowness due partly to the difficulties of property assessment and partly to the problems of selecting the right buyer. It favours those groups, rather small in the countries under scrutiny (and those entrepreneurs) who already own some property (house, flat, resort house, car, jewellery etc.) or money (foreign currency, cash etc.) to invest, or who have a certain amount of capital as well, accumulated in the old regime. Secondly, the majority of the Central and Eastern European countries have so far preferred the distribution/allocation form of privatisation. Distribution, free or preferential allocation are "justified" by the fact that state property or a significant part of it was produced by the citizens in the past 40 years who are, therefore, entitled to their share. This method does not require a large amount of capital at a time when domestic savings are scarce. It also ensures that the whole population gets involved in the privatisation process, and brings quick formal ownership transition, stimulates the extension of the developing capital market and further accelerates the growth of the relative weight of private property. Its essential drawback is that "passive property"(15) acquired for free or at a preferential price (including employee buy-out at preferential prices or with credits) is something formal in the sense that the new owner does not take a risk, his/her interest lies in maintaining and preserving the existing company (organisation). This is a more comfortable and favourable alternative than restructuring and modernisation involving much greater risks, but it hinders the assertion of economic rationale. Another drawback is that it provides the state struggling with budgetary problems, created by a shrinking economy, no new resources for help and no revenue to promote modernisation. Also, this method is said to be expensive to administer. The above advantages and drawbacks of the two forms of privatisation explain why the V4 countries attempt to apply them simultaneously: they try to diminish the inevitable drawbacks associated with one by combining it with the other. Although competent professional circles are of the opinion that real ownership transition, privatisation, economic restructuring and modernisation are realised best via the market form, providing the state with a certain revenue as well, its slowness makes it useful to supplement it with distribution/allocation (including employee buyout). The combination of the two forms is warranted by political and social considerations as well. In every country under scrutiny, privatisation by sale is entrusted to state agencies, i.e., the process is governed from above to a smaller or greater extent.(16) It is no wonder that privatisation, the transformation of the economic ownership relations at the basis of political power, is often considered a political issue (a battleground for party interests). The public mostly ignores the sales terms or cannot see through them. Evaluation of assets is done by foreign companies and specialist organisations. The criteria for setting the sale price, and most terms and stipulations included in the final contracts, are usually confidential and themselves suspicious to the public. Sale inevitably means circumventing the new laws, working with the managerial level, operating the assets in question and the spreading of corruption at all levels. Distribution is more transparent for the public. Ownership transition immediately imposes severe new burdens (e.g., decline of the standards of living, unemployment, professional reorientation etc.) and problems practically unknown before (e.g devaluation of assets, renovation, modernisation etc.) on the whole population. New costs, a new system of values and attitudes and other consequences of transition appear at a time when the economic advantages of modernisation are not obvious as yet. Distribution, as a supplementary form, is helpful in providing political stability and social support in the long period of ownership transition not only for privatisation, but also for the whole process of transformation. Privatisation is carried out by the Ministry for Privatisation and Administration of National Property in Czech and Slovak Republic, the State Property Agency and the State Holding Company in Hungary and the Ministry of Ownership Transition in Poland. Types and Methods of Privatization ---------------------------------- In general, two types of privatisation are distinguished: small- and large-scale privatisation. Small privatisation occurs in the domains of retail trade, catering, tourism, the building industry and other spheres of public and industrial services. It aims at the liquidation of state (council) monopolies in the above fields consisting of relatively small entities (e.g., shops) centralised by administrative measures on the one hand and the ownership transfer or lease of small units (e.g., small plants or shop premises) capable of independent functioning on the other. In all V4 countries, small privatisation characteristically broke up networks (e.g., retail networks) and sold their units (shops, workshops) via open bidding. In Czechoslovakia, compensation by distribution was integrated into small privatisation. In this framework, former owners or their direct relatives could reclaim properties nationalised after February 194817 if the latter still existed physically. In Hungary, small privatisation by bidding did not take former ownership into account. Former owners or their direct relatives received compensation vouchers for property nationalised or forcibly collectivised after 1948. A rather strict limit was applied: the maximum value of the compensation vouchers allocated for a single property or to a single person was set at HUF 5 million (c. USD 55 thousand). Vouchers can be used to purchase state or co-operative assets through bidding (the claims of former landowners or their descendants are to be met by state farm or cooperative holdings in the given area), to guarantee start-up credits allocated for new businesses,for the preferential purchase of council flats, or to round off the pension of those over 70 years old, etc.(18) A secondary trade in compensation vouchers has evolved: the market price is well below par. The partial restitution of church property (certain schools, convents etc.) is also in progress. As for Poland, to the best of our knowledge, no restitution or a solution similar to the Hungarian compensation vouchers is being considered there. Small privatisation has - for the most part - ended (with the exception of Slovakia). Privatisation has obviously improved the quality, management and variety of trade and of services. This significant improvement, however, is not only due to the privatisation of state property, but to a considerable extent also to the fact that new business ventures in these fields yield high profit practically at once. The main problem of small privatisation was and still is that most of the premises suitable for small businesses still belong to the state (or the municipality) and, therefore, "privatisation" is restricted to their lease. The terms of lease, however, are rather unstable: they may change year in, year out, often quite drastically. This is why private enterprises operating on such rights are often short-term, temporary ventures - an unfavourable phenomenon from the point of view of market development. The true difficulties of privatisation, however, are encountered in large-scale privatisation. This latter is to transform mammoth companies, break their monopoly, divide them into smaller units and transfer them to private (local, foreign or joint) owners. Large-scale privatisation has just begun in the countries under scrutiny. The growing share of the private sector in the industrial output (cf. Tables I and III) has so far resulted mainly from the rapid growth of the number of small and to some extent also medium-size companies operating in the industrial domain and not the privatisation of big companies. Methods and Techniques of Large-scale Privatization --------------------------------------------------- As early as 1989 and especially 1990, the management of many state-owned big companies with relatively good business results took the first steps, helped by their former business contacts, either to sell the company or part of it, or attract foreign capital. Such actions (the so-called spontaneous or nomenklatura privatisation) were, of course, in the best interest of the old management wishing to preserve their positions (maybe at a somewhat lower level and with more limited authority) and to acquire property. However, in the majority of the cases, this coincided with a restructuring process. Production units were improved and modernised. Business policy was adapted to market demand and a significant number of jobs were preserved. Government agencies established to control privatisation, however, first halted this process and later on took full control of it for political and power considerations (first in Poland but later on in Hungary as well).(19) At the same time, they slow down the progress of privatisation initiated from below. In the framework of "nationalised privatisation", the responsible government agency usually invites closed or, in some cases open, tenders to privatise big state companies, in accordance with the programme adopted by the government. The participants and winners of such tenders represent, for the most, capital, although some capital-strong domestic buyers capable of mobilising significant bank credits have also appeared on the scene. The foreign buyout of national assets provokes some anxiety in the Czech Republic, Poland and Slovakia, not shared, officially, by Hungary. However, there are some very definite signs (in Hungary, too) that foreign buyers often want to conquer new markets rather than boost the activity of the purchased company. The aim of the already mentioned distribution or preferential sale of state property form of property vouchers is to accelerate privatisation and produce share-owning citizens. "Voucher privatisation" began in Czechoslovakia in Autumn 1991. Every citizen was entitled to purchase state property coupons (vouchers) at a fraction of the real price. This programme became a success after the establishment of investment funds on state initiative to take over citizensŐ vouchers and purchase shares of state-owned companies with them, especially when the funds in question also guaranteed to pay, on demand, after having exchanged the vouchers for shares, the market price which was at least ten times the original purchase value of the vouchers. The exchange of vouchers for company shares is making good progress in Czechoslovakia (Their exchange for cash, on the other hand, was postponed). In the meanwhile, the assets of the state-owned companies are devalued, and part of the companies in question try to survive by consuming their own assets. Poland adopted a special scheme to distribute state property that was approved by the Seym [Polish Parliament] in April 1993. More than half the shares of the state enterprises taking part in the action, the majority of all state enterprises, are distributed among some 20 state holdings established for this purpose. Some 10 percent of the shares will be given to their respective employees (the rest goes to the Treasury first). According to this scheme, holding shares will also be distributed to all citizens as a right. This way they will own a share of both their company and the total enterprise assets of the national economy. The idea of free property-share distribution is fairly unpopular among experts, who emphasize that small share packages owned by small investors will not inspire a genuine feeling of ownership, nor will they lead to strong ownership control. In addition, this creates inflationary expectations - that the preferentially bought shares are guaranteed to be bought in the future. According to common Hungarian views the state-run investment funds will become such huge concentrated economic powers, which - especially if they become involved in political decision-making - will generate state interventions time and again - instead of market impetus. It would be right to refrain from this practice especially as recent history makes former socialist countries specially susceptible.(20) Competent experts in Hungary propose another form of property distribution. Part of the share block representing profitable state property should be allocated to budgetary public services institutions and societies on the model of the historical public services funds. (Parliament has already passed a bill according to which Social Security should be allocated HUF 300 billion worth of business property.) This is expected to alleviate the burdens of public finances and strengthen the economic autonomy and discipline of the beneficiaries (e.g. old-age-pension funds, big universities and hospitals, municipalities etc.). The problem of implementing this concept is that Hungarian economy suffers from a shortage of profitable state property. This makes the options of establishing profitable public services funds rather limited. The method of employee buyout is discussed separately, despite its being a special case of "nationalised privatisation", carried out with the approval and under the control of state agencies of privatisation. Its treatment as a separate category is justified by the fact that, as a result, self-managing (or co-operative) economic units may be established. Employee buy-out is most popular in Poland, but it is an existing, though minor, form of privatisation in Hungary and Czechoslovakia as well. It can be efficient and give a competitive edge in cases where the activity to be continued is transparent for the employee, and the operation of the company in question requires special skills and a special know-how. Results obtained so far are positive in those instances where transition led to the profit-oriented performance of workers' self-management or cooperatives adapted to the market conditions. Current Problems and Dilemmas ----------------------------- It seems that large-scale privatisation will take at least another decade in the V4 countries. The first great wave of privatisation whether by sale or distribution affected the relatively prosperous big companies that were sold to domestic or foreign buyers quickly. Selling the remaining companies, still state-owned for the most, is a much more difficult task. Given their obsolete structure, low adaptation and income-generating potential, accumulated debts, the uncertainty of the crisis management staff - the result of several factors -, and general decline, it is very difficult to find prospective, local or foreign, buyers. Meanwhile, the assets in question are depreciating month by month. With the exception of Poland, large-scale privatisation is inevitably slowed down by the continuing shrinking of the economies in question, the further decrease of solvent demand, the uncertain profit prospects of V4 big companies offered for sale and the uncertain return on invested capital. The fusion of economy and politics was one of the most important attributes of state socialism - if not the most essential one. The objective of privatisation, on the other hand, is to restore the independence of the economy by liberating it from political influence. At the same time, the transfer of state assets (that have, for the most, been the property of the state from the very start) to private owners exerts a fundamental influence on the political and economic structure of society. Privatisation obviously affects the power-political dimension of society, whether by its objectives, its agents or its implementation. Given the inevitable role of the state or rather the government in "denationalization", the process inevitably bears the traits of power (party) policy considerations rather than the marks of economic rationality. Economically "perfect" processes have little chance to be introduced in practice.(21) Privatisation practice brought to the surface many difficulties unforeseen or underestimated by the experts previously. The most essential of these was the unexpected struggle of the various social strata provoked by the implementation of "nationalised privatisation". No one realised that the clashes of political forces (especially in Hungary) would deprive enterprise management staffs of their self-assurance and turn them into arch-impeders of the privatisation process. Large-scale privatisation requires the active contribution of experts with a thorough knowledge of the given field and the potential markets and good personal contacts, but these people were not considered reliable enough by the newly elected governments (either in Hungary or in Poland). The above overview of the methods of privatisation was an attempt to present the most common forms of privatisation in the countries under scrutiny and the philosophy behind them. The future alone will tell what other methods and combinations will be required to pursue the ever more difficult process. One thing, however, seems certain: if economic growth begins and proves lasting and if internal demand starts expanding, the privatisation of the remaining big state companies(22) may well accelerate under the impact of favourable economic and profit prospects. It seems most likely, however, that the state sector of the national economy will remain higher, in the future, too, than the standard of the developed market economies of our days formed by a historical process of organic development. As a result of the early illusions concerning the deadline of the privatisation process, experts did not pay much attention to the problem of the management of state-owned enterprises until a domestic or foreign buyer is found. How can big state-owned be managed successfully, in a market-conforming way, throughout the long period of the development of market economy? In our opinion, the operation and privatisation of the economic assets of the state should be supervised and controlled by private business companies. THE SHARE OF PRIVATE SECTOR IN THE GDP, DIFFERENT BRANCHES OF ECONOMY AND EMPLOYMENT --------------------------------------------------------- | Poland's in | |Year |GDP | Indust. | Construc.|Transp.|Trade |Employ.| | | | Output | | | |exc.ag.| | Total=100 | |-------------------------------------------------------| |1990 |30,9 | 18,2 | 39,7 | 20,1 | 51,3 | 33,6 | |1992 |47,2 | 35,5 | 76,5 | 34,9 | 85,4 | 42,2 | |1993 | - | - | - | - | - | 46,2 | | | --------------------------------------------------------- Source: Bogdan (1994) THE PROPERTY STRUCTURE OF OFFICIAL GDP --------------------------------------------------------- | Hungary | |-------------------------------------------------------| | Year | Public | Private | Foreign | | ---------------------------------------------| | | property | |-------------------------------------------------------| | 1980 | 90 | 10 | 0 | | 1985 | 85 | 15 | 0 | | 1989 | 80 | 20 | 0 | | 1990 | 76 | 23 | 1 | | 1991 | 70 | 27 | 3 | | 1992 | 56 | 36 | 8 | |-------------------------------------------------------| | The property structure of the Extended GDP | |-------------------------------------------------------| | 1980 | 83 | 17 | 0 | | 1985 | 79 | 21 | 0 | | 1989 | 74 | 26 | 0 | | 1990 | 70 | 29 | 1 | | 1991 | 63 | 34 | 3 | | 1992 | 50 | 42 | 8 | --------------------------------------------------------- Note: 1 incl. hidden economy Source: Arvay-Vertes (1994) I THE SHARE OF PRIVATE SECTOR IN THE GDP, DIFFERENT BRANCHES OF ECONOMY --------------------------------------------------------- | Czech Republic in | |-------------------------------------------------------| | Year | GDP | Industrial Output |Construction | | ---------------------------------------------| | | Total=100 | |-------------------------------------------------------| | 1990 | 4,0 | - | - | | 1991 | 10,62 | - | - | | 1992 | 20,0 | - | - | | 1993 | 44,0 | 18,0 | 18,0 | |-------------------------------------------------------| Source: 1 Kouba (1993) 2 Hunya (1993) Notes 1. The ideas listed under points 3, 4 and 5 are borrowed from a study by Voszka (1994). 2. In discussing this issue, the author relies on papers by Ehrlich-Revesz (1993), (1994). 3. Vertes Cs. (1944). 4. Share of the hidden economy in % of the Hungarian GDP: 1980 13 % 1985 14 % 1989 16 % 1990 20 % 1991 25 % 1992 30 % Source: Arvay-Vertes (1994). 5. Kouba (1993). 6. Schweitzer (1982). 7. The favourable alteration of the size structure of the manufacturing industry producing smaller units is the result of a triple process. First of all, the gradual separation of services from manufacturing (and agriculture as well) and their reorganisation in an independent framework suitable for their quick adaptation to demand,a process of long international standing, began in the V4 countries as well. Second, as monopolies are becoming a thing of the past in practically every sphere, the former large manufacturing and services entities are cut down to smaller units. Finally, the independent operation of their smaller competitive sub-units figures in the survival and property salvaging strategies of all the former highly subsidised large or mammoth production companies. 8. Ehrlich (1985), (1993). 9. In the first half of 1993, per capita foreign capital investment was c. USD 600 in Hungary, as opposed to USD 300 in Slovenia, USD 180 in the Czech Republic, USD 100 in Slovakia and USD 50 in Poland. The breakdown by countries of foreign capital investments in Hungary was as follows: USA 29%; Germany 20%; Austria 14%; France 7%, Italy 6%; Japan 5%; The Netherlands and the UK 4% each. The remaining 11% was provided by various other countries. (Cszki (1993), p.20). 10. Foreign capital investments in Hungarian privatisation originated from the following countries: Austria 23%; Germany 19%; USA and The Netherlands 10-10%; the UK 8%; Sweden 5%; Switzerland 5%. Belgium 3%; CIS countries 3%; Italy 2%. The remaining 12% originated from various other countries. Source: State Property Agency Privatisation Monitor, March 1994, quoted in Novak (1994). 11. Source: State Property Agency Privatisation Monitor, March 1994, quoted in Novak (1994). 12. Szanyi (1994). 13. Estimations suggest that one third of the state-owned business assets was privatised this way [Kouba (1993)]. 14. See among others the study by Chin (1993) providing a near-complete content analysis of the most essential, mainly Western, privatisation literature.at least some of the costs of modernisation. 15. The term originates from Ellerman-Vachcic-Petrin (1991). 16. The agencies in question were formed between 1989 and 1991. Their task was to elaborate privatisation measures under the supervision of the state, to design companies remaining in state hands, to supervise the assessment of the assets of state companies or have it done by (local or foreign) firms designated or approved by the agency, to control and even manage, if this is deemed necessary, the whole privatisation process (including the choice of potential domestic and/or foreign buyers) of certain companies and, finally, to supervise in retrospect and occasionally even to cancel privatisations (involving foreign partners as well) sanctified by contract on the initiative of the company in question or the firm assessing its assets. 17. Large factories, estates and banks had been nationalised before 1948. 18. The total value of the allocated compensation vouchers equals approximately 10 percent of the total annual labour income. 19. The majority of the decisions relating to large privatisation is taken by the government agencies (ministries) responsible for this task. As a result of their direction and control (in Slovakia, for instance, Prime Minister Meciar used to be Minister of Privatisation), bureaucrats (not businessmen) with no special knowledge of the field spend long months or even years looking for prospective buyers (mainly foreign ones) offering "the best potential conditions". 20. Inspite of several experts' view, in the very last month of being in office (just before the parliamentary elections) the Government launched a so-called "Small Investors" Share Programme" which means in fact an almost free asset distribution among citizens (the programme is based upon a preferential credit facility). 21. In formulating the ideas expressed under this point the author relied on the study by Voszka (1994). 22. In Hungary, in 1989-1993, one third of the state-owned big manufacturing companies went bankrupt and await liquidation now. [Ehrlich-Revesz, (1994)]. --------------------------------------------------------- Copyright 1994 NATO All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic tape, mechanical, photocopying, recording or otherwise, without permission in writing from the copyright holders. Authorization may be requested for redistribution of the text on a non commercial base by research and educational services. Requests should be addressed to the Economics Directorate, NATO, via e-mail 'scheurweghs@hq.nato.int'. First edition 1994 ISBN 92-845-0079-6 This is the latest in a series bringing together papers presented at the NATO colloquia organised by the NATO Economics Directorate and Office of Information and Press on economic issues in the former USSR and Central and East European countries. For further information please write to the Director, Office of Information and Press, 1110 Brussels, Belgium. The articles contained in this volume represent the views of the authors and do not necessarily reflect the official opinion or policy of member governments or NATO.