class 8 - ECON 3808 The Economics of Transition...

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1 ECON 3808 – The Economics of Transition Privatization and structural reforms China vs. Eastern Europe Sources: required readings and Prof. Vladimir Popov
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2 Outline Privatization: Definition; Aims; Mechanisms; Difficulties; Chinese reforms; Comparison between China and Eastern Europe.
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3 Privatization Definition: A legal transfer of property rights from the state to private agents; Private owners: individuals, legal persons, including foreigners; All measures contributing to de-statization of economic activity; Can include large state-owned sector following market rules and exposed to competition; “marketization” or “commercialization”; Socialist cooperatives into market-type cooperatives; Long-term leases; Creation of new enterprises.
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4 Aims of privatization Political: Take away property from state; Create a new class of capitalists and entrepreneurs; Equity: Return property to those that were deprived of it; Give priority to employees to buy shares in their enterprises; Give away state assets to citizens; Efficiency: Better management, hard budgetary constraints lead to increased productive static efficiency; Allocative efficiency increased if: many buyers and sellers, least barriers to entry and exit, low degree of external protection. Financial: Revenues for the state; Instrument of stabilization: Eliminate monetary overhang (large private savings).
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5 Aims of privatization Instrument of stabilization: Monetary overhang (private savings) wiped out by inflation; Financial: Larger costs than revenues; Costs larger when sold than give away: Fees foreign accounting and consulting to estimate value of assets; Privatization agencies; Recapitalization or debt consolidation; Equity: Poland: workers decision on privatization; representation in top management; 10% of shares; Political: Czechoslovakia: take state property away from Communist management; “voucher-type” program; Social and political: Russia: quick transfer of property rights to voters; Resistance to privatization? Bulgaria and Romania: lack of political will, lack of support from public.
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6 0 1 2 3 4 % of GDP Hungary Bulgaria (1993-95) Lithuania (1994-95) Argentina Turkey Nigeria India (1991-95) Fig. 2. Privatisation revenues in developing and transition economies, % of GDP (1990-95 annual averages) DEVELOPING COUNTRIES TRANSITION ECONOMIES Source: Global Development Finance 1997. Vol. 1. Analysis and Summary Tables. World Bank, Wash. D.C., 1997, pp. 116-120; Emerging Stock Markets Factbook 1997. IFC, Wash., D.C., 1997; Sutela, 1996.
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7 Mechanisms of privatization Small-scale privatization emerged fast: Retail trade: “street sales”; Service activities: consulting, private teaching, engineering, computer services; Laws on small privatization: transfer small state assets to private persons: Trade and services, truck transport, construction; Direct trade sales, auctions not open to foreigners, leasing.
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8 Small-scale privatization
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class 8 - ECON 3808 The Economics of Transition...

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