53
LESSSON 7
PRIVATIZATION ( continue)
Following the
collapse of communism in eastern and
central Europe, first Poland, Hungry, and Czechoslovakia, then
Romania and several of the former Soviet republics began to
privatize. The problems in these economics were very different
from those faced by the advanced economies. Decades of low
wages meant that little wealth was available for investment, and
no stock markets existed on which to make sales. Very often,
there were no laws to protect or even permit private ownership,
much less the supporting infrastructure of contract law and
financial support services such as banks and accountants.
For this reason the formerly socialist economies found
themselves forced to blaze a new trail of privatization, sometimes
using the distribution of “coupons” to the population as a means of
spreading ownership. Very often some degree of “informal” priva-
tization was permitted, in which management effectively expro-
priated what had been state property. Unlike Britain, which had
about 10 percent of its economy in state hands and had sold three-
fifths of it over ten years, the socialist countries were now faced
with privatizing 60 to 80 percent of their economies within half
that time.
Still new capitalist countries learned from the experience of
their early leaders. These included the techniques of writing off
past debts, allocating shares to workers, splitting monopolies into
competing elements, and establishing new regulatory agencies to
calm public fears about the behavior of the newly privatized
operations.
By restoring market incentives and commercial reality,
privatization revived state-owned industries. It diverted billions
of dollars from the support of loss-making government
concerns into expansion of wealth-creating private businesses.
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