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What Lessons Can Be Learned from Privatization in a Post-Communist Country: The Czech Experience

English Pages, 30. 9. 1998

It is a great pleasure and a great honor to be again, after six years, at the World Economic Development Congress.

I accepted the title of this session, and I accept that I am supposed to talk about “international consensus” and “models for privatization”. It seems to me that, after the whole decade of privatization and radical economic transformations, we are still in need of an international consensus. I will try to say a few words about it.

There is – at least I hope – a basic consensus as regards positive effects of privatization, which has become considered – together with liberalization and deregulation – the crucial way for creating a free, open, transparent and more efficient economy. The last decade of the twentieth century represented in this respect a decisive breakthrough. Now, practically all governments in the world talk about privatization even if it does not necessarily mean that they do it. But the idea of privatization is here and I am convinced that it is here to stay.

There is, however, much smaller consensus about the scope and speed of privatization. As a result of it, the ideological disputes (on one hand) and the rent-seeking activities (on the other) are these days not about privatization as such but about its scope and speed. The disagreements, however, are not less important or less dangerous. There are, and there will always be, strong vested interests (both theoretical and practical, purely “idealistic” as well as “materialistic”) against large-scale and fast privatization. We should be aware of them and should not, therefore, weaken or soften our effort to privatize as much and as fast as possible. We should not forget or conceal the fact that privatization – as any other human activity – has its costs and benefits but we should keep arguing that its long-term benefits are much bigger than its short-term costs. Because of those non-zero costs, the purely ideological arguments in favor of privatization may not be sufficient and serious economic arguments must follow.

No privatization is done in a vacuum. Because of that, privatization methods depend on the scope and speed of privatization and its scope and speed depend on the size of the privatization task. We have to start there.

The size of the privatization task is relatively small in a developed Western country, in a typical economy of Western Europe. The privatization is done there at the margin of the economy. (It does not imply, however, that the task is simple and easy or that its benefits are only marginal). In such a country the privatization is done inside a full-fledged market economy, with functioning capital markets and all other institutions which market economy needs for its efficient functioning. Additional important characteristics of such economy is the existence of domestic capital which can, therefore, compete with foreign capital. In this situation the speed is not crucial and the privatization methods should be, therefore, standard ones (described in elementary textbooks).

The size of the privatization task is totally different in a former communist country, where private property was fully (or mostly) eliminated by full scale nationalization. The privatization is done there at the heart of the economy or, to put it differently, with the whole economy. You do not privatize individual firms but the economy as a whole. The privatization is done in a rudimentary market economy, in an economy without efficiently functioning capital markets and with only simultaneously arising accompanying institutions of market infrastructure. After decades of communist rule domestic capital does not exist and there is no one to compete with foreign capital. In this situation, in the dangerous moment of pre-privatization chaos and “agony”, the speed is crucial and the privatization methods should be a mixture of standard and non-standard ones. The Czech, so called voucher-privatization, was probably the innovative idea in this respect.

I am deeply convinced that potential international consensus should be built around this concept, around the understanding of the difference between classical and non-classical, small-scale and large-scale, marginal and fundamental, efficiency-enhancing (in individual cases) and system-changing privatization.

I am afraid that such consensus does not exist yet. The concept of privatization was originally erroneously transferred from one institutional setting to another, the importance of alternative methods was neither understood, nor accepted, prolongation of the pre-privatization era (because of insistence on standard, slow methods) was recommended to the detriment of all.

To achieve such consensus would have been extremely important already a decade ago. Many of the former communist countries have, in the meantime, moved to another stage of their development and the property structure of their economies is much different. Privatization occurs already at the margin, it is less wholesale, it is more individual. The two models I suggested have become nowadays – I hope – more important for interpretation of events of the last decade (and of their consequences) than for future privatizations. To understand them is, nevertheless, very important.

Václav Klaus, Notes for Václav Klaus´s statesment in the session „Building International Consensus and Defining Models for Privatization“ at the 7th Annual World Economic Development Congress, Washington, D.C., September 30, 1998.