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Privatization is the process whereby the ownership of the state’s productive assets, often utilities or large industrial enterprises, are transferred into private hands. This has been a major activity for governments in both the developed and developing world since Mrs Thatcher’s first modern privatization programme in the UK between 1979 and 1984.


The cumulative revenues raised from the process globally probably exceeds $1.25 trillion dollars, while the role of state owned enterprises in the economies of high income countries has declined from around 8.5% GDP on average in 1984 to around 6% in 1991 and probably below 5% today. The reduction in state ownership has probably been even more dramatic in less developed countries, falling from around 16% GDP in 1981 to around 5% in 2004. Privatization is intended to improve corporate efficiency and generate revenues for the state, and there is now probably sufficient experience in different economic and institutional environments to evaluate its impact relative to expectations.

Privatization has been a particularly important phenomenon in the transition process in Central and Eastern Europe from planning to a market system. This is because communist regimes had placed almost all the productive assets of the economy into state hands for ideological reasons, and to facilitate the planning process. As a result, countries like Czechoslovakia and the Soviet Union contained virtually no private sector at all – typically in excess of 90% of assets were state owned – and even in countries with slightly larger private sectors, like Poland or Hungary, private ownership was concentrated in agricultural and handicraft activities; industrial firms were all in state hands. This meant that privatization was a central aspect of building a market economy in all the transition economies. Indeed, to quote Dusan Triska in 1992 “privatization is not just one of the many items on the economic program. It is the transformation itself.”

The following article addresses the privatization process in Central and Eastern Europe, focusing on the objectives, the methods and most importantly the impact of the ownership changes. Privatization has always had some ideological content in he transition economies, especially in the early years, when the reformers wished to create a “capitalist class” supporting the radical changes that were required to build a market economy. But the fundamental objective of privatization in transition economies, as in developed and developing ones, has been to enhance company performance. The article explores whether privatization has succeeded in this objective.

Saul Estrin, London School of Economics and Political Science Article for the New Palgrave Dictionary of Economics, 2nd Edition January 2007
http://personal.lse.ac.uk/estrin/Publication%20PDF's/The%20Impact%20of%20Privatization%20in%20Transition%20Economies%20ickes%20comments.pdf