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Eastern Europe: The Rocky Road to Privatization
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19698 |
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CURRENT ISSUES
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| Issue
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9 / 1991 |
2,788 Words |
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Nicholas A. Vardy
Nicholas A. Vardy is an attorney in the Budapest office of the
international law firm of Baker and McKenzie. |
Sometime in the 1970s, an Eastern European premier convened a meeting of his most trusted economic advisors. While viewing films about how the reintroduction of small private plots in agriculture had filled the formerly barren shelves of grocery stores with bountiful supplies of food, the premier, now riding the crest of unprecedented popularity, leaned over to the young architect of the reforms and asked, "Tell me, comrade, what is socialism?" "Socialism, Mr. Premier," smiled the advisor, "is the longest road from capitalism to capitalism."
In the throes of an anguished transformation to the free market, Eastern Europeans are only today realizing how long that road is.
The old economic order throughout Eastern Europe is collapsing. Industrial production in the state sector has plummeted by 10 to 25 percent. Trade with the Soviet Union--now based on hard currency--has all but disintegrated. Laid-off workers grousing in unemployment lines and housewives lamenting double-digit inflation are now a familiar sight on the streets of Eastern European capitals from Warsaw to Sofia.
If the ultimate destination--capitalism--is clear, then the path leading there remains uncharted. Newly democratic parliaments are passing legislation necessary to support a market economy at the dizzying rate of over 30 initiatives a week. The last year saw the reopening of stock markets in Budapest and Warsaw, as well as the implementation of highly technical reforms in accounting, banking, and company laws, causing businessmen and Western investors to scramble to keep up with the changes.
Although the paths may differ, common to all reform plans is the massive privatization of state-owned enterprises. In its strictest terms, privatization is the transfer of state property into the hands of private investors. More loosely, privatization also encompasses the emergence of thousands of small privately owned business that have been Eastern Europe's most colorful successes. Echoing the international decline of the public sector in countries ranging from Great Britain to Sri Lanka, Eastern Europe's transformation focuses on the re-introduction of private property, market coordination, and competition--concepts that the inexorable logic of Marxist ideology had relegated to historical obsolescence.
By introducing the discipline of the market and making enterprises accountable to shareholders, privatization, one hopes, will force Eastern Europe's industrial dinosaurs
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