TRANSITION IN THEORY AND
PRACTICE
BASIC ECONOMIC QUESTIONS
WHAT - maximization of utility, product market, consumers, restrictions,
planner
HOW - maximization of profit, labor and capital market, producers,
restrictions, planner
TO WHOM- product and factors market, planner
WHEN - capital market, planner
ECONOMIC SYSTEMS
Ownership
State or social
Private
Centralised
state/
centralised
Soviet Union
private/
centralised
South Korea
Decentralised
social/
decentralised
Yugoslavia
private/
decentralised
USA
Management
COMPONENTS OF TRANSITION
1. Privatization
- objectives - efficiency, justice, democracy
- complexities of privatization
- privatization models
- outcomes of privatization
2. Macroeconomic stabilization
- assumptions and Washington agreement
- transformational depression
3. Microeconomic restructuring and marketization
4. Creation of a new economic system
DILEMMAS OF PRIVATIZATION
MECHANISM
Free distribution
to whom
to everybody - to employees
- equally
- by age
- by years of employment
Patterns
direct
indirect
Restitution
in kind
compensation
Sales
to whom
to citizens - to foreigners
Patterns
- stock market
- auctions
- workers-managers byouts
- debt equity swaps
- direct sales
- increase of capital
MACROECONOMIC STABILIZATION
Assessment of economic situation: D>S, Washington agreement;
Increase of Supply: liberalization of imports, pure socialist
production goods;
Decrease of Demand: price liberalization, restrictive credit policy,
restrictive fiscal policy; freeze of wages, fixed exchange rate;
Results: economic depression, measured and actual,
unemployment, social diferentiation;
AGGREGATE SUPPLY AND DEMAND CURVES
Prices
Demand
Supply
P
Ps
Shortage
Qds
Q
Qss
output
TRANSITION MODELS IN CEE
TRANSITION MODELS
Starting position
1.Baltic
EE, LT, LV
2.Visegrad
3. Slovenia
CZ, HU, PL, SK
SI
Privatization
sales to
foreigners
sales to
foreigners
Stabilization
fixed ex.rate
switching
fiscal discipline adaptable
floating
adaptable
Social Considerations
Restructuring
absent
absent
present
by FDI
important
decentralized
Problems
CA deficit
emigration
CA deficit
budget deficit
balance
EMU problems
MODEL
neoliberal
embedded
neoliberal
neocorporativist
free distribution
MW by-outs
THE DEVELOPMENT IN CEE COUNTRIES
140
130
120
G DP
o 1989=100
110
100
90
80
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
GINI COEFFICIENTS, 2000-2006
40
LT
Gini(2 0 0 0 )=2 8 .4
Gini(2 0 0 6 )=3 0 .2
EE
LV
35
HU
30
PL
RO
MT
EU15
CY
SK
25
20
BG
CS
SI
SOCIAL COHESION INDICATORS IN NMS
2000
2006
Public expenditures/GDP
41.6
40.5
Gini coefficient
28.3
30.3
Inequality coefficient
4.35
4.91
Social Security Expenditures/GDP
11.9
10.9
EXPENDITURES FOR HEALTH AND
EDUCATION
1994-2003
14
% GDP
13
12
11
10
9
8
C ZE
EST
H
LAT
LIT
PL
SLK
SLN
SLOVENIAN TRANSITION MODEL
Slovenian privatization model
ignoring Washington agreement in macroeconomic
stabilization
gradualism and floating exchange rate
some of the consequences
THE YUGOSLAV ECONOMIC SYSTEM
AND ITS BREAKDOWN
Systemic Development:
1946-1952: administrative socialism, centralised answer to all four
questions, planning,
1953-1962: administrative market, WHAT and HOWdecentralised, TO WHOM and WHEN - centralised, investment
funds, dualism of prices
1963-1973: market socialism, decentralised answers to all four
questions, reforms 1961, 1965
1974-1988: contractual socialism, Law of Associated Labor 1976
1988: collapse of the system and of the country
Stagnation 1980-1990
Political development 1989-1990
Economic collapse of the country in 1990
The collapse of the fiscal system; June 1990, October 1990;
The collapse of the monetary sytem, December 1990
Customs within the country, July 1990
The appearence of different economic systems
SLOVENIA IN 2009
Surface: 20.273 sqkm, 66% forests, Population: 2,02 millions,
Language: Slovenian; (Italian, Hungarian minorities)
Political Arrangement: parliamentary democracy, coalition
governments; “left” or “right”
History: until 1918 part of Austro-Hungarian empire;
1919-1941 part of Kingdom of Yugoslavia;
1941-1945 occupied by Germany, Italy and Hungary;
1945-1991 Yugoslav republic;
1990 - political transition:
1991 independence, May 2004: EU member state, January 1, 2007
EMU member;
Economy: GDP 34 billions €, GDP/capita 17.000 €, 91% of EU27
average,
- GDP growth: 4%(2008) -7.6%(2009),
- unemployment rate: 4.4%, 60000 (2008), 6.9% 100000 (March
2010);
- inflation 5.7 %(2008) 1%(2009),
- public balance/GDP: 0.4%(2008), -5,5%(2009)
- CA/GDP: -4.5%(2008) -0.6%(2009)
COMPONENTS OF TRANSITION IN SLOVENIA
PRIVATISATION specific model of decentralized,
distributional and gradual transformation of social property
MACROECONOMIC STABILIZATION benefits of ignoring
Washington agreement, gradualism versus shock therapy,
floating exchange rate
MICROECONOMIC RESTRUCTURING slow decentralized
firing and retiring, cautious approach to FDI
CREATION OF A NEW ECONOMIC SYSTEM
THE KEY ELEMENTS:
Starting position – the level of development, historical
inheritance, from Maria Theresia to Edvard Kardelj
Political development – softness of political and social changes.
creation of a new elite or changes in the ideology of old elite,
people without ideology
The benefits of ignoring IMF and international financial
institutions
Responsible fiscal and monetary policies
THE LAW ON THE OWNERSHIP
TRANSFORMATION OF COMPANIES
Privatization Equation:
(10 + 10 + 20 + (1-x)*40) + (20 + x*40) = 100
10% Pension Fund
20% employees
- 10% Restitution Fund
40% social property
20% Development Fund
40% social property
0<x<1
x = 1 - small successful companies, majority of
workers&managers
x = 0 - large unsuccessful companies, state property,
PF, RF
0<x<1- large successful companies, auctions for
vauchers
PRIVATIZATION PROCESS
Supply of Capital: shares in 1400 companies
Demand for Capital: certificates, managers-workers by outs,
restitution claims, transfers to KAD (pensionary fund) in SOD
(restitution fund)
Privatisation outcome (November 1997) 1127 privatized companies, 70
state owned companies, 82 liquidated companies; privatization gap
32 companies without insiders, 455 with insiders as minority
shareholders, 795 with insiders as majority shareholders
Gradual Concentration of Ownership
Number of Shareholders in a Privatized
Company
at privatization
1999 2000 2001
Non-listed companies
481
360
308
265
- Predominance of insiders
470
333
276
241
- Predominance of ousiders 492
387
340
288
Listed companies
7497 4576 4085 3653
All companies
2820 1765 1567 1349
ECONOMIC DEVELOPMENT OF SLOVENIA
180
GDP index
160
gambling
gradualism
transition
140
crisis
120
100
8
%
80
4
rate of change
0
-4
-8
-12
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
GAMBLING AND THE END OF THE SLOVENIAN
“SUCCESS STORY”
CREDITS AND DEPOSITS
32,000
CREDIT/DEPOSIT RATIO
1.8
m il. €
credits
credit/deposit ratio
28,000
1.6
24,000
1.4
20,000
1.2
deposits
16,000
1.0
12,000
0.8
"gambling period"
8,000
"gambling period"
0.6
2002
2003
2004
2005
2006
2007
2008
2009
2010
2002
2003
2004
2005
VIRTUAL WEALTH CREATION
2006
2007
2008
2009
2010
NET FOREIGN DEBT
14,000
12,000
SBI index
mil.€
10,000
12,000
8,000
10,000
?????
6,000
8,000
4,000
2,000
6,000
0
4,000
"gambling" period
"G AMBLING " PERIOD
-2,000
2,000
-4,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2002
2003
2004
2005
2006
2007
2008
2009
2010
BORROWING ABROAD TO INVEST ABROAD
2,000
1,500
INFLOW OF CAPITAL
other investments
1,000
500
0
-500
-1,000 OUTFLOW OF CAPITAL
portfolio investments
-1,500
2001
2002
2003
2004
2005
2006
2007
2008
THE END OF THE SLOVENIAN “SUCCESS STORY”
AND THE ENTRY INTO THE CRISIS
DEPENDENCE OF THE COUNTRY ON EU
-
institutional (economic system – EU directives, monetary and fiscal policy, controls
of flows)
Economic - exports and imports, euro
CREATION OF SLOVENIAN CASINO CAPITALISM (2005-2008)
-
the roots in vaucher privatization, creation of owners of assets instead of owners of
companies; creation of investment funds;
globalization of product market leading to indirect globalization of labor market
and replacement of workers with flexible “labor force”;
gradual turning of savings to speculations, creation of virtual financial wealth;
gradual disappearance of social cohesion;