In self-management socialism, two crucial aspects lacked sufficient and careful attention: i) social ownership and social property; and ii) the operation and behavior of SOEs in reality. Depending on the extent of their insights being blurry, they had implications in ownership claims against SOEs by various players. We summarize this by maintaining that, although things appear to work good but inside have got some defects not properly observed and dealt with in time, then when it comes to the problems accumulated, attempts to further reform the system (as former Yugoslavia did in mid 1980s) are likely to be without perspective. That is why the final role of the state in this respect – to organize privatization and make property rights clearly defined, came also to be an uneasy challenge. The longer experience with market-based elements being perceived as an advantage in establishing a full market economy, did not prove that the privatization of social ownership was easier than state ownership. The blame for this difficulty has been laid mainly on the specific features of social ownership and the problem of resolving the national question. Thus the prospects of privatization in former Yugoslavia soon withered away with the emergence of political crisis, the outbreak of the civil war and the disintegration of the country.
The experience of privatization involves similarities as well as differences depending on approaches, methods used, and the circumstances in which the process evolved. The fact that the main method in the first privatization laws of successor states remained the sale of enterprise assets to insiders at favorable terms, indicates that the Marković Law left a significant impact which lasted long after the disintegration of former Yugoslavia, including some consequences of unfinished privatizations and their dilemma. But there were deviations from that course in many cases, e.g., when social ownership was renationalized before privatization (in Croatia, Serbia, and BiH), some SOEs were privatized through other methods (in Macedonia), or when a part was distributed to the population (MPP in Slovenia, Montenegro, and BiH). Privatization after re-nationalization in Croatia and Serbia generated a winners group made up of people well-connected to the government or the party in power. In both countries, privatization was associated with corruption. Although autonomous privatization had many shortcomings, its rescinding in Serbia was a worse option than continuing with it.
This experience shows that in the course of transition the quicker privatization is carried
out the better, provided that the speed is cautious about the problems in corporate governance that may arise later.
Privatization was undertaken to improve enterprise efficiency but fell far short of this aim. No doubt that there has always been a gap between the goals proclaimed and results achieved in privatization elsewhere. It does not mean that the plans were not good or they were overambitious. The main reason was the limited institutional capacities and management skills necessary to carry out the process. None of the countries had any experience of privatization and when it ran into difficulties, there was no experience or a ready diagnosis to deal with the problem effectively. Instead, other models were embarked on to cope with the problem and complete the process. This, indeed, accelerated and brought the process to an end though it left a number of implications behind.
When we compare the management of SOEs in the past and after their privatization to employees or EOFs, we may conclude that it is similar at large. But in self-management, employees were not the only one managing SOEs; they had the support and influence of other players outside who acted as a sort of umbrella for employees. After privatization, the role of those players disappeared and employees being accustomed with that umbrella for a long time, found it difficult to do everything on their own. In cases when they came in joint ownership with other shareholders such as those who used to exercise their role in managing SOEs, there were difficulties because, in spite of being together again, their relations changed and different objectives emerged. Far more unsatisfactory performance came about when ownership was distributed to society (i.e. citizens) through MPP resulting in diffused ownership that weakened the mechanisms of corporate governance and prospects for restructuring.
Foreign investment to support enterprise restructuring and improve corporate governance was smaller than expected. Two main factors may explain this: i) the overall political and economic environment; and ii) the large domination of insiders in the privatized companies which discouraged the participation of foreigners.
To sum up, the privatization of social ownership in successor states of former Yugoslavia faced many challenges. Political and institutional environment, in particular the disintegration of former Yugoslav market and the collapse of business networks had
a significant impact. Difficulties of each successor state to manage and carry out privatization reflected in unsatisfactory results. Smaller effects of privatization arose also from insufficient transparency during the process. One explanation with respect to the theory of unclear and/or shared ownership rights like in social ownership vis-à-vis its privatization, is that they are likely to produce results under incentive compatibility linked to some ideals of higher levels of broader interests enforced by an apparatus, than individual or group interests within the firms under better piecemeal incentives for some at the expense of some others. To answer the basic question in this paper, did privatization of social ownership matter for economic efficiency, the answer is: not in the short to medium term. This by no means implies was then privatization necessary?
Privatization was a must, but the way how it was implemented and managed undermined greater results. This now leads to another question: which ownership does matter more in terms of overall economic efficiency? From historical perspective that depends on how well ownership fits in the economic system and broader environment such as political and institutional stability.
24 Appendix I: Privatization in successor states of former Yugoslavia: methods, progress, and post-privatization results
Slovenia Croatia Macedonia Serbia Montenegro Bosnia and Herzegovina Kosova Total number of SOEs slated for
privatization
2,500a) 3,619b) 1,216c) 3,486d) 354e) 2,591f) 558 g) Year and the month the first
privatization law was passed
November 1992 April 1991 June 1993 August 1993 January 1992 December 1997 and June 1998
June 2002 Approaches to privatization Decentralized Highly centralized Decentralized Centralized Decentralized Highly decentralized Highly centralized Primary method of privatization Employee
buy-outs
Employee buy-outs Employee buy-outs Employee buy-outs Employee buy-outs MPP Direct sales (spin-off) Secondary method of privatization MPP MPP Direct sales None MPP Direct sales Liquidation
Transfers to the funds 40%h) 30%i) 15%j) 40%k) Up to 60%l) 15% (RS)m) None
Discount for insiders 50%h) 20%i) 30-50%j) 20%k) 30%l) None None
Additional discount per each year of employment
None 1%i) 1%j) 1%k) 1%l) None None
Maximum discount to insiders 50%h) 60%i) 70%-90%j) 60%k) 70%l) None 20%o) Repayment period 5 yearsh) 5 years (20 years in the
second phase)i)
5 yearsj) 5 yearsk) 10 yearsl) None None Limits on sales of internal shares per
employee (DM)
None 20,000i) 25,000j) 20,000-30,000k) 18,000l) None None
Progress with large scale privatization during the 1990s
Significant Moderate Moderate Significant until 1994, retreat and no progress until
2002
Very slow Very slow or no progress No progress Slow since 2002
Privatization revenues as a share of GDP (in 2002)n)
4.9% 15.8% n/a n/a n/a 2.9% n/a
Sources:
a) EBRD (1994); b) Čučković (1996); c) Privatization Agency of Macedonia (2002a); d) Lazić and Sekelj (1997); e) Bojović and Vlahović, 2002;
f) Privatization Agency of the Federation of BiH and of Republika Srpska (2003); g) Statistical Yearbook of Yugoslavia (1990)
h) Official Gazette of the Republic of Slovenia, No. 55/92, Articles 22, 23, and 25; i)Official Gazette of the Republic of Croatia, No. 84/92, Articles 25 and 31;
j) Official Gazette of the Republic of Macedonia, No. 38/93, Articles 26 and 28; k) Official Gazette of the Republic of Serbia, No. 48/91, Articles 16 and 17;
l) Official Gazette of the Republic of Montenegro, No. 2/92, Articles 7, 8, 9 and 11; m) Official Gazette of the Republika Srpska No. 24/98, Article 26;
n) EBRD (2002);
o) Not a discount but the share of proceeds from the sale of SOEs going to workers according to provisions of the Regulation No. 2002/2 on the establishment of the Kosova Trust Agency on 13 June 2002 by the Special Representative of the Secretary General (Michael Steiner) was the first serious step in this process. The Regulation was amended on 22 April 2005 by Regulation No. 2005/18;
and author’s own compilation.
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