Transcript Barbara Błaszczyk

Privatization Reversal
Barbara Błaszczyk
THIRD BILATERAL POLISH – HUNGARIAN
CONFERENCE
„DEVELOPMENT PATTERN OF CEE
COUNTRIES AFTER 2007-2009 CRISIS”
WARSAW,
29 SEPTEMBER 2016
What is privatization reversal ?
 In a narrow sense – stopping or delaying privatization plans, policies
 In a broader sense – all intended actions aimed at reducing the
share of private sector in the economy, supporting the growth of the
state domain and increasing the governments control over the
economic actors.
 Privatization reversal may be accomplished by other means besides
direct state ownership control of companies, like regulations affecting
the private sector and special measures aimed at the expansion of the
public sector at the expense of the private sector and the market.
 The purpose of this study is to detect and register changes occuring in
the real economy, in institutions and regulations aimed at reducing the
share and role of the private sector and increasing the role of the
government as owner and economic decision maker.
The Structure of the Study
 1. Background – literature
 2. Types of privatization reversal
 3. For what and by whom privatization was needed ?
 4. Who wants to revise privatization?
 5. The model of „revised” privatization – Russia
 6. Privatization reversal in Poland and Hungary :
 - nationalization
 - quasi – nationalization
 - antiliberal regulations
 - indirect anti-privatization policies
Background literature
 1. Bortolotti B., Pinotti, 2008 – „delayed” privatization.
Strong relationship between the composition of parliaments (large number of political agents
with veto power) and inability to implement privatization and other reforms (in 21 countries)
2. Bortolotti, Faccio, 2004 – „reluctant” privatization
Difference between formal scope of privatized economy and the real scope of destatization .
Italian state managed to exercise effective control over majority of large partially privatized
companies at he end of 2010. You can eat a cake and still have it !
3. Bałtowski and Kozarzewski (2014, 2016) – „reluctant” privatization - Poland
Formal and real state control over partially privatized companies. A large part of economy is
still under state control by ownership and other corporate control measures.
 4. Denisova, Eller, Frye, Zuravskaya (2007,2009) – Who wants to revise privatization?
Survey data from 28 transition countries, 28000 individuals. Almost 50% of respondets wanted
this revision, but there were differences in reasons and views what should be done afterwords.
 4. Radygin, Entov and Simachev (2014, 2016)
How the Russian state gained full control over the companies under mixed ownership and
established blurred, nontransparent structures , resulting in rent seeking and inefficiency.
 5. Mihalyi, Szanyi, Voszka (2014, 2015, 2016)
Hungarian example of retreat from private market economy to state capitalism. Combination of
nationalization and regulations against the market and competition.

Types of privatization reversal
 1. Nationalization
 2. Quasi – nationalization
 3. Anti – liberalization
 4. Indirect anti -privatization policies
Nationalization
 Open purchase of private assets by state institutions
 Hidden or indirect purchase (purchase by state- owned companies)
 Cancellation of previous privatization transactions
 Expropriation with compensation (or without)
Quasi- nationalization
 Non ownership control:
Increasing the role of the state in corporate governance without any formal transfer of
ownership from the private to the public sector. Using different methods (besides
ownership) of state influence on the companies which are partially privatized (with
majority and minority share of the government). Legal acts giving more rights to the state
owner (golden share), company charters, rights of nominating management of important
(”strategic”) companies. Result: „Dependent” companies.
 Consolidation:
Bundling together several state-dominated companies and making their fate dependent
on one another
 Hybridization:
establishing a complex system of interrelations between dependent companies with
unclear, blurred structures, controlled by the government.
 Diminishing the role of private minority shareholders:
depriving the private minority shareholders of their voting rights in companies by
manipulations as above. The minority shareholders cannot influence the policy of the
board and in practice they are deprived from their ownership rights.
Antiliberalization
 Regulatory actions taken by the state affecting the
stability of private entities
examples: special sectoral taxes, (bank, shopping centres), selective treatment of different
types of investors , depending on the origin of their capital, new types of licenses required
for opening business, restricting the access to the market by certain entities (e.g. land
market), sudden changes in regulations being of key importance for the profitability of
entire sectors and industries, and finally, returning to regulated and state-established
market prices, or setting up price levels that destabilize the market there, where the
prices are state-regulated. This type of regulations may, in extreme cases, lead to
renationalization (the so-called regulatory takings). This happens when private
companies, as a result of such regulations, are unable to operate in a given market
environment and are forced to go bankrupt or sell their companies to the state (often for
a symbolic price).
 Discriminatory practices against foreign capital
various forms of expressing reluctance towards foreign capital. This involves the
introduction of (or announcing the introduction of) discriminatory policies towards
foreign companies and international corporations, in particular in the area of fiscal and
price policies, as well as taking administrative measures.
Indirect anti-privatization policies
 Measures aimed at weakening independent institutions
responsible for compliance with the law and protecting
property rights
(Example: Constitutional Courts, other courts, competition offices, other independent
regulators)
 Other special measures aimed at strengthening of the state
domain at the expense of the private sector and the market
Example: measures aimed at weakening the capital market and its institutions in the
investment process in order to strengthen the role of state institutions. Through
unfavorable regulations and due to the planning of great public investments and a strong
expansion of new public entities equipped with powerful political and financial means.
Another important example: liquidation of the second pillar of the pension scheme in
Hungary and a partial liquidation of the second pillar in Poland in 2014. The present
government intends to continue this process, though it is not yet known what form it is
going to take.
„Synergy”
 Different types of reversing privatization can often occur jointly and
can mutually reinforce one another (e.g. “regulatory takings” and
simultaneous creation of a new state entity assigned to manage the
newly acquired market share).
 This is logical there, where a conscious policy of privatization reversal is
conducted.
 However, it slightly hinders our analysis by introducing a complex
structure of overlapping categories.
Why it is so important ?
The policy of reversing privatization may be very harmful:
1. At the beginning, its implementation deteriorates conditions of business
activity in mixed ownership companies (and in their market environment)
through introducing blurred, in-transparent ownership structures, which
leads to deterioration of the corporate governance system.
2. Nationalization oriented activities may discourage investors (domestic
and foreign) from establishing new businesses and encourage existing
investors to leave the country.
3. Furthermore, this may lead to diminishing credibility of the country,
as it undermines confidence in stable and legally protected private property
rights.
4. Finally, the outcomes of privatization reversal, after exceeding a certain
critical point, may change the entire economic system and destroy its
stability. Thus, in our opinion, it is important to monitor this process and
to alert.
THANK YOU FOR YOUR ATTENTION !