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Privatization in Europe: west and east experiences
594
Book reoiews
Gorecki are showing for Canada that entry enhances productivity growth. In fact, generally, an entrant can only hope to succeed if he employs either a new technology or offers a new product, or both. Just imitating incumbents is almost certainly doomed to failure. If the process of entry is looked upon from this perspective the high correlation between gross entry and exit reflects the inherent risks of innovating activities. Unsuccessful entry, unless caused by an abuse of market power of incumbents, must be considered to be part of the costs of innovation. Whether bearing these costs is worthwhile for an economy must be assesed by invoking the productivity gains of innovations and the extra utility entailed by the use of new products. I found it somewhat astounding that neither the results of Audretsch and Acs nor those of Baldwin and Gorecki made a significant impression on the evaluation of the editors. Only very vague hints to invoke a more comprehensive framework of dynamic competition can be found in the preface. Obviously it is rather difficult to break loose from the inherited mode of reasoning within the static framework. It is not without merit, to be sure, but it needs to be enlarged by putting it into a dynamic setting. Despite these reservations I found the studies collected in the book to be stimulating and worth reading.
University of Erlangen-Niirnberg,
Ferdinand0 (Dartmouth,
Manfred Neumann Postfach 3931, 90020 Niirnberg, Germany
Targetti, ed., Privatization Aldershot, 1992).
in Europe:
West and East Experiences
Privatization in both Western and Eastern Europe has become a major issue over recent years and it has been much analysed and pontificated about within the literature of our profession. Nevertheless this is an interesting collection of essays on the subject showing few hang-ups about mixing economic and political analysis. Most of the authors have got something to say and say it quite well. Targetti kicks things off with an extended introduction covering lots of important angles. He starts out by considering five arguments that favour privatization, but, whilst there is force in each, there are important counterarguments. Whilst he usually recognizes the counterarguments he sometimes fails to recognize their general application within modern economies. For instance the ‘subsidy thesis’ (soft budget) would appear to be true not only of state enterprise, but of the relationship between state and giant firms more generally. We have seen many instances in recent history of the state stepping-in to ameliorate the condition of ailing, large-scale private enter-
Book reviews
595
prise, by one means or another. Neither is it true that the state sector is never harshly treated, nor that it is never substantially constrained in terms of its ability to be flexible and diversify in the face of changing market conditions and opportunities. But Targetti does offer an interesting corollary to his subsidy thesis: the outlaw argument, which refers to the apparent willingness of state agencies to ignore state policy. He also offers the pluralism thesis which sounds compelling: privatization is desired to achieve a dispersion of economic power to act as a countervailing force to that of the state. This argument relates back to the fundamental question of the concentration of power in society, and in the economy, and suggests a perhaps more direct approach to reducing political and economic concentrations of power. Within the context of privatization it would suggest that restructuring prior to the act of privatization may be crucial and that serious attention is given to securing a democratic voice within the privatized entity. There is a clear recognition in the book that the diffusion of shareholding will raise problems of control over management, and the solution is seen to lie with financial intermediaries. At this point some care is required: creating a few controlling financial intermediaries could lead us back to the problems we sought to move away from. New types of open and transparent trust arrangements need to be experimented with. This argument for the necessity of institutional innovation and social design is reflected in the contributions by Frydman and Rapaczynski and by Tamborini. The contribution by Horvat I found particularly interesting. He first points out the current reality: privatization has become the fashionable panacea for the ills of Eastern Europe and the former Soviet Union, and then follows with the telling remark ‘. . . when fashions replace argument, scholars must become suspicious’ (p. 89). He goes on to argue that Yugoslavia was privately owned prior to World War II and showed slow development and low productivity. In contrast, nationalization after World War II led to rapid development and rising productivity. He concludes that ‘wholesale privatization is now as unjustified as wholesale nationalization was forty-live years ago’. But he does not want to stand still ~ he wants denationalization and deregulation, with a variety of ownership forms arising in a process of open competition. He argues that on a level playing field self-managing social corporations will become an important element of the economic landscape. He is clear that although Yugoslavia had some experience with such structures, the resistance of the state precluded their full development. Other essays that I found particularly insightful were the ones by Lombardini and Bicanic and Skreb emphasizing the fundamental role of the state within the market economy. Lombardini also emphasizes the link between privatization and income distribution, arguing that ‘. . . privatization may provide the historical opportunity for a class of a few, very rich people to emerge in the USSR’. He concludes by suggesting that the fundamental
596
Book reviews
need within Eastern Europe is to establish priorities for industrial development within which the privatization process can be positioned. I strongly concur with this view. The volume is completed with a group of essays capturing recent experiences in both West and East. For the West, Bartlett provides a valuable account of the impending privatization of the welfare state in Britain, and for the East, the accounts of Schmognerova and Bohati for Czechoslovakia and Voszka for Hungary provide both important record and insightful analyses of recent events. All in all a book that warrants serious attention. Keith Cowling University of Warwick, Coventry, UK
Book reoiews
Gorecki are showing for Canada that entry enhances productivity growth. In fact, generally, an entrant can only hope to succeed if he employs either a new technology or offers a new product, or both. Just imitating incumbents is almost certainly doomed to failure. If the process of entry is looked upon from this perspective the high correlation between gross entry and exit reflects the inherent risks of innovating activities. Unsuccessful entry, unless caused by an abuse of market power of incumbents, must be considered to be part of the costs of innovation. Whether bearing these costs is worthwhile for an economy must be assesed by invoking the productivity gains of innovations and the extra utility entailed by the use of new products. I found it somewhat astounding that neither the results of Audretsch and Acs nor those of Baldwin and Gorecki made a significant impression on the evaluation of the editors. Only very vague hints to invoke a more comprehensive framework of dynamic competition can be found in the preface. Obviously it is rather difficult to break loose from the inherited mode of reasoning within the static framework. It is not without merit, to be sure, but it needs to be enlarged by putting it into a dynamic setting. Despite these reservations I found the studies collected in the book to be stimulating and worth reading.
University of Erlangen-Niirnberg,
Ferdinand0 (Dartmouth,
Manfred Neumann Postfach 3931, 90020 Niirnberg, Germany
Targetti, ed., Privatization Aldershot, 1992).
in Europe:
West and East Experiences
Privatization in both Western and Eastern Europe has become a major issue over recent years and it has been much analysed and pontificated about within the literature of our profession. Nevertheless this is an interesting collection of essays on the subject showing few hang-ups about mixing economic and political analysis. Most of the authors have got something to say and say it quite well. Targetti kicks things off with an extended introduction covering lots of important angles. He starts out by considering five arguments that favour privatization, but, whilst there is force in each, there are important counterarguments. Whilst he usually recognizes the counterarguments he sometimes fails to recognize their general application within modern economies. For instance the ‘subsidy thesis’ (soft budget) would appear to be true not only of state enterprise, but of the relationship between state and giant firms more generally. We have seen many instances in recent history of the state stepping-in to ameliorate the condition of ailing, large-scale private enter-
Book reviews
595
prise, by one means or another. Neither is it true that the state sector is never harshly treated, nor that it is never substantially constrained in terms of its ability to be flexible and diversify in the face of changing market conditions and opportunities. But Targetti does offer an interesting corollary to his subsidy thesis: the outlaw argument, which refers to the apparent willingness of state agencies to ignore state policy. He also offers the pluralism thesis which sounds compelling: privatization is desired to achieve a dispersion of economic power to act as a countervailing force to that of the state. This argument relates back to the fundamental question of the concentration of power in society, and in the economy, and suggests a perhaps more direct approach to reducing political and economic concentrations of power. Within the context of privatization it would suggest that restructuring prior to the act of privatization may be crucial and that serious attention is given to securing a democratic voice within the privatized entity. There is a clear recognition in the book that the diffusion of shareholding will raise problems of control over management, and the solution is seen to lie with financial intermediaries. At this point some care is required: creating a few controlling financial intermediaries could lead us back to the problems we sought to move away from. New types of open and transparent trust arrangements need to be experimented with. This argument for the necessity of institutional innovation and social design is reflected in the contributions by Frydman and Rapaczynski and by Tamborini. The contribution by Horvat I found particularly interesting. He first points out the current reality: privatization has become the fashionable panacea for the ills of Eastern Europe and the former Soviet Union, and then follows with the telling remark ‘. . . when fashions replace argument, scholars must become suspicious’ (p. 89). He goes on to argue that Yugoslavia was privately owned prior to World War II and showed slow development and low productivity. In contrast, nationalization after World War II led to rapid development and rising productivity. He concludes that ‘wholesale privatization is now as unjustified as wholesale nationalization was forty-live years ago’. But he does not want to stand still ~ he wants denationalization and deregulation, with a variety of ownership forms arising in a process of open competition. He argues that on a level playing field self-managing social corporations will become an important element of the economic landscape. He is clear that although Yugoslavia had some experience with such structures, the resistance of the state precluded their full development. Other essays that I found particularly insightful were the ones by Lombardini and Bicanic and Skreb emphasizing the fundamental role of the state within the market economy. Lombardini also emphasizes the link between privatization and income distribution, arguing that ‘. . . privatization may provide the historical opportunity for a class of a few, very rich people to emerge in the USSR’. He concludes by suggesting that the fundamental
596
Book reviews
need within Eastern Europe is to establish priorities for industrial development within which the privatization process can be positioned. I strongly concur with this view. The volume is completed with a group of essays capturing recent experiences in both West and East. For the West, Bartlett provides a valuable account of the impending privatization of the welfare state in Britain, and for the East, the accounts of Schmognerova and Bohati for Czechoslovakia and Voszka for Hungary provide both important record and insightful analyses of recent events. All in all a book that warrants serious attention. Keith Cowling University of Warwick, Coventry, UK