The Privatization Process

The Privatization Process

Transformation of more fundamental aspects of the economy have proceeded much more slowly than did the reforms undertaken in 1990 and 1991. The most important feature of the longer-term transformation is the privatization of the means of production. The end of the communist system brought an immediate and dynamic growth in new privately owned businesses, most of which were small retailing, trade, and construction enterprises. In 1990 about 516,000 new businesses were established, while 154,000 were liquidated, a net increase of 362,000. Another 100,000 small businesses formerly owned by local government agencies were sold to private investors in the initial rush to privatization. By September 1991, an additional 1.4 million one-person businesses and 41,450 new companies had been registered since the beginning of the year. Overall, in 1990 and 1991 about 80 percent of Polish shops went into private hands, and over 40 percent of imports went through private traders.

Legal and administrative preparations for privatization of state-owned enterprises took much longer than expected. The "small privatization" of shops, restaurants and other service establishments was a relatively simple process, but privatization of large enterprises proved much more difficult. By October 1991, some 227 larger enterprises had been converted into stock exchange-listed companies, and twenty of them had been privatized by offering them for public or private sale. Some of these transactions involved foreign capital. To speed the process, the government of Prime Minister Jan Bielecki, which came to power in early 1990, had made capital vouchers available without charge to all adult citizens. The vouchers were to be exchangeable for shares in mutual investment funds. At first these funds were to be managed under contract with foreign and domestic management firms. Voucher holders would be allocated 27 percent of shares of the enterprises selected for "mass privatization" and would be able to purchase any 33 percent share of the privatized enterprises sold by auction. Because of their configuration, the vouchers were expected to give their holders effective control of these enterprises. Various technical problems delayed implementation of this program, as did the change of government at the beginning of 1992. At that point, vouchers for fewer than ten major enterprises were being traded.

Already in 1990, the private sector had emerged as the most dynamic part of the economy. The economy's overall GDP declined in 1990 by 12 percent, but it increased by 17 percent in the private sector. Total industrial production dropped by 23 percent, but the private sector production increased by 8 percent. At the end of 1991, the private sector provided about 38 percent of employment; it was responsible for 22.1 percent of total industrial production, 43.9 percent of construction output, 70 percent of retail sales, and 16.3 percent of transportation services. Surprising growth occurred in private foreign trade activity, which accounted for 28 percent of foreign transactions in the first three quarters of 1991.

By early 1992, some form of privatization had occurred in 17.4 percent of state enterprises. At that point, plans called for conversion of half of Poland's state enterprises to private ownership by 1995. The rate of privatization had already slowed in 1992, however, partly because of reduced government outlays and continual alteration of program goals. Enterprises were restructured in several ways: medium-sized firms typically were liquidated, and large enterprises were transformed into stock companies and limited liability companies.

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