Chapter 2 Leaps of Faith: Launching the Privatization Process in Transition

This chapter analyzes the early post-transition privatization and enterprise reform efforts of three major countries: Poland, Czechoslovakia (subsequently the Czech Republic), and the Soviet Union (subsequently Russia). For each, it discusses the prevailing ideologies of key decision makers and their external advisors prior to and during the transition process, the initial conditions faced by reformers and advisors, the policy frameworks that evolved, the results achieved, the mistakes made, and the opportunities missed. The ultimate conclusion is that while privatization could have and probably should have been done better, it nonetheless had to be done. The Czech Republic and Russia, and others in the region, are better off after the flawed privatizations they carried out than they would have been had they avoided or delayed divestiture. Poland, which did quite well at first in the absence of mass and rapid privatization, now finds itself burdened with a number of expensive and unproductive state firms. This chapter shows how and why these outcomes came about, and discusses the role of external advisors in the process.