Making a market : mass privatization in the Czech and Slovak Republics

The author assesses the Czechoslovak mass privatization program for speed, equity, and corporate governance. The program transferred claims on assets in 1,491 enterprises - assets worth about $10.7 billion - to the 8.5 million citizens who participated in the scheme. The entire cycle of project preparation, public information, and nationwide simultaneous bidding took 14 months. This was equivalent to privatizing more than three medium-scale and large-scale enterprises, on average, per day. Equity objectives were achieved by transferring equal claims (equivalent to about $1,250 per person) to all participants and by putting in place a transparent and decentralized process. The government's role was simple to provide a framework and a set of rules for potential firms, managers, and shareholders to find each other. The scheme's design - based on simultaneous sequential bidding rounds - worked to put information about enterprise values into the public domain by allowing increasingly informed bidders to interact. The structure of ownership that emerged will have very different implications for corporate governance. Enterprises in the Czech Republic, and those that sold for high prices in the bidding rounds, are characterized by a greater concentration of shareholdings. Those in the Slovak Republic, and those that sold for lower prices, have more diffuse ownership structures. The mass privatization scheme served to quickly differentiate the enterprises with favorable prospects from those with unfavorable prospects under current conditions. But enterprises that could have survived in some form, if they had been restructured before privatization, or enterprises that could have been viable but lacked effective governance, were sacrificed for the sake of speed and decentralization.