TRANSITION IN THEORY AND PRACTICE
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TRANSITION IN THEORY AND PRACTICE
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TRANSITION IN THEORY AND PRACTICE. BASIC ECONOMIC QUESTIONS. WHAT - maximization of utility , product market, consumers , restrictions , planner HOW - maximization of profit, labor and capital market, producers , restrictions , planner - PowerPoint PPT Presentation
Transcript of TRANSITION IN THEORY AND PRACTICE
TRANSITION IN THEORY AND PRACTICE
BASIC ECONOMIC QUESTIONS
WHAT - maximization of utility, product market, consumers, restrictions, planner
HOW - maximization of profit, labor and capital market, producers, restrictions, planner
TO WHOM- product and factors market, plannerWHEN - capital market, planner
Ownership
Management
State or social Private
Centralised state/centralised
Soviet Union
private/ centralised
South Korea
Decentralised social/decentralised
Yugoslavia
private/decentralised
USA
ECONOMIC SYSTEMS
1. Privatization- objectives - efficiency, justice, democracy- complexities of privatization- privatization models- outcomes of privatization
2. Macroeconomic stabilization- assumptions and Washington agreement- transformational depression
3. Microeconomic restructuring and marketization
4. Creation of a new economic system
COMPONENTS OF TRANSITION
DILEMMAS OF PRIVATIZATION MECHANISM
Free distribution Sales to whom to whom
to everybody - to employees to citizens - to foreigners- equally Patterns- by age - stock market- by years of employment - auctionsPatterns - workers-managers byouts direct - debt equity swapsindirect - direct salesRestitution - increase of capital in kindcompensation
Assessment of economic situation: D>S, Washington agreement;Increase of Supply: liberalization of imports, pure socialist
production goods;Decrease of Demand: price liberalization, restrictive credit policy,
restrictive fiscal policy; freeze of wages, fixed exchange rate;Results: economic depression, measured and actual,
unemployment, social diferentiation;
MACROECONOMIC STABILIZATION
Demand Supply
Shortage
output
Prices
Ps
P
Qds QssQ
AGGREGATE SUPPLY AND DEMAND CURVES
TRANSITION MODELS IN CEE
1.Baltic 2.Visegrad 3. SloveniaStarting position EE, LT, LV CZ, HU, PL, SK SI
Privatization sales to sales to free distributionforeigners foreigners MW by-outs
Stabilization fixed ex.rate switching floatingfiscal discipline adaptable adaptable
Social Considerations absent present importantRestructuring absent by FDI decentralized
Problems CA deficit CA deficit balanceemigration budget deficit EMU problems
MODEL neoliberal embeddedneocorporativistneoliberal
TRANSITION MODELS
THE DEVELOPMENT IN CEE COUNTRIES
80
90
100
110
120
130
140
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
GDPo 1989=100
GINI COEFFICIENTS, 2000-2006
20
25
30
35
40
EU15
BG CS
CY
EE
HU
LT
LV
MT
PL RO
SI
SK
Gini(2000)=28.4Gini(2006)=30.2
SOCIAL COHESION INDICATORS IN NMS
2000 2006
Public expenditures/GDP 41.6 40.5
Gini coefficient 28.3 30.3
Inequality coefficient 4.35 4.91
Social Security Expenditures/GDP 11.9 10.9
EXPENDITURES FOR HEALTH AND EDUCATION
1994-2003
8
9
10
11
12
13
14
CZE EST H LAT LIT PL SLK SLN
% GDP
SLOVENIAN TRANSITION MODEL
Slovenian privatization modelignoring Washington agreement in macroeconomic stabilization
gradualism and floating exchange ratesome of the consequences
THE YUGOSLAV ECONOMIC SYSTEM AND ITS BREAKDOWN
Systemic Development:1946-1952: administrative socialism, centralised answer to all four
questions, planning, 1953-1962: administrative market, WHAT and HOW- decentralised, TO
WHOM and WHEN - centralised, investment funds, dualism of prices
1963-1973: market socialism, decentralised answers to all four questions, reforms 1961, 1965
1974-1988: contractual socialism, Law of Associated Labor 19761988: collapse of the system and of the country
Stagnation 1980-1990 Political development 1989-1990Economic collapse of the country in 1990The collapse of the fiscal system; June 1990, October 1990;The collapse of the monetary sytem, December 1990Customs within the country, July 1990The appearence of different economic systems
SLOVENIA IN 2009
Surface: 20.273 sqkm, 66% forests, Population: 2,02 millions, Language: Slovenian; (Italian, Hungarian minorities)Political Arrangement: parliamentary democracy, coalition governments;
“left” or “right”History: until 1918 part of Austro-Hungarian empire;1919-1941 part of Kingdom of Yugoslavia; 1941-1945 occupied by Germany, Italy and Hungary;1945-1991 Yugoslav republic;1990 - political transition: 1991 independence, May 2004: EU member state, January 1, 2007 EMU
member;Economy: GDP 34 billions €, GDP/capita 17.000 €, 91% of EU27 average, - GDP growth: 4%(2008) -7.6%(2009), - unemployment rate: 4.4%, 60000 (2008), 6.9% 100000 (March 2010); - inflation 5.7 %(2008) 1%(2009), - public balance/GDP: 0.4%(2008), -5,5%(2009) - CA/GDP: -4.5%(2008) -0.6%(2009)
PRIVATISATION specific model of decentralized, distributional and gradual transformation of social property
MACROECONOMIC STABILIZATION benefits of ignoring Washington agreement, gradualism versus shock therapy, floating exchange rate
MICROECONOMIC RESTRUCTURING slow decentralized firing and retiring, cautious approach to FDI
CREATION OF A NEW ECONOMIC SYSTEM
THE KEY ELEMENTS:Starting position – the level of development, historical inheritance,
from Maria Theresia to Edvard KardeljPolitical development – softness of political and social changes. creation
of a new elite or changes in the ideology of old elite, people without ideology
The benefits of ignoring IMF and international financial institutionsResponsible fiscal and monetary policies
COMPONENTS OF TRANSITION IN SLOVENIA
THE LAW ON THE OWNERSHIP TRANSFORMATION OF COMPANIES
Privatization Equation:
(10 + 10 + 20 + (1-x)*40) + (20 + x*40) = 100
10% Pension Fund 20% employees- 10% Restitution Fund 40% social property20% Development Fund40% social property
0 < x < 1
x = 1 - small successful companies, majority of workers&managers
x = 0 - large unsuccessful companies, state property, PF, RF0<x<1- large successful companies, auctions for vauchers
PRIVATIZATION PROCESS
Supply of Capital: shares in 1400 companiesDemand for Capital: certificates, managers-workers by outs, restitution
claims, transfers to KAD (pensionary fund) in SOD (restitution fund)Privatisation outcome (November 1997) 1127 privatized companies, 70 state
owned companies, 82 liquidated companies; privatization gap32 companies without insiders, 455 with insiders as minority shareholders, 795 with insiders as majority shareholders
Gradual Concentration of OwnershipNumber of Shareholders in a Privatized Companyat privatization 1999 2000 2001
Non-listed companies 481 360 308 265- Predominance of insiders 470 333 276 241- Predominance of ousiders 492 387 340 288Listed companies 7497 4576 4085 3653All companies 2820 1765 1567 1349
ECONOMIC DEVELOPMENT OF SLOVENIA
-12
-8
-4
0
4
880
100
120
140
160
180
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
%
transition gradualism gambling crisis
GDP index
rate of change
GAMBLING AND THE END OF THE SLOVENIAN “SUCCESS STORY”
8,000
12,000
16,000
20,000
24,000
28,000
32,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
credits
deposits
mil. €
"gambling period"
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2002 2003 2004 2005 2006 2007 2008 2009 2010
credit/deposit ratio
"gambling period"
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
SBI index
"gambling" period
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
mil.€
?????
"GAMBLING" PERIOD
CREDITS AND DEPOSITS CREDIT/DEPOSIT RATIO
VIRTUAL WEALTH CREATION NET FOREIGN DEBT
BORROWING ABROAD TO INVEST ABROAD
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2001 2002 2003 2004 2005 2006 2007 2008
other investments
portfolio investments
INFLOW OF CAPITAL
OUTFLOW OF CAPITAL
THE END OF THE SLOVENIAN “SUCCESS STORY” AND THE ENTRY INTO THE CRISIS
DEPENDENCE OF THE COUNTRY ON EU- institutional (economic system – EU directives, monetary and fiscal policy, controls
of flows) - Economic - exports and imports, euro
CREATION OF SLOVENIAN CASINO CAPITALISM (2005-2008)- the roots in vaucher privatization, creation of owners of assets instead of owners of
companies; creation of investment funds;- globalization of product market leading to indirect globalization of labor market
and replacement of workers with flexible “labor force”;- gradual turning of savings to speculations, creation of virtual financial wealth;- gradual disappearance of social cohesion;
