ABSTRACT
The transformation of State owned enterprises (SOEs) to meet the new challenges of operating in newly emerging market economies has been central to the transition process in central and eastern European countries has been. As Allsopp and Kierzkowski (1997) suggest, "the restructuring of enterprises towards more efficient and more dynamic forms is ultimately what transition is all about". For the very large SOEs in the traditionally staple industrial sectors of the former centrally planned systems, the process of adjustment has been particularly difficult (World Bank, 1996). The early debate on transition had many advocates for rapid privatisation, such as Blanchard et al. (1991), who argued that privatisation must take place before restructuring. Subsequent experience, not least in Poland, has made such prescriptions seem rather simplistic, since ownership change is not a sufficient condition for deep restructuring (EBRD, 1995). Nevertheless, a key element in the transition path has been the general presumption that privatisation is important, but perhaps more significantly, the way it is done also matters (see World Bank Development Report, 1996). This raises the issue of sequencing in the reform process. Should privatisation be an early priority or should it be delayed following restructuring? In the case of the latter how much is needed? As Carlin and Landesmann (1997) point out, "the initial emphasis on privatisation as a key reform measure for the enterprise sector was soon confronted by some empirical puzzles. In particular, there was the apparent responsiveness - in market conforming ways - of enterprises still owned by the state". They also highlight that Poland presented a particular conundrum as it's recovery started earlier and sustained one of the strongest growth rates yet privatisation of most SOEs was "especially slow" and foreign investment levels were "especially low", compared with other leading transitional economies. This evidence has
legitimately raised the question of whether privatisation is necessary at all (World Bank, 1996). As the World Bank (1996) suggests, the privatisation of large SOEs is complex, with competing goals and multiple stakeholders and that each approach to privatisation sets off a complex process of institutional and ownership changes where the long run effects may differ from those of the short term. The slower pace of Polish privatisation has focused attention on pre-privatisation enterprise actions. Furthermore for many enterprises the preferred mode of privatisation is deemed to be via a foreign investor not least for the benefits of finance and know how (EBRD, 1995).
