ABSTRACT
The privatization of the state-owned business sector in the transition countries affects not only allocative efficiency, it also influences the distribution of income and wealth. The welfare effects of privatization can therefore only be evaluated if the distribution of property rights and privatization revenues is also taken into account. The goal of allocative efficiency is reached in the privatization of the state-owned business sector only if the property rights are assigned to those individuals and institutions who have the most productive use for them. If economic competence is a scarce factor and financial endowments are unequally distributed, all that can be expected of an efficient privatization is an enforcement and reproduction of existing inequalities:
“Although the market and capitalist property have many useful qualities, above all the stimulation to efficient economic activity, fairness and equality are not among their virtues. They reward not only good work but good fortune, and they penalize not just bad work but ill-fortune. While they are useful to society as a whole by encouraging exploitation of good fortune and resistance to ill-fortune, they are not ‘just’. I think, it is ethically paradoxical to mix slogans of fairness and equality into a program of capitalist privatization” (Kornai 1991).
