Who Owns Central Europe?

...Johnson might make a profit off their labor, the workers refused to approve the deal...

...Poland's electoral debacle need never have occurred...

...For this he was ridiculed...

...T he slow progress towards private 1 ownership may have disastrous political and economic consequences...

...Without privatization, this process could go on indefinitely...

...Only Hungary has experimented with both sales to foreigners and sales to the nomenklatura, which is perhaps why Hungary has sold off more of its state property than any other country...

...Most Central Europeans know that private property is part of "how things are done in the West," and understand, at least intellectually, that private owners make things work better...

...Hungary, where privatization remains stalled after the first failed experiments, and Czechoslovakia, where the government is afraid to begin, will run into similar difficulties sooner or later...

...Playing on xenophobia and ignorance, Tyminski gathered around himself the closest thing to a counter-revolutionary force that has so far appeared in Central Europe: people who are afraid of reform, afraid of capitalism, and most of all afraid of privatization...

...Even in Vaclav Havel's entourage of ex-hippies and skateboarding rock stars, it is hard to find anyone anywhere who will say, in public, that he believes in an "alternative" to capitalism or a so-called "third way...

...Giveaway plans can make privatization popular, effectively bribing people to accept economic change...

...Conducted with intelligence and political skill, privatization can become such a bribe, whether through the distribution of shares, by allowing peasants to buy their land and workers to buy their warehouse, whether through auctions, public subscriptions, and a few sales to foreigners...

...Usually selling imports from the West, sometimes reselling cheaper products from their own bloc, they are unmoved by snow, rain, and police...

...A classic case is that of the famous Gdansk shipyard: "birthplace of Solidarity," and also home to a lot of rotting hulls, mountains of rusty scrap metal, turnof-the-century brick warehouses, and obsolete machinery...

...their fear that any change might well be for the worse, their envy of those they believed were already profiting...

...Living in economies dominated by private business, we are used to thinking of economic reform in terms of monetary policy or taxes...

...They must be encouraged to use it, before demagogy fills the gap where ownership should be...

...The program slashed subsidies, freed prices, liberalized import/export laws, froze wages, hardened the currency, and ultimately cut inflation...

...Capitalism is a tough system to live in...

...ne year after the revolutions, street demonstrations, political changes, and flag wavings of 1989, a few things in Central Europe remain comfortably constant...

...The press, the parliaments, and the cabinet meetings of Central Europe are full of new words: share, bond, ESOP (Employee Stock Ownership Program), limited company, Anne Applebaum is the Economist's Warsaw correspondent holding company, mutual fund, pension fund, public offering, active and passive investor...

...With no competition, and therefore no incentive to sell goods in greater quantities, production simply dropped...

...Envy—an even stronger sensation than fear—arises because privatization will make some people, but not everybody, very rich...

...Nevertheless, when someone mentions mass privatization—the most fundamental part of economic reform in post-Communist society—politicians everywhere stall, mumble something about "not rushing things," and change the subject...

...This is where fear comes from: to be completely unable to envision one's future is a terrifying prospect, the equivalent of jumping into a muddy lake without knowing whether there are sharp rocks just below the surface...

...The government is betraying you, the government is selling you out, the government is selling factories to foreigners on the cheap," he said, despite the fact that foreign investment in Poland accounts for less than 2 percent of yearly production, and despite the small number of joint venture deals completed in the last year...

...Because most are monopolies, and because managers have a greater interest in keeping their jobs than in making profits, state companies generally preferred to raise prices and cut production in the face of tighter monetary controls and lowered demand...

...The Balcerowicz Plan is a disaster, the Balcerowicz Plan is destroying Poland," was another of Tyminski's campaign mantras...

...Many other things have disappeared: Communist parties, censorship, secret police, Russian soldiers, price controls and subsidies...

...This he told to uneducated miners, small town dwellers, and farmers, people who have little understanding of monetary reform, and no idea whether Tyminski, in his Western suit and Western tie, might not indeed know better...

...It also partly explains the success of the mysterious Peruvian-Canadian-Polish emigre businessman, Stanislaw 'Tyminski, who came literally from nowhere to cause his defeat...

...So far, the only experiences most Central Europeans have with these new entrepreneurial social classes are their encounters with the ubiquitous black marketeers, mostly Polish, who crowd the train stations, the medieval market squares, and lately the airports of the region, furtively displaying their packages of cigarettes, chewing gum, and matchsticks on small tables...

...Bribery was suspected, and the Hungarian courts threw the deal out on a technicality...

...Faster, but admittedly more haphazard privatization techniques remain untested: worker/management buyouts, direct purchase, company liquidation . . . The economic consequences of failing to privatize quickly can already be seen in Poland...

...his words, repeated in a hypnotic monotone, seemed explicitly designed to appeal to the natural emotions—fear and envy again—surrounding ownership change...

...The focus of reform has to be on privatization and the creation of good conditions for private business, or reform will fail, economically and politically...

...Perhaps without forethought, Tyminski brought alive their hidden anxieties about capitalism, and especially about privatization...

...D ut I repeat: I am writing about Poi–, land only because Poland's case is the clearest and most dramatic...

...In one famous case, the managers of Hungar-hotels, a company which controlled over thirty prime hotel and restaurant properties, sold a controlling stake in the entire concern to a tiny Swedish company for the estimated price of a single hotel...

...No one would have predicted that so many people would make a living from selling so much junk...

...This nervousness is not due to a lack of debate...

...But no one wants to see ex-Communists benefit from democracy, nor do the much-invaded nations of Central Europe particularly care to be reconquered by their old enemies (the Germans) in a new guise...

...Because of these early policies, Hungary is now afflicted with what amounts to a national schizophrenia on the subject of state company sales...

...Since the mid-1980s, managers of Hungarian state enterprises have been able to sell shares in their own companies both to foreigners and to other Hungarians...

...Without owning anything, they have no stake in the country's economic progress...

...An American millionairess, Barbara Piasecka-Johnson, offered to take a percentage of it off the government's hands for a few million dollars, in return for the right to run it as she pleased...

...Many companies which should be out of business are still treading water...

...Will we all look like that...

...Even now, there is debate about whether public subscription (used to great effect in Britain in the 1980s) is an appropriate way to sell large state companies in a country where few people have any money for investment at all...

...In the West, the significance of privatization and the debate over privatization techniques in Central and Eastern Europe are often given shortshrift...

...Poland—the nation which leads Central Europe in fiscal, monetary, and currency reform—has already run into most of them...

...F ear arises because privatization—far more than democratic elections or a free press—promises to change the social and class structure of Central Europe in unknown ways...

...Communist economies, which prevented anyone from owning anything, produced these three classes...

...In Prague, it is still possible to waste entire days looking for a single, perfect, accurate statistic, lost somewhere in the mountains of paper hoarded by jealous Czech bureaucrats...

...In Poland, envy has also been responsible for the catastrophic overvaluation of state assets, which in turn prevents sales to foreigners...

...Poland has even dispensed with the erstwhile budget deficit and the unconvertible zloty...

...Yet the idea of giving away free shares, of allowing Poles to buy back Poland, is an acceptably populist, perfectly reasonable way to conduct some—if not all—privatization, particularly in a country where people lack the capital to buy anything, let alone shares...

...At one point during the election, he mumbled something about "giving every Pole ten million zlotys to buy shares...

...Envy is what makes it impossible for privatization to occur in the fastest and most logical manner: selling enterprises to people who have money...

...Perhaps he was right to worry...

...No, the tendency of otherwise pro-free market governments to stall and hedge on privatization has its roots in two very basic human emotions: fear and envy...

...Nor is the failure to privatize due to lack of knowledge...

...Among these endearing mementos of Communist rule, state property ownership stands out as one of the hardiest...

...But the political consequences of failing to privatize are even more dire...

...this resulted in speedy and often corrupt privatization, with managers naturally cutting deals for their own benefit...

...Because, even if the deal had been a good one for the state company, the thought of nomenklatura managers and foreigners greedily enriching themselves at the expense of the general public was unpopular...

...His blunt rhetoric frightened Warsaw intellectuals, but the general direction of his thinking was pro-privatization, rather than anti-reform (as it was sometimes portrayed...

...Although Tyminski went on to lose the second-round ballot to Walesa, the Tyminski phenomenon finally brought to Poland's attention the real dangers posed by failure to communicate the goals of economic reform, and in particular the failure to explain and carry out fast privatization...

...In Central Europe, these are secondary issues...

...Foreigners are buying up your best factories," he hissed at his electoral audience...

...When prices were freed and demand dropped in response to the monetary squeeze on January 1, 1990, state companies failed to react the way private companies would react in the West...

...Setting aside the more bizarre aspects of Tyminski's biography (his obsession with Peruvian mysticism, his alleged links to former secret police), the success of his economic rhetoric among 25 percent of the Polish population is reason enough for Polish reformers to worry that the transition period will not be easy...

...people, fearful and envious, have to be bribed to accept it...

...Some have described the task of mass privatization as the political equivalent of squaring the circle: politicians want to move from socialism to capitalism, while at the same time insuring that no one emerges much better off than anyone else...

...The process ground to a halt last year, after a series of scandals turned public opinion against this so-called "spontaneous" privatization...

...The mass sale of state industry represents an unprecedented political and economic opportunity for Central European governments...

...Horrified at the "low" price, and fearing that Mrs...

...16 THE AMERICAN SPECTATOR FEBRUARY 1991...

...While the world applauded this plan, which had many immediate positive effects (including Poland's first trade surplus in decades), the Balcerowicz team nevertheless began stalling in mid-1990, and became stuck on the issue of privatization...

...Poles wanted to feel a real break with the past, and wanted changes in management and work practices to happen faster...

...The novelty of the reform plan came with Balcerowicz's decision to take several of these steps all at once, whereas in the past, the benefits of one type of reform could be lost due to the absence of another...

...Rather than going ahead as fast as possible, rather than experimenting with different ways to execute changes in ownership, ministers and deputy ministers squabbled among themselves, each trying to retain as much regulatory control as possible...

...I tried to answer no, but thought twice...

...In Budapest, thick, brown clouds of smoke continue to billow gently from the exhaust pipes of buses, leaving the scent of burning diesel fuel in the air...

...This failure is part of why voters knocked the former prime minister out of the presidential elections in the first round...

...Communist ideology taught an entire generation that society consists of workers, peasants, and intellectuals...

...The stumbling blocks are not ideological, but technical: how to do it, how to do it fairly, how to do it quickly, and how to control it...

...It is not a nostalgia for socialism that is causing governments and companies to hesitate...

...Although Poland's parliament finally did pass a privatization law last summer, the first companies did not go up for public subscription until November 30...

...Soon, people may find themselves doing things they never imagined, as jobs open up that never existed before...

...Without privatization, the otherwise excellent Balcerowicz Plan will fail...

...So long as the state sector continues to devour (and waste) people, money, and resources, no economic reform will succeed...

...Yet state enterprises still account for eighty to ninety percent of industrial production in all three countries...

...In the Soviet Union, fear of privatization has helped block reform altogether...

...The state remains the primary landlord and the most important taxpayer, the greatest debtor and the biggest drain on the budget...

...Once privatization begins, this will change...

...no one can tell what new opportunities or disasters the sale of state enterprises—and the accompanying transformation of the working habits, incomes, lifestyles of millions of people—will bring to a given individual...

...When workers begin to own their shops and offices, when peasants begin to own their land, and when intellectuals join the service industries, the result will be entrepreneurs, fanners, and a new middle class...

...But half-measures in dismantling state monopolies and fears of foreign or nomenklatura ownership have put the revolutions of 1989 on hold...

...Most (like most Poles) own nothing, let alone stocks, companies, shops, or even apartments...

...W hile perfectly understandable, these emotions do make efficient privatization hard to carry out...

...Had privatization Some have described the task of mass privatization as the political equivalent of squaring the circle: politicians want to move from socialism to capitalism, while at the same time insuring that no one emerges much better off than anyone else...

...T ust when these complaints were J reaching a crescendo, Lech Walesa stepped into the fray and announced he would "speed up" the process of change, "with an axe" if need be...

...wondered a distressed Hungarian friend of mine...

...Companies have not gone bankrupt, and real unemployment is still astonishingly low...

...In Yugoslavia, disastrous experiments with odd forms of worker ownership have led to virtual economic and political collapse...

...Yet something besides simple ignorance united Tyminski's supporters...

...Johnson's phraseology: "I will save the shipyard," she said, not "I will buy it and run it for profit...

...Whereas intellectuals felt the effect of Communism's collapse right away, with the disappearance of censorship and travel restrictions, ordinary people still found themselves living the same lives, doing the same work for the same people, earning the same pay...

...Official policy may encourage privatization, but envy prevented it from happening in this particular case...

...Their confusion was deepened by Mrs...

...In recent months, the absence of ownership change was the cause of the Polish malaise: the popular complaint that "nothing is happening," that the Communists had disappeared but "nothing is changing...

...Although not owners, they were allowed to dispense with property as if they were...

...In post-Communist society, the only people who have money are foreigners, returning expatriates, and ex-Communists and their ilk, still known by the ugly Russian word nomenklatura...

...For Tyminski's message focused on privatization...

...Within the same month, the Hungarian government called for a mass acceleration of privatization, while at the same time 14 THE AMERICAN SPECTATOR FEBRUARY 1991 blocking a lucrative deal between Hungaroton, the respectable Hungarian state recording concern, and EMI...

...The government didn't like the old Communist connections of Hungaroton's manager...

...THE AMERICAN SPECTATOR FEBRUARY 1991 15 already been underway, had people already felt the beneficial effects surrounding the shift to capitalism, Tyminski's success would not have been possible...

...the under-invested economy and infrastructure may be slowly run into the ground...

...Some find the sight of this budding business sector upsetting...

...But although there were people in Mazowiecki's Finance Ministry already working on such a project, Mazowiecki himself was unable to graspthe potential appeal of such programs...

...Because of this reaction, natural restructuring has not occurred...

...While Hungary and Czechoslovakia have had their difficulties, Poland provides a spectacular example of what can go wrong in the absence of ownership reform...

...The transition period—the period of privatization—will be plagued by this dilemma...

...In Warsaw, the telephones still refuse to work, no matter how often you throw them to the ground...

...Poland's economic reform program began bravely enough on January 1, 1990, when Prime Minister Tadeusz Mazowiecki's economic team, led by Finance Minister Leszek Balcerowicz, carried out what has become known as either the "Big Bang" reform or simply "The Balcerowicz Plan...

...they didn't like the idea of his getting anything out of the deal, and in general they didn't like the thought of anyone, even EMI, making a profit out of one of the nation's "crown jewels...