Thirty years later, was voucher privatisation a good decision?
This week marks exactly 30 years since the beginning of the first round of voucher privatisations in post-communist Czechoslovakia. The government scheme made it possible for any Czech adult citizen to buy a “voucher book” that contained shares in a range of state enterprises. I discussed the often derided system with Professor Evžen Kočenda from Charles University’s Institute of Economic Studies.
“Frankly, it was a very difficult time. There were essentially only two options to choose from. One was the voucher privatisation [as it was undertaken] and the other was to privatise by selling the assets of the companies for real money.
“The problem was that there was no real money among the population. Furthermore, at that time, there was strong popular opposition to selling company assets into foreign hands, although that would actually mean selling them for real money.
“The voucher privatisation was therefore a way to redistribute state-owned property without money with those vouchers substituting the currency.
“The vouchers didn’t come for free, but they were almost for free – it was a sort of giveaway scheme. When you wanted to take part in the scheme, you had to register and pay a fee, which was 1,000 crowns [1,035 crowns including the cost of the voucher book]. At that time, 1,000 crowns wasn’t peanuts. It was a substantial amount of money given the average monthly salary.”
Indeed, the average monthly salary in 1992 was 4,644 crowns, so it was close to a quarter of the monthly salary.
“Exactly, so despite it being a giveaway scheme, there was a monetary incentive which forced one to consider whether they wanted to participate or not.
“There is one caveat though, which I think should not have happened. Namely, that you could register and get the voucher only if you were 18 or above.
“Minors were therefore excluded and I think that was a mistake, because those minors are now adults and are living in this new, transformed economy and society.
“I think that there should have been some sort of mechanism for them to participate. For example, through their parents.”
Critics of the voucher privatisation scheme often note that a select few individuals ended up getting very wealthy, while many of those who invested into a voucher coupon book saw no profit. Indeed, some have still not even claimed the profits that they made from their assets. Some of the economists who came up with the voucher method said retrospectively that there could have been a greater level of legal control. Was there a mistake in how the voucher privatisation was implanted?
“I wouldn’t call it a mistake, but an institutional framework was definitely missing.
“That said, it is understandable that not all institutions were in place at such an early stage of the transformation [from socialism to capitalism].
“In fact, looking back at it, I think that a decision to wait until such a legal framework were put in place may have actually had worse economic consequences than simply going ahead with the voucher privatisation in the imperfect institutional setting at the time. I don’t want to be a general after the battle though, it’s just an ex-post evaluation.
“In any case, as I said before, this method of privatisation substituted vouchers for money. The people who were getting their shares in the privatised companies directly, or through privatisation funds, were very small owners. Each one of them had a couple of shares at most. That meant that there was a huge proportion of dispersed ownership in these privatised companies.
“Meanwhile, some companies, the ones in which the state wanted to maintain control over, had very strong majority owners. Not all of the shares in these companies were therefore offered to the public via voucher privatisation.
“It is also true that some people acquired particularly large amounts of shares after the voucher privatisation scheme. However, these were acquired by paying ‘real’ money to the original owners of the shares who got them through the voucher scheme.
“All of this essentially means that you could end up with companies being majority owned by one shareholder, while the other shares were dispersed among a large group of small shareholders.
“Under such circumstances, it was possible for various asset stripping schemes to take place. Many companies would therefore go functionally bust – they wouldn’t be performing and some people would make a lot of money off that.
“However, this brings us back to the beginning of the circle – namely, a lack of an institutional framework – and that was the price that was ultimately paid.”
So, in other words, the voucher privatisation scheme wasn’t perfect, but it was relatively successful given the times and the goals that it was supposed to achieve?
“You could say that, because there were also other things to consider. The result of the voucher privatisation was that, on average, citizens who participated in the voucher privatisation obtained a net gain. It was a net gain ranging in the tens of thousands of crowns, which isn’t bad for a 1,000 crown fee.
“However, the dispersed ownership of these companies is something that I would consider to be a negative side. The fact that the state wanted to keep control of some companies for a very long period of time meant that despite many companies becoming officially private, they actually remained under the state for many years.
“When you look at the results of the Czech voucher privatisation scheme on the economy and compare it with similar privatisation schemes in other post-Communist states, then you can call the Czech one a relative success.”
Could you expand on this evaluation a bit? For example, by pointing out differences with surrounding regional states?
“Well, it was very well managed in terms of how the vouchers were distributed and in how the multi-stage auctions were administered.
“It was also a very speedy process that did not drag on and it didn’t involve too much uncertainty, as was the case in some other countries.
“I would also say that the scale at which assets in some companies were expropriated later on [in the Czech Republic] is very little when compared to Russia for example, where the voucher privatisation was just a robbery on a state level.”