| Margaret Thatcher started a world trend during her | | | | business.Employees want to maximize employment |
| tenure as Prime Minister is Downing Street. It is called: | | | | and the economic benefits attached to it - managers |
| Privatization. It consisted of the transfer of control of | | | | and shareholders wish to minimize this parameter and |
| a state-owned enterprise to the Private Sector. This | | | | its effects on the corporation. Managers wish to |
| was done by selling the shares of the company. At | | | | maximize their compensation - employees and |
| times, the control itself was maintained by the state | | | | owners wish to minimize or moderate it, each group |
| - but the economic benefits emanating from the | | | | for its own, disparate reasons.This break in the "chain |
| ownership of shares was partly sold to privates. Such | | | | of command", this diffusive, fog like property of the |
| economic benefits are comprised of the dividend yield | | | | newly transformed entity lead to dysfunction, |
| of the shares plus the appreciation in their value (due | | | | financial mismanagement, lack of clarity of vision and |
| to the involvement of the private sector) known as | | | | of day to day operations, labour unrest (when the |
| capital gains.But the privatization process was not | | | | unrealistic expectations of the workforce are not |
| entirely homogeneous, uniform, transparent, or, for | | | | met).So, at the beginning, during the 1980s, the West |
| that matter, fair.The stock of some of the | | | | preferred to privatize state owned firms - rather |
| enterprises was sold to an individual, or group of | | | | than to transform them. A fast accumulating body of |
| individuals, by a direct, negotiated sale. A "controlling | | | | economic research demonstrated unambiguously that |
| stake" (nucleus) was thus sold, ostensibly yielding to | | | | privatization did miracles to the privatized firms. In |
| the state a premium paid by the private investors for | | | | certain cases, productivity shot up 6 times. Between |
| the control of the sold firm.This method of | | | | 60 to 80 percent of GNPs in the West are private |
| privatization was criticized as "crony capitalism". For | | | | now and a vigorous trend to privatize what remains |
| some reason, a select group of businessmen, all | | | | of the public sector still persists.But the same studies |
| cronies of the ruling political elite, seemed to benefit | | | | revealed a less pleasant phenomenon: only a select |
| the most. They bought the controlling stakes at | | | | group of businessmen benefited from privatization. |
| unrealistically low prices, said the critics. To support | | | | The paranoid allusions of the critics of this process |
| their thesis, they pointed to the huge disparity | | | | were completely substantiated. Something was very |
| between the price at which the "cronies" bought the | | | | corrupted in implementation of the seemingly |
| shares - and the price at which they, later, sold it to | | | | wholesome idea of privatization. The public - as a |
| the public through the stock exchange. The "cronies" | | | | whole - economically suffered.This led to the |
| cried foul: the difference in the prices was precisely | | | | emergence of a new social consciousness. It was |
| because of privatization, better management and | | | | provoked by the unacceptable social costs of |
| financial control. Maybe. But the recurrence of the | | | | capitalism: more people under the poverty line, |
| same names in every major privatization deal still | | | | homelessness, a radicalization in the inequity of the |
| looked suspiciously odd.Then there was the second | | | | distribution of income among different strata of |
| version: selling the shares of the privatized firms | | | | society. But this trend was enhanced by the |
| directly to the public. This was done using either of | | | | apparent corruption of the privatization process.This |
| two methods:An offering of the shares in the stock | | | | new social consciousness converged with yet another |
| exchange (a cash method), orThe distribution of | | | | all important and all pervasive trend: the formation of |
| vouchers universally, to all the adult citizens of the | | | | small businesses by small time entrepreneurs. The |
| country, so that they could all share the wealth | | | | latter functioned both as owners and as employees |
| accumulated by the state in an equitable manner. The | | | | in their firms. There were 16 million such |
| vouchers are convertible to baskets of shares in a | | | | owners-workers in the USA alone (1995 figures). |
| prescribed list of state enterprises (a nonchash | | | | About 99% of the 22 million registered businesses in |
| method).But a smaller group of (smaller) countries | | | | the USA were small businesses. No economic planner |
| selected a whole different way of privatizing. They | | | | or politician could ignore these figures. Employee |
| chose to TRANSFORM the state-owned firm instead | | | | owned firms became the majority in the service and |
| of subjecting them to outright | | | | advanced technology sectors of the economy - the |
| privatization.Transformation - the venue adopted by | | | | fastest growing, most lucrative sectors.In its own |
| Macedonia - is the transfer of the control of a firm | | | | way, as a result of these two trends, the West was |
| and / or the economic benefits accruing to its | | | | moving back to transformation and away from |
| shareholders to groups which were previously - or still | | | | privatization, away from separation of ownership and |
| are - connected to the firm.In this single respect, | | | | labour, away from differentiation between capital and |
| transformation constitutes a major departure - not | | | | workforce. This is a major revolution.The OECD (the |
| to say deviation - from classical | | | | organization of the richer countries in the world) |
| privatization.Ownership of the transformed firm can | | | | established an institute which follows trends in the |
| revert to either of the following groups, or to a | | | | poorer parts of the world, politely called "Economies |
| combination thereof:The employees of the firm, | | | | in Transition". This is the CCET.According to the |
| through a process called Employee BuyOut (EBO)The | | | | CCET's latest report, privatization continues in an |
| management of the firm, in the form of a | | | | uneven pace throughout the former Eastern Bloc. |
| Management BuyOut or Buy In (MBO / MBI)A select | | | | Some countries nearly completed it. Others have |
| group from within the firm. Such a group uses the | | | | claimed to have completed it - but haven't even |
| assets - current and future - of the firm as | | | | started it in reality. Some countries - Macedonia |
| collaterals, thus enabling them to get the credits | | | | amongst them - have sold the shares of state |
| necessary to purchase the shares of the firm. This is | | | | owned firms (=businesses with social capital) to |
| called a Leveraged BuyOut, because the assets of | | | | managers and workers - but the managers and |
| the firm itself are leveraged in order to purchase it | | | | workers have largely not paid for these shares yet. |
| (LBO).Finally, the creditors of the firm can team up | | | | It is by no means certain that they will. If the |
| and agree to convert the firm's debts to them into | | | | managers and workers default on their obligations to |
| equity in the firm, in a Debt to Equity Swap | | | | pay the state - the ownership of the company will |
| (DES).Sometimes, the state continues to maintain an | | | | revert back to the state. This is paper privatization, a |
| interest in privatized - as well as in transformed - | | | | transformation of expectations. No one can seriously |
| firms. This is especially true for natural monopolies, | | | | claim that the transformation is completed before the |
| utilities, infrastructure and defence industries. All the | | | | new owners of the firms respect their financial |
| above are considered to be strategic matters of | | | | obligations to the state.In all, privatization the world |
| national interest. Some countries - Russia and Israel, | | | | over, proceeded more rapidly with small firms. Selling |
| for ones - continue to own a "Golden Share". This | | | | the bigger firms was much more difficult. Most of this |
| highly specific type of security allows the state to | | | | behemoths were composed of numerous profit |
| exercise decision making powers, veto powers, or, at | | | | centres and loss making business activities. A |
| least, control over business matters that it considers | | | | solidarity of accounts and guarantees existed |
| vital to its security, financial viability, or even to its | | | | between the various operations. The more profitable |
| traditions. Israel's golden share in the national air | | | | parts of a company supported and subsidized the |
| carrier, EI AI, allows it to prevent flights in and out | | | | less competent, the losing parts. This was not very |
| during the religiously holy day of Sabbath!Until very | | | | attractive to investors.The official figures are heart |
| recently the common (economic) wisdom in the | | | | warming. In parentheses - the percentage of firms |
| West had it that Transformation was - in the best | | | | privatized:Albania , Czech Republic , Estonia , Hungary |
| case - a sterile, make - believe exercise. The worst | | | | , Lithuania, Poland and Slovakia all privatized 90% of |
| case included cronyism and corruption. One thing was | | | | their small firms. In Russia and Latvia, the figure is |
| to privatize and another was to privateer. But there | | | | 70%.The picture is more clouded with the larger |
| were some grounds for some solid criticisms as | | | | firms:Czech Republic (81%), Hungary, Estonia (75%), |
| well:(1) The main ideological thrust behind privatization | | | | Lithuania (57%), Russia (55%), Latvia and Slovakia |
| was the revitalization of stale and degenerated state | | | | (46%), Mongolia (41%), Poland (32%), Moldavia |
| firm. Badly managed, wrongly financially controlled, | | | | (27%), Romania (13%), Belarus and Bulgaria (11%), |
| applying an incoherent admixture of business and non | | | | Georgia (2%).But what hides behind the figures?The |
| business (political, social, geopolitical) considerations to | | | | Czech Republic is infamous for its cronyism and for |
| their decision making process - state firm were | | | | the massive transfer of wealth to the hands of a |
| considered as anachronistic as dinosaurs. Many | | | | few people close to government circles.On the face |
| preferred to see them as extinct as those ancient | | | | of it, the situation in Poland looks a bit better: a |
| reptiles. An injection of private initiative acquired the | | | | universal voucher system was instituted. People were |
| status of ideological panacea to the corporate malaise | | | | allowed to deposit their shares with 14 management |
| of the public sector.But this is precisely what was | | | | funds. These funds also bought some of the shares, |
| missing in the Transformation version. It offered | | | | making them part owners. They control now 500 |
| nothing new: no new management, no new ideas | | | | enterprises, which make up 5% of the country's |
| (were likely to come from the same old team) and, | | | | GNP.Some of these funds are 50% foreign owned, |
| above all and as a direct result of this preference of | | | | so their management and moral standards are |
| old over new - no new capital.To this, the supporters | | | | Western. But, even there, rumours abound and not |
| of Transformation answer that the one thing which is | | | | only rumours.So, what is better - privatization or |
| new - personal capitalistic incentives - far outweighs | | | | transformation?Maybe the lesson is that we are all |
| all the old elements. Incentive driven initiative is likely | | | | human. There is no method immune to human |
| to bring in its wake and to herald the transformation | | | | fallacies and desires, to corruption or to allegations of |
| - in the most complete and realistic sense - of the | | | | it. Transformation tends to benefit more people - so, |
| state firm.Change, renovation and innovation - say | | | | maybe it looks more just. But long term it is |
| the latter - are immediate by products of personal | | | | inefficient and leads to the ruining of the firms |
| profit motivation, the most powerful known to | | | | involved and to permanent damage both to the |
| Mankind.(2) The process of Transformation blurred | | | | economy and to the workers-owners. Is it better to |
| the distinction between labour, management and | | | | be the owner of a bankrupt firm - or to work in a |
| ownership. Employees acted as potential managers | | | | functioning firm, where you have no ownership |
| and as co-owners in the newly transformed | | | | stake? This is not an ideological or a philosophical |
| companies. The very concept of hierarchy, clear | | | | question. Ask the employees of the Pelagonija |
| chains of authority (going down) and of responsibility | | | | Construction Group.Privatization, on the other hand, is |
| (going up) - was violated. A ship must have one | | | | much more open to manipulation - but at least it |
| captain lest it sinks. It is not in vain that the | | | | secures the continued existence of the firms and the |
| management function was separated from the | | | | continuous employment of the workers.Sometimes, in |
| ownership function. Employees, managers and | | | | economic reality, we have to give up justice (or the |
| owners, all have differing views and differences of | | | | appearance of it) - in order to secure the very |
| opinion concerning every possible aspect of corporate | | | | survival of the workers involved.I, personally, prefer |
| governance and the proper conduct of | | | | privatization over transformation. |