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Change in Economic Policy Paradigm: Privatization and State Capture in Poland
Abstract
This paper presents an analysis of the causes and manifestations of Poland’s recent shift in economic policy towards a more active role of the state, and uses privatization policy as an example. This change coincided with a shift in “fashion” in economic policy, away from the idea of “state failure” and more towards the idea of “market failure.” Our paper begins with a brief presentation of the recent changes in the theoretical approach towards the role of the state in the market economy and of studies devoted to privatization policies in post-communist countries, the latter having, in our view, critical gaps, which we attempt to fill in this paper. To meet this goal, we first discuss the Poland’s privatization policy and its place in economic policy during the transition period, as well as its evolution from promoting systemic change towards focusing on predominantly fiscal goals. Analyzing the effects of this privatization policy, we point to a large unfinished agenda in ownership transformation that has had an adverse impact on the institutional setup of the Polish state, creating grounds for rent seeking and cronyism, which, in turn, impede the pace of privatization. We conclude that it is the increasing capture of the state by rent-seeking groups, and not, contrary to popular opinion, the global financial crisis, that most contributes to the growing statist trends of Poland’s economic policy.
... At times of crisis the state intervenes to propel the cost of crisis onto its population: 'Social reproduction does not need to be nice to continue to function' (Nunn & Tepe-Belfrage 2019, p. 629). I term this 'domification', a neologism derived from the Polish word for 'home'; adapting the concept of domifikacja from Kozarzewski and Bałtowski (2016), as an overarching framing for the way PiS has pinpointed home, family and caring in repositioning increased state spending in specific areas of social policy. It is part of a wider discourse renewing Poland's accumulation strategy that defends the home by emphasising the importance of domestic capital to combine populism and neoliberalism. ...
This essay asks whether Poland’s populism is evidence of a countermovement to European neoliberal political economy. The electoral success of PiS’s 500+ child benefit policy appears to indicate that state intervention in the form of solidarism is a legitimate response to neoliberalism. The essay argues against this. Taking domification (drawing on the Polish word for home, indicating a shift to greater social solidarism) as a starting point of analysis, it interprets 500+ as a way to co-opt particular social forces to accept the promotion of neoliberal competitiveness in Poland. What at first appears to be a progressive alternative is, in reality, a contribution to further commodification of the reach of capital enabling the reproduction of neoliberalism.
... Others question whether dependence on contractors tips too far in the direction of CONTACT Dallas J. Elgin dallaselgin@gmail.com government capture by private entrepreneurs (Kozarzewski and Bałtowski 2016). Simultaneously, concerns are raised over whether competitive environments undermine the credibility and independence of the nonprofit 'third sector' through pressures to attract and maintain government contracts ( Robichau and Wang 2018). ...
This paper examines the performance implications of privatization in U.S. child welfare service systems. We combine insights from contracting and nonprofit management literatures with a ‘deficit model’ of privatization to posit that fully-privatized systems delivered by nonprofits outperform their governmental counterparts. Due to resource constraints, however, we expect nonprofits to prioritize the greatest good for the greatest number of clients over client-specific outcomes. We use a quasi-experimental research design and a national administrative dataset, finding that full-scale privatization increases children’s likelihood of achieving the most desirable outcome and simultaneously places her at greater risk for the least desirable outcome.
This field report deals with a peripheral, or non-central cross-border region between Poland and Czech Republic. It presents some results of bibliographical research and field observations in the cultural-historical region of Silesia (PL: Śląsk; CZ: Slezsko), mainly in its part of Upper Silesia (PL: Górny Śląsk; CZ: Horní Slezsko). After the Introduction, the question of the location and position of cultural-historical Silesia and Upper Silesia is examined between the two countries. In the second place, the spatio-temporal development of the territorial formation of Silesia is presented. In the third place, the most important territorial features of the intensive urbanization process and the Silesian-Moravian agglomeration are treated. In the fourth part, which deals with "peripheral regionalism" in Central Europe, the report tries to show that Upper Silesia is a classic cross-border central region in the sense of a strategic "Heartland" between Poland and Czech Republic. In fifth place, the report addresses the current productive reconversions in Upper Silesia, the closure of coal mines and steel mills considered unproductive, the integration of the periphery into the central macro-regional production networks of the automotive industry, the gradual adaptation to the Paris Agreement, and the search for a service-based economy, mainly through historical and ecological tourism. In sixth and final place, the report addresses cross-border management, focusing on Euroregions, the EGTC Tritia, and functional urban areas (FUAS) in both sides of the countries. A concluding Discussion highlights that the concept of periphery may not be appropriate for Upper Silesia and, to some extent, for the entire cultural-historical Silesia, even though its geo-economic role in production networks is changing today. A brief Post Scriptum highlights the current state of cross-border integration processes, which respond to the uncertainties of nationalisms, the difficulties of integrating processes and productive reconversions, the impact of the Covid-19 pandemic and the war in Ukraine.
Recent empirical evidence from post-communist Southeast Europe suggests that state capture is no longer limited to opportunities for rent extraction and the economic gain of businesspersons, oligarchs, tycoons, and individual politicians. Rather, it offers political parties a potent means of survival, allowing them to win the next elections and maintain political office. In this article, I look into what kind of research these developments, which have been seen across Southeast Europe, demand. I revisit the three issues that have remained understudied from the perspective of party state capture since the publication of initial research on the topic by O’Dwyer and Grzymała-Busse in the mid-2000s. These are the organization of political parties, the nature of public administration, and the measurement of state capture. I claim that party patronage has become the regional political parties’ main activity, with parties being transformed into a pool for the recruitment of future party-loyal public officials tasked to extract public funds. As a consequence, the public administration sees a radical re-politicization, the elimination of professional standards, and the large-scale abuse of public funds. These changes enable a more objective measurement of the cost of state capture.
Hungary was regarded a success story of FDI-led development model in Central and Eastern Europe during the 1990s. The country underwent fundamental economic changes which resulted in sound macroeconomic performance. Neighbouring countries could caught-up in FDI attraction instead of FDI transfers from the EU-fuelled economic growth. Critiques-dominated communication and support of selected local companies and clients increased. The capital attraction policy changed from normative to selective measures. Moreover, multinational businesses in trade, communication, and financial services were levied with various surcharges. The chapter analyses the new FDI management toolkit of the Hungarian government. The main conclusion is that the new policy is not a form of economic patriotism but rather a form of patronage in crony capitalism.
This paper aims to explore the phenomenon of state ownership in 11 post-socialist Central-Eastern European countries. Based on the individual data of large non-financial companies, we estimated the real state share in the years 2014 and 2015. We consider both direct and indirect state ownership and apply an explicit classification of companies as majority and minority state-owned, which is neglected in a lot of research. The countries with the highest values of the Country SOE index were Slovenia and Latvia, while the lowest were Lithuania and Hungary. State ownership was dominant in transportation and storage and energy supply. The lower ROA, ROE and ROCE ratios of state-owned enterprises show that capital in this group of companies is employed less efficiently. What is more, they were characterised by higher employee costs. At the same time, they had a higher EBITDA margin and a better ability to turn operating revenue into cash than their privately-owned counterparts.
The 2008 global crisis brought about curiously inconsistent changes in state ownership: asset sales by governments and purchases of private stocks increased sharply and simultaneously. These concurrent instances of nationalization and privatization, on a major scale in historical terms, deserve attention. The paper examines why both now seem appropriate tools for crisis management in Europe and in the USA. It also estimates the scale of changes after 2008. The author argues that the rapid alternation, including parallel applications and mixed, ‘silent’ forms of nationalization and privatization, reflects ambiguity in political, theoretical and popular views. The uncertainty far exceeds ownership issues to include the role of the state in general, revealing fragmentation of measures in each direction: neither nationalization nor privatization has been based on any integrated, defined paradigm of economic policy.
Purpose: This study examines the determinants of ex-ante state capture in Poland. Methodology: In order to establish the determinants of ex-ante state capture a logistic regression is estimated. Findings: The study shows that in Poland the majority of legal acts were passed with the aim to satisfy the interest of particular groups. Furthermore, the regression analysis shows that the likelihood of state capture increases during the period of higher economic growth and local elections. The likelihood of state capture, however, declines during presidential elections. The results we attribute to different interests of political parties in the period of local and presidential elections. Finally, we find that the state capture increased over the years in Poland. Additionally, we show that the EU accession did not prevent state capture in Poland. In contrast, the financial crisis of 2007 resulted in a wake-up effect and the likelihood of state capture declined in Poland. Research limitations: In the study we employ proxies for state capture, yet we assume that corruption is a widespread phenomenon in Poland. However, due to its nature corruption is very difficult to assess and measure. Originality: The study uses a unique dataset on ex-ante state capture that was identified in the legal acts that have been passed in the period 1990–2011 in Poland.
Purpose: This study examines the determinants of ex-ante state capture in Poland.
Methodology: In order to establish the determinants of ex-ante state capture a logistic regression is estimated.
Findings: The study shows that in Poland the majority of legal acts were passed with the aim to satisfy the interest of particular groups. Furthermore, the regression analysis shows that the likelihood of state capture increases during the period of higher economic growth and local elections. The likelihood of state capture, however, declines during presidential elections. The results we attribute to different interests of political parties in the period of local and presidential elections. Finally, we fi nd that the state capture increased over the years in Poland. Additionally, we show that the EU accession did not prevent state capture in Poland. In contrast, the fi nancial crisis of 2007 resulted in a wake-up effect and the likelihood of state capture declined in Poland.
Research limitations: In the study we employ proxies for state capture, yet we assume that corruption is a widespread phenomenon in Poland. However, due to its nature corruption is very diffi cult to assess and measure.
Originality: The study uses a unique dataset on ex-ante state capture that was identifi ed in the legal acts that have been passed in the period 1990–2011 in Poland.
In this paper we document the extent and reach of state capitalism around the world and explore its economic implications. We focus on governmental provision of capital to corporations – either equity or debt – as a defining feature of state capitalism. We present a stylized distinction between two broad, general varieties of state capitalism: one through majority control of companies (e.g. state-controlled SOEs) and a hybrid form that relies on minority investments in companies by development banks, pension funds, sovereign wealth funds, and the government itself. We label these two alternative modes Leviathan as a majority investor and Leviathan as a minority investor, respectively. Next we differentiate between these two modes by describing their key fundamental traits and the conditions that should make each mode more conducive to development and superior economic performance.
In this paper, we evaluate what we have learned to date about the effects of privatization from the experiences during the last fifteen to twenty years in the postcommunist
(transition) economies and, where relevant, China. We distinguish separately the impact of privatization on efficiency, profitability, revenues, and other indicators
and distinguish between studies on the basis of their econometric methodology in order to focus attention on more credible results. The effect of privatization is mostly
positive in Central Europe, but quantitatively smaller than that to foreign owners and greater in the later than earlier transition period. In the Commonwealth of
Independent States, privatization to foreign owners yields a positive or insignificant effect while privatization to domestic owners generates a negative or insignificant
effect. The available papers on China find diverse results, with the effect of nonstate ownership on total factor productivity being mostly positive but sometimes insignificant or negative.
The paper evaluates the effects of privatization in the post-communist economies and China. In post-communist economies privatization to foreign owners results in a rapid improvement in performance of firms, while performance effects of privatization to domestic owners are less impressive and vary across regions, coinciding with differences in policies and institutional development. In China relatively more estimates suggest that privatization to domestic owners improves the level of performance. Concentrated private ownership has a stronger positive effect on performance than dispersed ownership in the post-communist economies, but foreign joint ventures rather than wholly owned foreign firms have a positive effect in China. Worker or collective ownership does not have a negative effect. In the post-communist economies new firms are equally or more efficient than firms privatized to domestic owners, and foreign start-ups are more efficient than domestic ones. Privatization is not associated with lower employment. When accompanied by complementary reforms, privatization has a positive effect on economic growth. Three factors appear to drive the more positive effect of privatization to foreign than domestic owners. Domestic managers have more limited skills and access to world markets, domestically privatized firms have been more subject to tunneling and in some countries new large shareholders artificially decreased performance. The important policy implication is that privatization per se does not guarantee improved performance, at least not in the short- to medium-run. Type of private ownership, corporate governance, access to know-how and markets, and the legal and institutional system matter for firm performance.
We study the evolution of the control structure of 141 privatized firms from OECD countries over the period from 1996 through 2000. We find that governments do not relinquish control after “privatization.” We show that the market-to-book ratios of privatized firms converge through time to those of a control sample. However, this convergence does not depend on whether governments relinquish their control rights. In fact, large government stakes have no negative effect on either adjusted market value or stock price performance.
This chapter represents an attempt at a synthesis of six studies of the reform process in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS). The six countries are the Czech Republic, Estonia and Poland among the CEECs and Russia, Ukraine and Uzbekistan among the CIS.1 We present the results of the studies thematically as follows. First, in Section 4.2, we present a framework for classifying the reforms. In Section 4.3 we discuss the causative factors that got the reform process underway as well as the goals of the reforms. The next section deals with the issue of capacity for implementing reform. It is followed by a section analyzing the institutions of critical importance for the success of the reforms. In Section 4.6 we discuss the impact of political culture on the reform process. The following section describes the breadth, depth and speed of the reform process in the countries studied. In Section 4.8 we turn to the role of stakeholders and interest groups. Section 4.9 is devoted to the role of external factors such as global trends and international institutions. In Section 4.10 we turn to the crucial task of analyzing the differences between the countries with respect to reform outcomes. In Section 4.11 we deal with the political, social and cultural institutions that affect the sustainability of the reforms.
Conventional models of the politics of economic reform tend to be based on an assumption about the costs and benefits of reform, known informally as the J-curve. Reforms are expected to make things worse before they get better. This presents a classic rime inconsistency dilemma for reformist governments forced to demand severe sacrifices from the public in the short term for the mere promise of future gains. In response, political economy models of the reform process have tended to stress the importance of insulating governments from the pressures of the shortterm losers until a sufficient constituency of winners has been created with a stake in supporting and enhancing the reforms. Based on evidence from the postcommunist transitions, this article suggests that the most serious political obstacles to the process of economic reform have come not from the short-term losers but from the short-term winners. Groups that gain substantial rents from the early distortions of a partially reformed economy have a stake in maintaining a partial reform equilibrium that generates high private gains, but at a considerable social cost. In these countries, the main political challenge has been, not to marginalize the losers, but to restrain the winners. This explains the paradoxical outcome of the postcommunist transitions: that political systems which are more inclusive of the losers have been able to adopt and sustain more comprehensive economic reforms than states insulated from popular pressures.
The article focuses on the analysis of the evolution of contemporary theoretic approaches to the choice of an optimal form of ownership, and the corresponding estimation of privatization in the context of the advantages and disadvantages of the public and private sectors of the national economy. Various interpretations of the fundamental privatization theorem are considered: based on the principal-agent relationship; based on the comparison of the structure of information flows; the combination of ownership rights and contractual rights; consideration of sociopolitical factors, etc. The latest trends in Russia’s de-statization policy in 2010-2013 are analyzed in the context of ‘reluctant privatization’, with special emphasis on the asymmetry between the statization and privatization processes.
In the West are the 'haves', while much of the rest of the world are the 'have-nots'. The extent of inequality today is unprecedented. Drawing on an extraordinary range of contemporary and historical examples, Why Nations Fail looks at the root of the problems facing some nations. Economists and scientists have offered useful insights into the reasons for certain aspects of poverty, such as Jeffrey Sachs (it's geography and the weather), and Jared Diamond (it's technology and species). But most theories ignore the incentives and institutions that populations need to invest and prosper: they need to know that if they work hard, they can make money and actually keep it - and the key to ensuring these incentives is sound institutions. Incentives and institutions are what separate the have and have-nots. Based on fifteen years of research, and stepping boldly into the territory of Ian Morris's Why the West Rules - For Now, Daron Acemoglu and James Robinson blend economics, politics, history and current affairs to provide a new, persuasive way of understanding wealth and poverty. And, perhaps most importantly, they provide a pragmatic basis for the hope that those mired in poverty can be placed on the path to prosperity.
Conventional models of the politics of economic reform tend to be
based on an assumption about the costs and benefits of reform,
known informally as the J-curve. Reforms are expected to make
things worse before they get better. This presents a classic time
inconsistency dilemma for reformist governments forced to demand
severe sacrifices from the public in the short term for the mere
promise of future gains. In response, political economy models of
the reform process have tended to stress the importance of
insulating governments from the pressures of the short-term losers
until a sufficient constituency of winners has been created with a
stake in supporting and enhancing the reforms.
This book provides a systematic account of the privatization process at the global scale, presenting an overarching description of the phenomenon, and panel data empirical analyses testing some of the predictions of the recent economic theory of privatization. At the macroeconomic level, privatization processes of the 1980s and 1990s are shown to be a cyclical phenomenon shaped by economic, political, and institutional determinants. At the microeconomic level, privatization has been partial and incomplete, with only minority rights transferred to the private sector. However, genuine privatization, involving the full transfer of control to the private sector, is difficult to achieve as several conditions must be met. First, markets should be competitive or suitably regulated. Second, private investors should be adequately protected by the law in order to avoid expropriation. Third, political institutions should be designed to limit the veto power of constituencies ousting full divestiture. Last but not least, governments should be credibly committed not to interfere post-privatization in the operating activity of the companies. As a consequence, private ownership is likely to coexist with public control, at least in the near future. © Fondazione Eni Enrico Mattei (FEEM) 2004. All rights reserved.
Three years later in Eastern Europe, privatization is still talked about and seemingly pursued, but the results are mixed. In the broadest sense, privatization should be understood as a transfer of assets from the state to the private sector, accompanied by a radical reallocation of available productive resources, restructuring of the existing institutional setting in which production takes place, and the introduction of new methods of corporrate governance, freed from the most noxious kinds of political interference. While privatization in this sense could be expected to lead to far-reaching economic and social transformations, a mere transfer of title is unlikely to have such an effect. Indeed, it may sometimes be doubted whether, under the conditions of many postcommunist societies, it leads to any genuine structural changes or even to a meaningful modification of legal ownership. -from Authors
This paper analyzes institutional and organizational developments in the early stages of postsocialist reforms, focusing on policy decisions on the timing of privatization and on the allocation of resources between different types of sectors. We identify links between these decisions and legacies of communism, limited market resources, distorted industrial structures, and poor institutional conditions. The results are consistent with the observed pattern of development that has emerged across a wide variety of countries adopting different reform strategies. This pattern is one in which a burgeoning private sector of small firms in services and light industry develops separately from state-owned heavy industry. J. Comp. Econom., June 1993, 17(2), pp. 385-406. University of Maryland, College Park, Maryland 20742; and University of Minnesota, Minneapolis, Minnesota 55455.
Public enterprises around the world have proved to be highly inefficient, primarily because they pursue strategies, such as excess employment, that satisfy the political objectives of politicians who control them. Privatization of public enterprises can raise the cost to politicians of influencing them, since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms. In this way, privatization leads to efficient restructuring of firms. Moreover, privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors, rather than their employees or even managers. Copyright 1996 by Royal Economic Society.
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