Privatization as a means to societal transformation: An empirical analysis of privatization in Central and Eastern Europe and the Former Soviet Union

The last decade has witnessed the most dramatic privatization programs in modern history in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU). It has been a difficult task to accurately measure the performance of these programs, because of the lack of reliable and consistent firm data both before and after privatization, the absence of vital business mechanisms and institutions to distribute reliable business information, and misconceptions about what privatization actually is. Given these problems, the financial and operating performance of newly privatized firms can not be performed as was done in Megginson, Nash, and Van Randenbourgh (1994) and Boubakri and Cosset (2000).; Instead, this dissertation employs “country-level” variables to measure the “financial and operating performance” in a population of twenty-three privatization programs in CEE and FSU. Stiglitz (1998) provides six dimensions to be considered when assessing the impact of any type of economic reform: economic growth, health, education, infrastructure, knowledge, and capacity-building. Fifty-three variables are identified which describe Stiglitz's six dimensions. The rates of change three years after privatization are calculated for each variable. Correlation analysis is used to reduce multicollinearity among the variables and derive ten uncorrelated rate-of-change variables that represent all identified variables. A series of comparative population analyses are performed, taking into consideration privatization program characteristics and control variables that account for other economic reforms that have occurred simultaneously with privatization.; Results indicate that privatization in CEE and FSU is perhaps not as important as the other economic reforms implemented. Although sale privatization appears to be more effective in creating markets than manager/employee privatization, manager/employee privatization leads to more societal improvements than mass privatization. Of the six dimensions studied in this research, “Infrastructure” benefits the most after privatization. Results also indicate the need for privatization programs to be sensitive to the culturally-determined institutions and norms within the countries in CEE and FSU. A Spearman Rank Correlation analysis finds information systems are not highly correlated with privatization performance three years after privatization. One interpretation could be that the privatization programs did not take advantage of the information systems in place at the onset of privatization.