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Optimal Privatization for Gaining Political Support

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  4. Vol. 24, Issue 2
  5. pp. 147–174

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von Furstenberg, G. Optimal Privatization for Gaining Political Support. Credit and Capital Markets – Kredit und Kapital, 24(2), 147-174. https://doi.org/10.3790/ccm.24.2.147
von Furstenberg, George M. "Optimal Privatization for Gaining Political Support" Credit and Capital Markets – Kredit und Kapital 24.2, 1991, 147-174. https://doi.org/10.3790/ccm.24.2.147
von Furstenberg, George M. (1991): Optimal Privatization for Gaining Political Support, in: Credit and Capital Markets – Kredit und Kapital, vol. 24, iss. 2, 147-174, [online] https://doi.org/10.3790/ccm.24.2.147
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Optimal Privatization for Gaining Political Support

von Furstenberg, George M.

Credit and Capital Markets – Kredit und Kapital, Vol. 24 (1991), Iss. 2 : pp. 147–174

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.24.2.147
Language
Multiple languages
Pages
28

Author Details

George M. von Furstenberg, Bloomington/Indiana

References

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  9. Brittan, S.: “The Politics.and Economics of Privatization,” Political Quarterly, 55(2), April-June 1984a, 109 - 128.  Google Scholar
  10. Brittan, S.: “The Case for Capital Ownership for All,” Financial Times, September 20, 1984b, 27.  Google Scholar
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  32. Myrdal, G.: “The Equality Issue in World Development,” American Economic Review, 79(6), December 1989, 8 - 17.  Google Scholar
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  34. Ohashi, T. M.: “Privatization: The Case of British Columbia,” in S.H. Hanke, ed., Privatization and Development, San Francisco: ICS Press, 1987, 189-194.  Google Scholar
  35. Okun, A.M.: Equality and Efficiency: the Big Tradeoft, Washington, D.C.: Brookings Institution, 1975.  Google Scholar
  36. Pirie, M.: Dismantling the State: The Theory and Practice of Privatization, Dallas: National Center for Policy Analysis, 1985. - President’s Commission on Privatization: Toward More Effective Government, Report of the President’s Commission on Privatization, Washington, D.C.: U.S. Government Printing Office, 1988.  Google Scholar
  37. Rawls, J. A.: A Theory of Justice, Cambridge, MA: Belknap Press of Harvard University Press, 1971.  Google Scholar
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  40. Stolper, T.E.: “Transition to a Market Economy,” The Christian Science Monitor, May 11, 1990, 18.  Google Scholar
  41. Svejnar, J.: “A Framework for the Economic Transformation of Czechoslovakia,” PlanEcon Report, 5(52), December 29, 1989. - U.S. Department of Housing and Urban Development, HOPE: Homeownership and Opportunity for People Everywhere, HUD-PDR-1246(1), Washington, D.C., March 1990. - Vanous, J.: “Privatization in Eastern Europe: Possibilities, Problems, and the Role of Western Capital,” PlanEcon Report, 5(38/39), September 30, 1989. - von Furstenberg, G. M.: “Reviving East German Property,” The Wall Street Journal/Europe, March 8, 1990, 6. - von Furstenberg G. M.: “Taxes: A License to Spend or a Late Charge?” inR. G. Penner, ed., The Great Fiscal Experiment, Washington, D.C.: Urban Institute, 1991, 153 - 191.  Google Scholar
  42. Vuylsteke, C.: “Privatization in Emerging Market Economies: Constraints and Practical Responses,” Background Note for World Bank Group Conference on Privatization and Ownership Changes in Eastern and Central Europe, Washington, D.C., June 13 - 14, 1990.  Google Scholar
  43. Walters, A: “Supply-Side Policies: The Lessons from the U.K.,” in G. von Furstenberg, ed., A Supply-Side Agenda for Germany, New York: Springer, 1989, 185 - 215.  Google Scholar
  44. Winfield, R. D.: The Just Economy, New York: Routledge, 1988.  Google Scholar
  45. Wolf, M.: “Journey into Terra Incognita,” Financial Times (World Economy Section 6), September 24, 1990, vi.  Google Scholar
  46. Yarrow, G.: “Privatization and Economic Performance in Britain,” in K. Brunner and A. H. Meltzer, ed., IMF Policy Advice, Market Volatility, Commodity Price Rules and Other Essays, Carnegie Rochester Conference Series on Public Policy, 31, Amsterdam: North-Holland, Autumn 1989, 303 - 344.  Google Scholar
  47. Yarrow, G.: “Three Lectures on Privatization,“ delivered at the Institute of Economics, Jagiellonian University, and the Krakow Academy of Economics, Krakow, April 3 - 5, 1990.  Google Scholar
  48. Yotopoulos, P. A.: “The (Rip)Tide of Privatization: Lessons from Chile,” World Development, May 1989, 683 - 692.  Google Scholar
  49. Aharoni, Y.: “The United Kingdom: Transforming Attitudes,” inR. Vernon, ed., The Promise of Privatization, New York: Council on Foreign Relations, 1988, 23 – 56.  Google Scholar
  50. Barr, N.: The Economics of the Welfare State, Stanford, CA: Stanford University Press, 1987.  Google Scholar
  51. Blanchard, O. and R. Layard: “Making it Safe for Capitalism,” Financial Times, July 11, 1990, 15.  Google Scholar
  52. Blue Ribbon Commission: Hungary in Transition to Freedom and Prosperity, Indianapolis: Hudson Institute, April 1990.  Google Scholar
  53. Bobinski, C. and M. Wolf: “Radical Options for Privatization,” Financial Times, August 2, 1990, 10.  Google Scholar
  54. Bofinger, P.: “Konzentration der DDR-Wirtschaft auf eine Holding mit Privatisierungszweck,” Handelsblatt, February 3/4, 1990, 10.  Google Scholar
  55. Brainard, L. J.: “Strategies for Economic Tranföormation in Eastern Europe: The Role of Financial-Market Reform,” unpublished, New York: Bankers Trust Co., June 5, 1990.  Google Scholar
  56. Brittan, S.: “Privatization: a New Approach,” Financial Times, November 17, 1983, 25.  Google Scholar
  57. Brittan, S.: “The Politics.and Economics of Privatization,” Political Quarterly, 55(2), April-June 1984a, 109 – 128.  Google Scholar
  58. Brittan, S.: “The Case for Capital Ownership for All,” Financial Times, September 20, 1984b, 27.  Google Scholar
  59. Butler, S.M.: “Changing the Political Dynamics of Government,” in S. H. Hanke, ed., Prospects for Privatization, New York: The Academy of Political Science, 1987, 4 – 13.  Google Scholar
  60. Crane, K.: “Privatization in Hungary,” Paper presented at 65th Annual WEA Conference, San Diego, CA, June 30, 1990.  Google Scholar
  61. De Soto, H.: The Other Path, New York: Harper & Row, 1989. – Deutsche Bundesbank: “Vorschläge des Zentralbankrates zu einem Umstellungsgesetz,” Auszüge aus Presseartikeln, No. 28, Frankfurt, April 3, 1990, 1-2.  Google Scholar
  62. Dhanji, F. and B. Milanovic: “Privatization in East and Central Europe: Objectives, Constraints, and Models of Divestiture,” Paper prepared for the World Bank Group Conference on Privatization and Ownership Changes in Eastern and Central Europe, Washington, D.C., June 13 – 14, 1990.  Google Scholar
  63. Drabek, Z.: “Tailoring Privatization to a Country’s Needs: The Case of Czechoslovakia,” Paper presented at 65th Annual WEA Conference, San Diego, CA, June 30, 1990.  Google Scholar
  64. Dyba, K., Jezek, T. and D. Arbess: “The Second Czech Revolution,” Financial Times, October 18, 1990, 12.  Google Scholar
  65. English, R. D.: “Privatization by General Fund: Economic 24 (3), 1991 Empowerment for Eastern Europe,” George Washington University Journal of International Law and Economics, forthcoming Fall 1990.  Google Scholar
  66. Farell, C. and G. Schares: “Blueprints for a Free Market in Eastern Europe,” Businessweek, February 5, 1990, 88-89.  Google Scholar
  67. Feige, E.L.: “Perestroika and Socialist Privatization: “What is to be Done’ and How?” unpublished, Madison: University of Wisconsin, January 1990a.  Google Scholar
  68. Feige, E.L.: “A Socialism with Private Property,” Wall Street Journal, March 9, 1990b, A12.  Google Scholar
  69. Feige, E. L.: “A Message to Gorbachev: Redistribute the Wealth,” Challenge: Magazine of Economic Affairs, May/June 1990c, 46 – 53.  Google Scholar
  70. Friedman, M.: “Using the Market for Social Development,” Cato Journal, Winter 1989, 567 – 584.  Google Scholar
  71. Grosfeld, I.: “Prospects for Privatization in Poland,” European Economy, No. 43, March 1990, 139 – 150.  Google Scholar
  72. Hanke, S. H.: “Toward a People’s Capitalism,” in Steve H. Hanke, ed., Privatization and Development, San Francisco: ICS Press, 1987, 213 – 221.  Google Scholar
  73. Hemming, R. and A. M. Mansoor: Privatization and Public Enterprises, Occasional Paper 56, Washington, D.C.: International Monetary Fund, 1988.  Google Scholar
  74. Hinds, M.: “Issues in the Introduction of Market Forces in Eastern European Socialist Economies,” Washington, D.C.: The World Bank, EMENA Discussion Paper No. IDP -0057, April 1990a.  Google Scholar
  75. Hinds, M.: “A Note on the Privatization of Socialized Enterprises in Poland,” unpublished, Washington, D.C.: The World Bank, July 1990b.  Google Scholar
  76. Kornai, J.: The Road to a Free Economy, New York, W. W. Norton, 1990a.  Google Scholar
  77. Kornai J.: “The Affinity Between Ownership Forms and Coordination Mechanisms: The Common Experience of Reform in Socialist Countries,” The Journal of Economic Perspectives, 4(3), Summer 1990b, 131 – 147.  Google Scholar
  78. Lindbeck, A.: “The Transformation from Socialism to Capitalism: Statement for the French Journal ‘Le Debat’,” Stockholm: Institute for International Economic Studies, University of Stockholm, January 15, 1990.  Google Scholar
  79. Moore, T.G.: “A Privatization Program for Gorbachev,” Washington Post, May 30, 1990, A12.  Google Scholar
  80. Myrdal, G.: “The Equality Issue in World Development,” American Economic Review, 79(6), December 1989, 8 – 17.  Google Scholar
  81. Nankani, H.: Techniques of Privatization of State-Owned Enterprises, Volume I: Selected Country Case Studies, World Bank Technical Paper No. 89, Washington, D.C.: The World Bank, 1988.  Google Scholar
  82. Ohashi, T. M.: “Privatization: The Case of British Columbia,” in S.H. Hanke, ed., Privatization and Development, San Francisco: ICS Press, 1987, 189-194.  Google Scholar
  83. Okun, A.M.: Equality and Efficiency: the Big Tradeoft, Washington, D.C.: Brookings Institution, 1975.  Google Scholar
  84. Pirie, M.: Dismantling the State: The Theory and Practice of Privatization, Dallas: National Center for Policy Analysis, 1985. – President’s Commission on Privatization: Toward More Effective Government, Report of the President’s Commission on Privatization, Washington, D.C.: U.S. Government Printing Office, 1988.  Google Scholar
  85. Rawls, J. A.: A Theory of Justice, Cambridge, MA: Belknap Press of Harvard University Press, 1971.  Google Scholar
  86. Rothbard, M.N.: “A Radical Prescription for the Socialist Bloc,” The Free Market, 8(3), March 1990, 1 – 4.  Google Scholar
  87. Saldanha, F. and B. Milanovic: “A Proposal for a Fast and Efficient Privatization of the State Sector,” unpublished, Washington, D.C.: The World Bank, June 1990.  Google Scholar
  88. Stolper, T.E.: “Transition to a Market Economy,” The Christian Science Monitor, May 11, 1990, 18.  Google Scholar
  89. Svejnar, J.: “A Framework for the Economic Transformation of Czechoslovakia,” PlanEcon Report, 5(52), December 29, 1989. – U.S. Department of Housing and Urban Development, HOPE: Homeownership and Opportunity for People Everywhere, HUD-PDR-1246(1), Washington, D.C., March 1990. – Vanous, J.: “Privatization in Eastern Europe: Possibilities, Problems, and the Role of Western Capital,” PlanEcon Report, 5(38/39), September 30, 1989. – von Furstenberg, G. M.: “Reviving East German Property,” The Wall Street Journal/Europe, March 8, 1990, 6. – von Furstenberg G. M.: “Taxes: A License to Spend or a Late Charge?” inR. G. Penner, ed., The Great Fiscal Experiment, Washington, D.C.: Urban Institute, 1991, 153 – 191.  Google Scholar
  90. Vuylsteke, C.: “Privatization in Emerging Market Economies: Constraints and Practical Responses,” Background Note for World Bank Group Conference on Privatization and Ownership Changes in Eastern and Central Europe, Washington, D.C., June 13 – 14, 1990.  Google Scholar
  91. Walters, A: “Supply-Side Policies: The Lessons from the U.K.,” in G. von Furstenberg, ed., A Supply-Side Agenda for Germany, New York: Springer, 1989, 185 – 215.  Google Scholar
  92. Winfield, R. D.: The Just Economy, New York: Routledge, 1988.  Google Scholar
  93. Wolf, M.: “Journey into Terra Incognita,” Financial Times (World Economy Section 6), September 24, 1990, vi.  Google Scholar
  94. Yarrow, G.: “Privatization and Economic Performance in Britain,” in K. Brunner and A. H. Meltzer, ed., IMF Policy Advice, Market Volatility, Commodity Price Rules and Other Essays, Carnegie Rochester Conference Series on Public Policy, 31, Amsterdam: North-Holland, Autumn 1989, 303 – 344.  Google Scholar
  95. Yarrow, G.: “Three Lectures on Privatization,“ delivered at the Institute of Economics, Jagiellonian University, and the Krakow Academy of Economics, Krakow, April 3 – 5, 1990.  Google Scholar
  96. Yotopoulos, P. A.: “The (Rip)Tide of Privatization: Lessons from Chile,” World Development, May 1989, 683 – 692.  Google Scholar

Abstract

Pareto-Optimal Privatization for Gaining Political Support

The events in Eastern Europe that came to a head in the fall of 1989 have sparked a search for privatization procedures that would speed the conversion from government to market-directed economies and help elicit a positive supply response by prying enterprises away from government bureaucracies. So far, however, no politically-successful approach to rapid privatization has been found. There is a high risk of coordination failure and political impasse associated with moving slowly. To reduce this risk, this paper explores how much leeway there is for building broad support for privatization by instituting a (Pareto-optimal) process from which many will gain and no one with a politically legitimate claim can initially lose.

Table of Contents

Section Title Page Action Price
George M. von Furstenberg: Pareto-Optimal Privatization for\rGaining Political Support 147
I. Introduction 147
II. Recent Approaches to Privatization in East and West 148
1. Speed is Essential for Success 149
2. Social Ethics and Politics 151
3. Recent Proposals of Concessional Privatization 152
III. Political Safety Standards for Privatization 153
1. Fiscal Indemnification 153
2. Personal Indemnification 156
3. Distribution of the Net Gains 157
IV. Privatizing Public Housing for its Tenants 159
1. Privatization and the Gains from Trade 159
2. Efficiency Gains 160
3. Reservation Prices 161
4. Expediting Privatization 162
V. Mobilizing Support for Privatizing Socialist Industry 164
1. Uncertain Valuations 164
2. Combining Equality and Efficiency 165
3. Combining Fiscal and Investor Indemnification 167
4. Vouchers to Deal with Monetary Overhang? 169
VI. Conclusion 171
References 172
Summary: Pareto-Optimal Privatization for Gaining Political Support 174
Zusammenfassung: Pareto-optimale Privatisierung zur Gewinnung politischer Unterstützung 174
Résumé: Privatisation optimale de Paréto pour gagner le soutien politique 174

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