The mantra that “looting privatization” is to blame for all our economic problems, from deindustrialization and layoffs to low growth, is as close to the truth as Valjevo to Siberia.
By constantly repeating that privatization is “robbery”, this adjective has become a permanent epithet in public discourse, as in folk poetry, where we always have a sharp sword, rotten wine, faithful love and a white throat. Such a simplified, and often inaccurate way of presenting a complex economic phenomenon such as property transformation obscures the causes and consequences, and prevents a meaningful discussion on this topic. We know from media articles that there were a number of malversations related to the privatization of some companies in Serbia (probably the most famous among them are those from the case of “24 disputed privatizations”), but does that mean that every privatization was wrong or that it would be better that there was no privatization?
Key results of privatization – privatized companies increase revenues by almost 70%
When the whole privatization process is considered together, by the end of September 2011, a total of 777 companies were privatized under the Law on Property Transformation (privatization during Milosevic in the 1990s), 1,638 under the Law on Privatization, while 537 companies were in restructuring. The aggregate data clearly show that privatization was a process that had positive effects:
1) the sector of privatized companies increased revenues by 69%, while those of non-privatized companies remained at the same level;
2) the sector of privatized enterprises starts to make a profit from the loss, while the non-privatized ones constantly make a loss;
3) productivity of the privatized increases due to the dismissal of workers, but also due to increased production, while the non-privatized increases exclusively due to the dismissal of workers;
4) the value of assets in privatized companies increased by 47%, and in non-privatized ones it decreased by 17%;
5) employment was reduced in all companies, by a similar number of employees.
Two waves of privatization – what are the problems?
We can partially answer the questions mentioned in the water based on the APR data used by the former Privatization Agency in a study that processed companies privatized until 2011. This study is available on the website of the Ministry of Economy. Of course, it is important who wrote this study – the then Privatization Agency would benefit from presenting the privatization process as successful to justify its work so far, so a certain amount of skepticism is always desirable, but let’s look at the data presented in this study.
The study shows business statistics for companies from three groups: privatized companies, companies that were privatized but for which privatization was later terminated, and for non-privatized companies, in the period 2002-2010. The study states that a total of 1,400 companies were privatized by 2006 (346 of them later had their contracts terminated), while in 2006-2009 another 851 companies were privatized.
1. The first wave of privatizations after October 5, 2001-2005
Privatized companies increased operating revenues by 69% in this period (from 2.1 to 3.5 billion euros), revenues of non-privatized companies remained the same (about 2.1 billion euros), and revenues from companies whose privatization was terminated have halved (from 0.4 to 0.2 billion).
The situation is similar with profits: while all these companies had a loss in 2002, privatized companies have shown a profit every year since 2005 (they have a profit of 620 million euros in the entire period). Non-privatized companies and those with discontinued privatization, on the other hand, reported a loss each year – the accumulated loss in this sector during this period amounted to 2.9 billion euros and 440 million euros, respectively.
Productivity (value of production per employee) grew in all three groups of companies. In privatized companies, this was due to a decrease in the number of employees, but also due to an increase in production, while in non-privatized companies it was exclusively due to layoffs. As the number of workers in all three groups of companies was significantly reduced, this tells us that privatization is not to blame for large layoffs in the industry, but that all companies in our country had an irrational number of employees.
This is probably due to several events from the 1990s: the collapse of the common Yugoslav market, international sanctions (companies had to reduce production because there were no more exports, no income, no investment in new technologies during that decade to reduce labor costs), and companies were legally barred from firing workers, not counting the already existing practice of over-employing workers to buy social peace and political support in the elections.
2. Second wave of privatization 2006-2009
Less data is presented in this section, but it seems that the companies privatized in this time period had poorer business performance than those from the previous wave. This is understandable for at least two reasons. The first is that the best companies were sold first, that is those that had secured placement and good incomes (tobacco industry, cement plants, breweries, etc.), while worse companies remained for later.
Second, it takes some time from a change of ownership to an improvement in business activities due to restructuring. The restructuring process has been going on for several years, and already in 2009 there was an economic crisis that had a great impact on the operations of all companies in the country, so the observation time frame for these companies in this study was too short to say what it was the impact of privatization on business. But it can be seen from the attached data that time played a significant role here. The earlier a company was privatized, the better the business results: their business income would grow more, as well as the value of their assets.
Privatization was not a perfect process, but so was it with others
Privatization in all countries in transition was accompanied by various problems: the most visible was the plundering of property (“tunneling”) where valuable assets were transferred to other holders or simply stolen. Insider privatization, where sales were rigged in advance to well-known buyers with good political connections, was an important way to create a new class of tycoons, often former communist apparatchiks, and privatization was often linked to the process of money laundering. So, such problems are not only unique for Serbia, but were also present in Russia, Ukraine, Poland, Hungary and Slovakia.
In countries with greater problems in the functioning of basic institutions such as democratic procedures, political control over the judiciary and the like, these problems were more prevalent than in more orderly countries. Also, the longer the privatization process took, the worse the results usually were. In an international comparison, it was shown that privatization was associated with the restructuring of companies, but that most restructuring came when the new owners were investment funds or foreign companies. Significantly less restructuring occurred when the customers were domestic companies, and least when the companies were privatized by insider privatization, division or purchase of shares among employees and managers.
In addition to these common problems, the situation with privatization in our country was further aggravated by the economic devastation during the 1990s. A large number of companies lost the technology race due to small investments in new technologies and too many employees, as well as the loss of foreign markets; solving the problem of restitution before privatization was avoided, in addition to the general poor investment framework, Talas reports.
