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