Privatization

'No' to Foreigners?

According to Mladjan Dinkic of the G-17 Plus organization, Yugoslavia's economy should be structured according to the models used in Poland and Slovenia. The Slovenian economic model, because of its similarity and tradition of self-management, could be more interesting, but it does have its drawbacks.

AIM Ljubljana, October 12, 2000

Privatization in Slovenia began back in 1992. State firms and property were privatized for well-known reasons: inefficiency of the socialist economy, even the segment based on "social" capital, desire for foreign investments, and the need to boost development.

The first Slovenian government (put together by the Democratic Opposition of Slovenia, Demos, ten years ago) waged heated disputes with the experts on the nature of privatization. Which model of privatization to use became a matter of utmost importance. Through inertia, an American professor of economics, Jeffrey Sachs, advisor to former federal prime minister Ante Markovic, and an advocate of a distribution of "vouchers" and "coupons," offered his services.

A group of Slovenian economists and experts headed by Joze Mencinger opposed this. They supported the idea of long-term "domestic purchasing." At that time, Mencinger was deputy prime minister. When the cabinet casually opted for the proffered "foreign" recipes, Mencinger resigned. In the end, a compromise was reached.

Bottomless Pit

The law on privatization envisaged three different solutions depending on the size of a firm (small, medium or large). The property of all state companies was evaluated by an independent agency, while their managements were obliged to choose a privatization model in a legally stipulated period. Slovenian adults began receiving certificates by mail. Depending on a citizen's date of birth, the certificates had a nominal value ranging from 2,000 to 4,000 German marks. The citizens were left to choose which company to invest their certificates in. This is where the first problems arose. Some citizens were more, and some less fortunate. Information had to be obtained on time, where and when to invest. When the more popular firms (Lek, Krka, Kolinska, etc.) were in question, the queues were incredible. Many failed to make their investments as quotas were quickly fulfilled.

Thus, citizens went from queue to queue. A year later, events showed that it had been worthwhile to wait in line in banks and post offices in the freezing cold, or the small hours of the night to invest in Mura, Union, Pivara Lasko, and other well-off Slovenian firms. Not long after, the stock of these companies began gaining value on the market and those wise enough not to sell their certificates to brokers (illegal in most cases) -- soon received their first dividends. The value of some stocks even increased two times and more. However, not everyone was lucky. Those who made bad judgements and invested in unprofitable firms were notified by the central depository authority that the value of their stocks had decreased, receiving, of course, no dividends.

At the time, the sale of unprofitable stock became practically impossible. A new problem emerged prior to the end of the privatization process -- the citizens were found to have more vouchers than the available property. There actually wasn't any property left for those citizens who did not stand first in line. A term, "the privatization pit," was forged to describe the phenomenon. The pit was almost bottomless -- 185 billion tolars deep. Slovenian politicians have been pondering the problem for several years so far, without finding a solution.

The majority of citizens scurried to invest their unused certificates in state, private, and quasi-state funds (Karanta, Activa, Triglav, KBM Infond, etc.). These promised to invest their certificates in the right places for a reasonable fee. The public learned that only half of the firms had been privatized. The larger, unprofitable firms, wanted by no one, were mostly left to the state. This is where the funds failed, as there were not enough quality firms to invest in.

Games and Ethics

The state is still offering poor quality property, thus leaving unresolved the problem of unused certificates, and of the citizens incurring loss. Bureaucrats have declared the privatization process over several times already, extending deadlines in a bid to sanitize popular discontent over the "privatization grotto." Finally, last year, privatization was declared accomplished and successful for the most part.

Small companies were mainly privatized through the distribution of stocks to employees, while in larger companies, the percentage of stock given to workers was minimized, the larger part being turned over to citizens, various funds, etc., and the state. Government wouldn't be government if it did not want to grab everything; it therefore appointed its own people to head the funds (capital, compensation, and so on). This did not last long. The media sniffed the affair out, boosting their circulation, while politics prevailed over expert opinion. This process was laid bare particularly after the recent change in state administration, i.e. the fall of the "Drnovsek government." Prime Minister Bajuk's team, made up of the leaders of the Right -- Janez Jansa and Lojze Peterle -- took the rudder from Drnovsek's Liberal Democratic Party of Slovenia, after their several years of rule. Heads also started rolling in state funds, amidst avid media coverage.

In conclusion, the down side of the Slovenian version of privatization (apart from the "privatization pit") is that the economy has only been "half-privatized." The mammoth ship of industry, once the pride of socialism, sank overnight. Notorious losses were revealed on the accounts of major companies such as TAM, Elan, Iskra, etc. Some of the firms were liquidated while the government, experimenting with various "sanitation programs," still owns the others.

What Does the World Community Object to?

The privatization of banks and insurance societies has not yet begun though foreign banks and insurance companies (mostly Austrian and Italian at the moment) are gradually being allowed into the Slovenian market. The second, equally bad, side of Slovenian privatization pertains to self-management. The so-called internal owners (employees), having taken on the role of both owner and employee, have been frequently falling into contradictory, almost schizophrenic situations, being forced to, as owners, adopt and carry out decisions that directly damage their interests as workers.

Various obstacles to the penetration of foreign capital (not only of Teutonic origin) are not looked upon with favor by Slovenia's foreign trade partners, who demand a removal of restrictive regulations as a precondition for full membership in the EU.

The good news about Slovenia's standoffishness is that it has not allowed its state and national resources to be sold for peanuts to foreigners during privatization. Thus, the Slovenian economy managed to avoid turbulence in global financial markets. The majority of large state systems and industries, media and public companies (the post office, Telekom, the power company) have been partially modernized, and are now facing the challenges of serious privatization, partnership with foreign investors, or sale in the market.

What the Slovenian model teaches us is that foreign advisors only inflict damage with their "universal schemes." The extent of damage usually becomes clear after the foreigners get rich and leave for elsewhere. Many countries in transition failed to see this and suffered the dire consequence of being plucked of their "family gold." Serbia has the unfortunate position of tailing in the transition process and of having been squeezed dry by sanctions and domestic moguls. The only fortunate element in all this is that Serbia can profit from the experiences of other countries, and avoid their mistakes.

Svetlana Vasojevic and Igor Mekina

(AIM, Ljubljana)