Many scholars assert that the process of privatizing state-owned firms in Central and
Eastern Europe has been a success because privatized firms are performing better than
they did before. The assertion is an empty piece of poetry. To begin with, privately
owned firms are more efficient than state owned firms.
Hence, the evaluation of the process of privatization in Central and Eastern Europe does not depend on some
measured efficiency of privatized firms. The evaluation of privatization should be based
on the contribution of privatized firms to the attainment of two major initial objectives
of institutional restructuring in post-communist Central and Eastern Europe: the
acceptance of capitalism and the development of free-market, private-property
institutions.
The paper argues that the privatization of state-owned firms has failed to
contribute to those two objectives. Analysis attributes this failure of privatization to the
neoclassical model, the absence of de-communization in the region, and the
unwillingness of new rules to assign the value of state-owned firms to their rightful
owners.
