on Fu s enbe g, Geo ge M.
A icle
Op imal P i a iza ion o Gaining Poli ical Suppo
K edi und Kapi al
P o ided in Coope a ion wi h:
Duncke & Humblo , Be lin
Sugges ed Ci a ion: on Fu s enbe g, Geo ge M. (1991) : Op imal P i a iza ion o Gaining Poli ical
Suppo , K edi und Kapi al, ISSN 0023-4591, Duncke & Humblo , Be lin, Vol. 24, Iss. 2, pp. 147-174,
h ps://doi.o g/10.3790/ccm.24.2.147
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Pa e o-Op imal P i a iza ion o
Gaining Poli ical Suppo
By Geo ge M. on Fu s enbe g*, Blooming on/Indiana
Tha sys em wich e ol ed o e decades was eally a kind o ice, was eally a kind
o c amp on ou en i e economy, and i made impossible any ini ia i e, any deci-
sion-making a a ious le els, and he e o e we had o y and disman le ha com-
mand sys em ... [W]e see ha i ha p ocess akes oo much ime, i can c ea e he
kind o ins abili y and he kind o implica ions ha will diso ganize ou en i e soci-
e y.
Mikhail Go bache speaking o Cong essional leade s
a he So ie embassy in Washing on, June 1, 1990.
I. In oduc ion
P i a iza ion wi h a g an componen could well become highly a ac i e
poli ically once ideological ba ie s ha e allen. Then he main p oblem
migh be how o es ain popula demands o immedia e p i a iza ion on
concessional e ms. In eali y, howe e , no such es ain has p o ed neces-
sa y, and p i a iza ion has been mo e cu se han blessing o poli icians. I
* The au ho , who is Rudy P o esso o Economics a Indiana Uni e si y, was a Vis-
i ing Senio Economis wi h he U.S. Depa men o S a e's Planning and Economic
Analysis S a when his pape was w i en. The e his wo k on p i a iza ion and Eas -
e n Eu ope was s imula ed and encou aged pa icula ly by Eugene J. McAllis e , Wil-
liam G. Dewald, and, mos immedia ely, by p io wo k by and wi h Richa d English.
He also acknowledges he many use ul commen s ecei ed in he panel discussion on
"P i a izing Socialis Economies" conduc ed on June 30, 1990 in San Diego a a ses-
sion o he Wes e n Economic Associa ion o ganized by Dewald and chai ed by Go -
don Tullock. Commen s by Michael Ulan o he U.S. Depa men o S a e also ha e
helped imp o e ea lie d a s, bu he S a e Depa men and he U.S. Go e nmen a e
no esponsible o he iews exp essed. The au ho has bene i ed om con e sa ions
wi h Pe e F. Schae e o he Agency o In e na ional De elopmen , Alan Gelb, John
Nellis, and Fe nando Saldanha o he Wo ld Bank, and Edwa d A. Nassim o he
In e na ional Finance Co po a ion, as well as om he b own-bag Semina s on
P i a iza ion, o ganized by Dewald a he S a e Depa men . To hese and o o he
pe sons, whose wo k is men ioned in he e e ences, he wishes o exp ess his since e
hanks wi hou holding hem esponsible o any e o s emaining in his wo k.
Au ho 's add ess: Depa men o Economics, Indiana Uni e si y, Blooming on, IN,
47405, USA; Phone: (812) 855-4764, FAX: (812) 855-5678.
11 K edi und Kapi al 2/1991
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148 Geo ge M. on Fu s enbe g
has been assailed in a numbe o coun ies and me wi h widesp ead esis-
ance in spi e o moun ing e idence o he ailu e o go e nmen as p oduce
and di ec o o economic de elopmen . Because i has p o ed ha d o make
p i a iza ions p oceed on a la ge scale, poli ical obs acles o he p ocess will
be conside ed in his pape oge he wi h i s economic p omise.
II. Recen App oaches o P i a iza ion in Eas and Wes
The e a e powe ul s akeholde s in he sys em o socialized indus y who
- as subsidized cus ome s, p i ileged wo ke s, shel e ed manage s, o poli -
ical pa ons - a o he main enance o he s a us quo. To cha ac e ize he
si ua ion, no only in Cen al Eu ope, Ko nai (1990b, p. 141), o ins ance,
has o e ed he unde s a emen ha "nei he he bu eauc a s, no he mana-
ge s, no indeed he wo ke s [a e] en husias ic adhe en s o compe i ion o
o he ma ke iza ion o s a e-owned asse s." No su p isingly, he e o e, in
some coun ies, like A gen ina, i has p o ed di icul o make p i a iza ions
s ick. In o he s, like in Hunga y and Tu key, he p ocess has been in e -
up ed and edi ec ed epea edly, as ye p e en ing any pe asi e ans o -
ma ion.
E en whe e p i a iza ion has been ela i ely a - eaching, clean, and
swi , like in Chile, i has no been iewed as an unquali ied success (see
Nankani, 1988, pp. 17-45; Yo opoulos, 1989). Pa icula ly in coun ies
whose capi al ma ke s a e ba ely de eloped, p i a iza ions equen ly ha e
been disc edi ed by ewa ding inside g oups. F om A o Z, Alge ia o Zam-
bia, coun ies ha e ound i a daun ing ask o make p i a iza ion a popula
cause and o a oid poli ical ec imina ions. The e a e, o cou se, a ew
excep ional cases, such as he Uni ed Kingdom and New Zealand, in which
p i a iza ion has p oceeded s eadily wi h b oad poli ical suppo du ing he
pas decade. Gene ally, howe e , while socializa ion has o en been p ecipi-
a e and adical, p i a iza ion has been hesi an and pa ial.
The pu pose o his pape is o es ablish and apply s anda ds ha would
mo e he p ocess along by making i p e e ed, by almos all he esiden s o
a coun y, o s aying pu . P i a iza ion and demonopoliza ion o he bulk o
socialis indus y a e necessa y o he de elopmen o e icien ma ke s and
high-quali y p oduc s. As in Hemming and Mansoo (1988), he only o m o
p i a iza ion conside ed he e in ol es he ans e o owne ship o public
en e p ises o he p i a e sec o and no such o he modali ies as he con-
ac ing-ou o public se ices o p i a e i ms. S a ing om socialis eco-
nomy, his ans e o owne ship is a p econdi ion o depoli icizing, de e-
gula ing, and demonopolizing economic decision-making. I in ol es open-
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 149
ing up o he wo ld ma ke o le i ms disco e and seize echnological and
ade oppo uni ies wi hou he s a e's igging. Al hough p i a iza ion does
no , by i sel , gua an ee any o hese economic bene i s as Ya ow (1989) has
shown o he Uni ed Kingdom, i makes e iciency gains highly likely,
he eby gi ing i a weal h-c ea ing e ec .
De So o (1989) has gi en a s unning demons a ion ha eedom o en y
and legal secu i y - p o ec ed h ough low-cos licensing and he g an ing o
clea owne ship i les oge he wi h equal access o o ices and cou s and
impa ial and e ec i e law en o cemen - mus accompany he ins i u ion
o p ope y igh s o make ac i i ies elying on such igh s uni e sally a ail-
able and socially p oduc i e. P ope y igh s mus con e subs an ial ee-
dom o disposi ion and es ablish p i a e esponsibili y o he consequences
o exe cising ha eedom in e ms o p o i o loss. Hence he subs ance o
hese igh s is in e sely ela ed o he deg ee o egula ion, "social" imposi-
ion and p ohibi ion, and capi al and capi al-income axa ion. Ye while
he con en o p ope y igh s is no gua an eed by ha ing o mal i le,
p i a iza ion emains he essen ial condi ion necessa y o g ea e e i-
ciency and de elopmen . As he Blue Ribbon Commission (1990, pp. 21 - 22)
has poin ed ou , he e a e good easons o expec p i a e en e p ise, subjec
o compe i ion and he ule o law, o imp o e p oduc i e, alloca i e, and
inno a i e e iciency.
1. Speed is Essen ial o Success
The e a e a leas wo dange s associa ed wi h mo ing slowly o jus wai -
ing pa ien ly unde "bypass" s a egies o he public sec o o be eclipsed
by he eme gence o a p i a e sec o and i s in e nal g ow h. Fi s he clou
and blocking powe s wielded by he go e nmen h ough con ol o i s
en e p ises and he poli ical ne wo k ha suppo s hem emain o midable
and discou age p i a e en y. Second, e en a e he disciplines and i uals
o command economy ha e been abandoned, go e nmen en e p ises s ill
ope a e a social isk and cos , a he han a p o i and loss, un il hey a e
p i a ized. The ewa ds o manage s hus con inue o be il e ed h ough he
poli ical a he han economic p ocess and a e no di ec ed owa d enhanc-
ing he e iciency o cu en o u u e ope a ions. Ins ead, conni ance by
inside s and poli ical appoin ees may gu he subs ance o go e nmen
en e p ises. Lea ing socialis indus y in limbo hus does no seem o be
wise. Ra he , bo h old and new managemen s o go e nmen en e p ises
should be ene gized by he ce ain p ospec o p i a iza ion and compe e o
a place in he new o de as hey did in he Uni ed Kingdom once hei man-
da e and au ho i y had been i mly es ablished (Wal e s, 1989, pp. 197 - 199).
n
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150 Geo ge M. on Fu s enbe g
Condi ions and conce ns ha may apply o indus ial p i a iza ions a he
inges o highly-de eloped ma ke economies need no be app op ia e o
he p i a iza ion o socialis economies. Ya ow (1990, pp. 19-21) ecog-
nizes his di e ence when he ad ises ipping he balance o he a gumen s
owa d as e p i a iza ion in Eas e n Eu ope al hough he had ques ioned
"p eoccupa ion wi h ensu ing a apid ans e o owne ship" (1989, p. 343)
ea lie in B i ain. Hinds (1990b, pp. 4-5) also commen s on he di e ence
be ween p i a iza ion in he Uni ed Kingdom and in Cen al Eu ope and
pu s a p emium on speed o he la e . Lindbeck (1990, p. 3) a gues ha
la ge-scale p i a iza ion and suppo ing e o ms ha e o "mo e as and
wi hou hesi a ion so ha p i a e p ope y igh s become c edible. Only
hen can a p ope incen i e s uc u e o p i a e owne ship be c ea ed, wi h
con idence in he p i a e sec o abou u u e p ope y igh s and a o able
wo king condi ions o p i a e i ms" (emphasis in o iginal).
Appa en ly a o ing a much mo e g adual app oach, Ko nai (1990a) has
ad ised Eas e n and Cen al Eu opean coun ies o be p epa ed o "a
leng hy pe iod o coexis ence" (p. 101) du ing which " he iny isles o he
p i a e sec o a e su ounded by an ocean o s a e-owned i ms" (p. 59). He
u he cau ions ha " he sale o s a e p ope y should no be go e ned by
he guiding p inciple o speed" (p. 93) and ha s a e p ope y should change
hands only "a a eal ma ke p ice" (p. 83).
This pape , by con as , deals wi h he possibili ies o c ea ing a poli ical
dynamic ha helps push go e nmen en e p ises on o he ma ke and le s
es uc u ing p oceed wi hou wai ing o de ini i e e ela ion o he " eal
ma ke p ice" o be cha ged o hei asse s. Fo s a e agencies o spend
much ime on p ecise alua ion and hen o hold ou o a p ice equal o
app aised alue may be a losing p oposi ion: The alue o socialis en e -
p ises is likely o dissipa e apidly in ac o and p oduc ma ke s ha ha e
opened-up o he wo ld.
To be able o p i a ize quickly, howe e , any go e nmen ha depends on
he consen o he go e ned needs poli ical co e . This pape , he e o e, ies
o se up some s anda ds (sec ion III) ha a p og am should mee o ga ne
he b oad-based poli ical suppo necessa y o apid p i a iza ion. I also
shows how hese s anda ds apply in p i a izing publicly-owned housing o
ai ly ce ain alue (sec ion IV) and socialis indus y o unce ain alue
(sec ion V) be o e concluding his s udy in poli ical economy (sec ion VI).
The con ic ion unde lying much o he discussion ha ollows is ha
when he basic economic s uc u es o a socie y ha e become disc edi ed
and li ing s anda ds ha e plumme ed, e iciency-enhancing measu es can
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 151
gain b oad poli ical suppo . Indeed, mobilizing he gene al in e es agains
he inside s o he dilapida ing egime may be a p econdi ion o disco e ing
economic oppo uni ies and ge ing on o a pa h o e icien de elopmen . In
his way, g ea e poli ical and economic equali y can be he engines o
ansi ion o a mo e e icien egime: equali y and e iciency need no be
" he big adeo " (Okun, 1975; see also Ba , 1987, and Win ield, 1988) hey
no mally pose in es ablished egimes. The emainde o his in oduc ion
ouches on he social e hics in ol ed in mobilizing b oad poli ical suppo
o p i a iza ion and explains he concep o concessional p i a iza ion and
whe e i has been used.
2. Social E hics and Poli ics
The debacle o socialis economy has shown i s o all ha igo ous pu -
sui o egali a ianism sh inks he cake a ailable o dis ibu ion. Fu he -
mo e, a pu sui wi hou indi idual ewa ds can be sus ained only wi h
commands om abo e. This hie a chical elemen ul ima ely denies
egali a ianism i sel : Some ind ways o escape om he gene al
impo e ishmen by u ning a p o i om poli ical clou . Hence, nei he
accep able li ing s anda ds no equali y in mise y can be escued om
inc easingly cos ly coo dina ion ailu es and "spon aneous p i a iza ions"
in economies wi hou well- unc ioning ma ke s. Ra he , he denial o p op-
e y igh s and pe sonal au onomy, os ensibly in he name o equali y, e en-
ually leads o a poin whe e he appea ance o equali y oo is unde mined.
"Nomenkla u a" p i ileges become openly esen ed, up u ing acquiescence
and b eeding un es . In he end, he e o e, bo h equali y and e iciency su -
e .
Mo e impo an ly, basic human needs, including he essen ial digni y o
ha ing oom o indi idual choice and c ea ion, dea o he o iginal Ma xian
concep ion o he inal ewa ds o communism, inc easingly ail o be me .
Fo his eason My dal (1989, p. 16) concluded in his 1975 Nobel Memo ial
Lec u e ha he undamen al changes in wo king condi ions ha can o e -
come s a e-cen e ed unde de elopmen „ egula ly imply bo h g ea e
equali y and inc eased p oduc i i y a he same ime."
E en i equali y and e iciency did no change in he same di ec ion unde
he popula p i a iza ions o be discussed in sec ions III and IV, he e would
be ample oom o aising e iciency while s ill imp o ing he lo o he leas
well-o . Only a bene icial e ec o he poo es would p o ide he mo al
jus i ica ion which Rawls (1971) equi ed o any disequalizing change.
Wi h sa e y ne s hanging low and agged in wha once p ided i sel as he
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152 Geo ge M. on Fu s enbe g
socialis camp o Eu ope, one can see ha e en he leas well-o a e less
w e ched and ha e mo e hope o imp o emen in de eloped ma ke
economies, by and la ge. Thus any disequalizing changes could be so p o-
duc i e o all, including he poo es , as o pass he Rawls c i e ion. Indeed,
poli ically, i is qui e essen ial o he secu i y o he democ acies now
eme ging in Eas e n Eu ope ha he poo , he mass o he popula ion, ge a
s ake in he p ocess o p i a iza ion and ag ee wi h he b oad ou lines o i s
design.
3. Recen P oposals o Concessional P i a iza ion
Mass pa icipa ion and suppo can be sough h ough concessional
p i a iza ion. I in ol es cha ging less han he p esumed o al eady going
ma ke p ice o claims o go e nmen asse s ha a e widely o uni e sally
dis ibu ed. I can also in ol e using pa o he p oceeds om " ull-p ice"
sales o small g oups o ac i e in es o s o ans e s o he gene al popula-
ion unde he egali a ian scheme. Al e na i ely, ull-p ice sales o ac i e
in es o s o con olling in e es s in o me ly go e nmen -owned en e p ises
can be combined wi h making he emaining equi y a ailable o acquisi ion
h ough sha e s amps (analogous o ood s amps) o ouche s edeemed in
s ocks by he popula ion a la ge.
Concessional p i a iza ion, in one o m o ano he , has nume ous ad o-
ca es and an eceden s. I s ex eme, equen ly ad oca ed bu a ely p ac-
iced, is he go e nmen -asse gi eaway, a e m popula ized by B i an
(1983). Spu ed by e en s in Cen al Eu ope, he e has been a esu gence o
edi o ial ecommenda ions o his ype o app oach in he egion (see G os-
eld, 1990, p. 145; Bobinski and Wol , 1990; Dyba, Jezek and A bess, 1990)
and in Wes e n Eu ope. Because o he apidi y o he e en s ha began o
un old in summe o 1989, business, economic, and inancial newspape s
ha e become he main o um o se ious deba e.
The las o he Wes e n Eu opean endo semen s no ed he e appea ed in
he Economis o July 21, 1990 (pp. 13 - 14) unde he i le, "The Gi o
Capi alism." Edi o ials ea lie ha yea epea ed he basic ideas i s
ad anced by B i an (1983, 1984a, 1984b) o he Uni ed Kingdom and
applied hem o Eas e n and Cen al Eu opean coun ies, including he
So ie Union (Feige, 1990b; Moo e, 1990) and he now ex inc GDR
(.Bo inge , 1990; on Fu s enbe g, 1990). Ohashi (1987) and S olpe (1990)
ha e p o ided use ul su eys o ea lie , small-scale applica ions in B i ish
Columbia and in he dissolu ion o he Amana Socie y in Iowa. S olpe
(1990, p. 18) no es ha "a wide dis ibu ion o di e si ied asse s would sup-
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 153
po democ acy by g ea ly educing he economic powe o he nomencla-
u a and g ea ly inc easing he economic powe o he elec o a e." Va ious
(1989), S ejna (1989), and C ane (1990) ha e also add essed he ques ion o
how o build poli ical suppo o p i a iza ion, a ques ion ha is cen al o
his pape and he en i e p ocess.
III. Poli ical Sa e y S anda ds o P i a iza ion
In a echnical and poli ical sense, p i a iza ion is much easie o a ange
o public housing han o he asse s o socialis indus y. De ailing he
e ms a ailable o p i a iza ion in each o hese a eas p o ides an insigh -
ul con as . As jus i ied la e in his sec ion, he h ee p inciples ad oca ed
in a ying deg ees o minimizing poli ical isks o p i a iza ion in bo h
a eas a e:
(1) The T easu y shall no su e any ne loss o iscal esou ces as a esul
o p i a iza ion les some ci izens lose om he p ocess as u u e axpaye s
o ic ims o in la ion ax.
(2) Those wi h poli ically-legi ima e owne ship claims in he asse s o be
p i a ized shall be held ha mless o loss o he economic en s which hese
asse s would ha e con inued o deli e o hem di ec ly unde he old
egime.
(3) Any p oceeds om p i a iza ion beyond hose needed o sa is y he
wo cons ain s abo e shall be dis ibu ed b oadly, pe haps o he en i e
popula ion o o ing age, o maximize poli ical suppo o he p og am o
apid owne ship ans o ma ion.
Each o he h ee p inciples o dis ibu ional guidelines and cons ain s
needs o be jus i ied.
1. Fiscal Indemni ica ion
The amoun o e enue which he go e nmen should e ain om he sale
o socialis indus y can be gauged only by p epa ing a de ailed budge
ex ending o e a numbe o yea s. Du ing hose yea s, a ax sys em would be
pu in place ha could suppo a g ea ly educed le el o go e nmen spend-
ing wi hou u he a ia ion in ax a es. E en hough conc e e applica ion
o p inciples o ax e iciency and in e empo al ax equi y is di icul , i
may be wo hwhile o lay ou he majo poin s ha need o be conside ed in
se ing he le el o he iscal indemni y.
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154 Geo ge
M.
on Fu s enbe g
Fi s o all, why should people be asked o pay he go e nmen any hing
a all o e u ning " hei " collec i ely-owned p ope y? Ce ainly in he
ini ial ans e o go e nmen -en e p ise asse s and liabili ies o he p i a e
sec o , ha sec o as a whole should no ha e o pu up " ull p ice" o he
package i o he equi able o mulae o di es i u e can be ound. O he wise
p i a iza ion would be p e en ed om making an immedia e con ibu ion
o he es o a ion o p i a e ne wo h ha was gu ed by decades o
socialism. O cou se, ac i e in es o s who acqui e di ec owne ship o go -
e nmen en e p ises should always ha e o pay "a ma ke " o wha hese
en e p ises a e expec ed o be wo h as going conce ns. Howe e , all ha
hese di ec in es o s pay need no be e ained by go e nmen ; i can be
edis ibu ed, in pa , o he popula ion a la ge. Buying a esalable asse a
below-ma ke p ices is equi alen o ecei ing a gi equal o he discoun
om ma ke . Hence bes owing such a gi h ough paymen o a "social di -
idend" is equi alen o le ing e e yone pa icipa e in he p i a iza ion on
concessional e ms, e en hough ew will end up owning and managing he
p i a ized asse s.
On he o he hand, no all he p oceeds om p i a iza ion should be made
a ailable o payou in his way. Indeed popula demands o capi al g an s
om he s a e a e subo dina e o he goals o main aining iscal s abili y
and p o ec ing u u e axpaye s om inc eased liabili ies on a p esen -
alue basis. People hus can be asked o edeem en e p ises om go e n-
men owne ship o an amoun su icien o a oid des abilizing go e nmen
inances. This amoun could be equal o any excess o he axes and di i-
dends ha would ha e acc ued o he s a e om con inued owne ship o e
he ax e enues ha go e nmen en e p ises would be expec ed o pay
upon p i a iza ion when axes a e designed op imally o e ime. Hence any
loss o u u e ne e enues associa ed wi h p i a iza ion, calcula ed on a
p esen - alue basis, migh ha e o be made up by he p oceeds ob ained
om he sale o go e nmen asse s.
How migh one gauge he loss o ne e enue, and why is i likely o be
small compa ed wi h he g oss eceip s om go e nmen en e p ises usually
en e ed in he iscal accoun s o socialis coun ies? Such eceip s ha e been
a majo sou ce o go e nmen e enue in Eas e n Eu ope, ye a good pa o
hem was ecycled in a closed loop. An example aken om Poland may
show wha could be in ol ed. In 1988, be o e he iscal si ua ion had as ye
become unsus ainable he e, ax e enue om he socialized sec o
amoun ed o 31 % o GNP. Sub ac ing mos o he subsidies o he popula-
ion (80
%
o such subsidies a e assumed o be on p oduc s made by go e n-
men en e p ises) and all o he en e p ise subsidies ( he la e amoun ed o
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 161
employmen wi h hei en e p ise is limi ed han o suppo ine icien
en e p ises inde ini ely because hey we e no p i a ized.
I appea s, he e o e, ha pa ial asse gi eaways can be jus i ied e en i
u u e axpaye s and he immedia e s akeholde s i s mus be held ha m-
less. Indeed, he go e nmen should e en be able o educe u u e axes
because o he "load shedding" abo e. Mo ing om ague, and insecu e,
p ope y claims suppo ed by poli ical in luence o secu e legal igh s es ab-
lished h ough o mal p i a iza ions c ea es he sel -assu ance and oppo -
uni ies necessa y o he de elopmen o e icien p oduc ion and unc ion-
ing ma ke s. Ye no such changeo e is easible unless a winning poli ical
coali ion can be buil a ound i .
In he case o council housing he a e o p i a iza ion has been one- i h
o he o al publicly-owned s ock in 10 yea s, o 2 pe cen pe annum. Pa
o he eason o enan s' being slow o ake-up he go e nmen 's o e in he
U.K. was ha hey we e en i led o buy hei uni s o e an ex ended pe iod
o ime, wi h subsidies con inuing o be paid on hei behal as long as hey
had no pu chased. Ano he was ha some households ound i di icul o
amass he down-paymen o o quali y o a mo gage, e en hough inanc-
ing o he pu chase o uni s was a ailable. (In summe 1990, Tha che p o-
posed a " en -in o-mo gage" paymen con e sion scheme o add ess his
p oblem.) Mos impo an ly, he dep h o he subsidy go e ns he a e a
which enan s can be expec ed o seek o pu chase hei uni , a poin
de eloped below.
3. Rese a ion P ices
The T easu y may be hough o calcula e a ese a ion p ice o p ojec s
and hei uni s ha is consis en wi h (1), he p inciple o iscal indemni ica-
ion. This p ice would be se a a le el jus su icien o hold u u e ax-
paye s ha mless o p i a iza ion compa ed wi h he iscal si ua ion unde
con inued go e nmen owne ship. Unlike unde some condi ions in he U.S.
HOPE p og am (see U.S. Depa men o Housing and U ban De elopmen ,
1990), he local councils in he U.K. a e no obliga ed o eplace any housing
uni s sold o o eplace public-sec o housing s ock once i is un down.
Hence hei ese a ion p ice is equal o he si e alue o he p ojec a he
end o i s use ul economic li e minus he ope a ing subsidies and deb se -
ice which he T easu y would ha e o mee on behal o public housing en-
an s un il ha ime, all discoun ed o he p esen .
Rela i e o ma ke p ice, he ese a ion sales p ices, hus, would ise as a
p ojec nea s he poin a which i will ha e o be azed, he eby eeing i s
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162 Geo ge
M.
on Fu s enbe g
si e o sale. Raising he sales p ice as a pe cen age o he ma ke p ice on
any exis ing uni o e ime can educe he incen i e o enan s o de e pu -
chase un il sho ly be o e hey ha e o mo e ou o hei subsidized uni o
un il he go e nmen 's o e expi es. Excep a he e y end o a p ojec 's
use ul li e, when p i a iza ion would simply mean selling he unclea ed si e
o he p i a e sec o , he go e nmen 's ese a ion p ice would be below he
ma ke p ice o he p ojec . Fo ela i ely new and du able p ojec s, i could
e en be nega i e i he subsidy s eam expec ed is long and deep. In ha case
he T easu y (o local housing council) could p o i om gi ing he p ojec
away o shed i s obliga ions.
Tenan s ha e ese a ion p ices o hei uni s in he p ojec s oo. I hey
decide o buy and he e o e allow p i a iza ion o p oceed, p inciple (2),
ha o pe sonal indemni ica ion, is necessa ily obse ed since he olun a y
na u e o he pu chase assu es ha hey will be no wo se o as a esul .
Igno ing ecap u e p o isions, enan s will igu e on losing he p esen alue
o subsidies while gaining owne ship o a uni ha can be sold wi hou
es ic ions a ma ke p ices. The longe hey expec o li e in public hous-
ing, he lowe he ne alue hey would pu on hei uni in ela ion o i s
cu en esale alue. Only i hey need o mo e ou " omo ow" o any
eason, would hey be inclined o buy almos "a ma ke ." Assuming ha
compa able condominia can eadily be p iced in he p i a e sec o , he e
would be li le isk ha he occupan buying he uni would end up wi h a
loss upon esale.
4. Expedi ing P i a iza ion
To mee cons ain (1) he e is hus a spec um o p ojec s whose uni s
could be made a ailable a ese a ion sales p ices no mally well below
ma ke . Depending on he p ojec , discoun s could ange om 0 o 100
%
o
es ima ed ma ke alue upon p i a iza ion wi hou loss o any money by he
go e nmen on a p esen - alue basis. On he o he side, he e is a dis ibu-
ion o ese a ion pu chase p ices by enan s all o which mee cons ain
(2). These p ices a e dis ibu ed o e indi idual housing uni s and in ol e
discoun s anging om 0 o some pe cen age no mally well sho o 100.
The exac pe cen age applied by any enan depends on he leng h and
dep h o he subsidies expec ed o he o his emaining s ay in he uni , he
subjec i e alua ion o he subsidy bene i s ela i e o he cos o li ing in
al e na i e p i a e housing, and he subjec i e discoun a e. "Expec ed
emaining s ay" is sho hand o enan s a aching a p obabili y weigh o
being in esidence in any u u e yea , a weigh ha would, o cou se, decline
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Pa e o-Op imal P i a iza ion o Gaming Poli ical Suppo 163
o 0 i hey look a enough ahead. I he p obabili y-weigh ed s eam o
hese subsidies o gone is alued x, and he es ima ed esale alue o he uni
is 2x, he enan would no be willing o pay mo e han 50% o he ma ke
alue o he uni since she o he would be gi ing up a " es ed," i.e., poli i-
cally ecognized, igh o u u e subsidies by buying i .
Gi en he dis ibu ion o buye s' ese a ion p ices, he mo e he T easu y
seeks o ob ain om p i a iza ion abo e wha is needed o iscal indemni i-
ca ion in he agg ega e, he slowe he pace o his p ocess. On he o he
hand, p i a iza ion will p oceed mos apidly i he T easu y cha ges no
mo e han i s ese a ion p ice o he uni s on a e age.
I all gains om p i a iza ion, ne o iscal indemni ica ion, a e app op i-
a ed by he enan s buying hei uni s, as appea s ad isable in his ins ance,
he gene al public could ecei e no conc e e bene i , such as weal h ans-
e s o u u e ax educ ions. Fo lack o a esidual, p inciple (3) would be
be e o applica ion he e. Ne e heless he solu ion could be no only
Pa e o-op imal, bu poli ically op imal as well. Fo i would no be poli i-
cally a ac i e o insis ha public-housing enan s should sha e hei gains
om p i a iza ion wi h he, gene ally be e -o , emainde o he popula-
ion. The decency o any such " eg essi e" claim would be widely ques-
ioned in Wes e n socie ies whe e esiden s o public housing a e ega ded
as objec s o social pi y and "upli ing" hem o sel - elian homeowne ship
has wide poli ical appeal.
I is in e es ing o conside how di e en his e alua ion o he app op i-
a e dis ibu ion o he gains om p i a iza ion could be in hose Eas e n
Eu opean socie ies in which mos housing is public and hea ily subsidized
ega dless o he income o he occupan . F equen ly hose wi h he mos
access o housing bene i mos , much o he chag in o he es o he popu-
la ion. Ko nai (1990a, p. 81) akes up his g udge when he calls i "abso-
lu ely unjus i ied o sell s a e-owned apa men s o enan s a a p ice ha is
bu a agmen o he eal ma ke p ice" and lambas es any such p ac ice as
"shee nonsense, especially in iew o he ac ha he same enan had o
decades been subsidized by he s a e h ough low en s." Indeed, in Eas e n
Eu ope, enu e can o en be passed on wi hin he amily.
The wo dis ibu ional guidelines p e iously applied o p i a iza ion o
public housing would ha e led o conclusions qui e di e en om hose
d awn by Ko nai. The eason is ha , in he U.K., p o ec ion o he s akes o
public-housing enan s is iewed as legi ima e. In ha case he p esence o
en subsidies as deep as in Eas e n Eu ope would ha e mean ha buye s'
ese a ion p ices would ha e been e y low because enan s would be gi -
12 K edi und Kapi al 2/1991
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164 Geo ge M. on Fu s enbe g
ing up deep subsidies by buying. The go e nmen agency ha can sa e
heses subsidies, on he o he hand, would ha e a selle 's ese a ion p ice
ha is e en lowe (o nega i e) in ela ion o he esale o ma ke alue o
he uni s. Hence, some hing close o an asse gi eaway would be he only
deal a ailable i exis ing enan s' in e es s we e o be espec ed in Eas e n
Eu ope as well.
Whe he he s akes o inside s a e iewed as legi ima e hus makes a big
di e ence o he e ms ha a e iewed as accep able in p i a iza ions. These
e ms, in u n, a e he p incipal de e minan o how as he p ocess may
p oceed.
V. Mobilizing Suppo o P i a izing Socialis Indus y
Public-housing enan s, a leas in he Wes , we e o iginally allowed
access o subsidies as a ma e o social policy. P i ileged wo ke s and man-
age s in socialis en e p ises in he Eas , on he o he hand, may be pe -
cei ed by he populace mo e as leeches on he es o socie y han as objec s
o social pi y. In ha case hose who hold s akes es ablished unde a p e i-
ous egime need no be compensa ed unless hey a e su icien ly powe ul o
block p i a iza ion e en unde he new egime. Excessi e compensa ion can
back i e because i may disc edi democ a ic p i a iza ion wi h he es o
he popula ion. Hence, espec ing cons ain (2) may no be obliga o y he e.
Fu he mo e, as al eady discussed a leng h in sec ion III. 1, he iscal indem-
ni ica ion equi ed unde (1) may be small in ela ion o he ma ke alue
which go e nmen en e p ises may achie e in p i a iza ions. This will hold
e en i a la ge isk p emium dep esses ma ke alue because ew o hose
who buy, o buy in o, go e nmen en e p ises can di e si y he ex eme al-
ua ion isks a ising du ing economic ans o ma ions.
1. Unce ain Valua ions
Unlike public housing, i is almos impossible o de e mine be o ehand
he ma ke alue o indi idual socialis en e p ises in p i a e hands. Some
en e p ises may go bank up a e he wi hd awal o subsidies and p o ec-
i e egula ions while o he s may a ac new in es men om bo h o eign
and domes ic sou ces o make hem able o compe e in he open economy.
Di icul ies o alua ion, ei he as going conce n o o b eakup, a e com-
pounded because he alues o he unde lying angible and in angible asse s
o many o hese en e p ises a e also only beginning o be es ablished in ee
ma ke s as p i a iza ion and p ice decon ol p oceed. Unde hese condi-
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 165
ions i may ake yea s be o e one can dis inguish an en i y ha is bank up
om one ha will u n ou o be a gold mine wi h a high deg ee o ce ain y.
Howe e , because o o se in app aisal e o s, he ma ke alue o
socialis indus y as a whole may be su icien ly calculable o lea e ample
oom o concessional p i a iza ion e en a e mee ing cons ain (1), and,
wi h a less o ce han in public housing, cons ain (2). Wha is mos dis-
inc i e abou p i a iza ion o socialis indus y compa ed wi h public
housing is his: E en hough he ul ima e ma ke o esale alues a e unce -
ain, a good pa o he inancial bene i s expec ed om p i a iza ion can be
ans e ed di ec ly o he popula ion a la ge. Doing so would help build
b oad suppo o p i a iza ion, as equi ed unde (3). The ques ion is how
his can be done, gi en he alua ion unce ain y, wi hou iola ing p io
cons ain s. These cons ain s include no only he obliga ion o p o ide is-
cal indemni ica ion o u u e axpaye s bu also he obliga ion o ensu e
ha hose who suppo p i a iza ion on sel ish g ounds a e, in ac , bene i -
ed wi h a high deg ee o ce ain y and do no eel duped in he end.
2. Combining Equali y and E iciency
A ma ke -based incen i e sys em o ewa ds and penal ies is spon ane-
ously, hough no ins i u ionally, disequalizing. The e a e a ew special si u-
a ions, howe e , in which equali y and e iciency s and no in opposi ion bu
in suppo o one ano he . The p i a iza ion o socialis indus y p o ides
such an oppo uni y o mu ual ein o cemen . An equal dis ibu ion o
ini ial s akes could impel ansi ion o g ea e e iciency. The model unde
which i can do so is ha o people's p i a iza ion, - a di ec p ecu so o
wha is al eady known as people's capi alism (Hanke, 1987) in a people's
capi al ma ke (see Aha oni, 1988, p. 41), pa icula ly in Wes e n Eu ope.
People's p i a iza ion would con e s a e holdings o indus ial asse s,
collec ed in a p i a iza ion us o eo ganiza ion and ma ke ing, o p op-
e y ha is, a i s , owned by he us bu hen sold o he inancial bene i
o po en ially all (adul ) esiden s o a coun y. The sha es o bene icial, bu
o he wise passi e, pa icipa ion in he us dis ibu ed a he ou se would
g ow in alue as he us sells i s indi idual holdings o he highes bidde s.
Making p i a iza ion he engine o c ea ing capi al gains o po en ially all
he esiden na ionals o a coun y would pu poli ical impe us behind i and
sa e i om he ain o un ai ness.
Blancha d and Laya d (1990) ha e add essed wo ies ha an ini ially
egali a ian weal h dis ibu ion would be des oyed by poo people's dump-
ing hei allo men s almos upon eceip , while ich people buy he sha es
12*
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166 Geo ge M. on Fu s enbe g
cheap and ge iche as hey hold hem. To limi disequaliza ion hey sugges
ha equal numbe s o sha es in a ew holding companies o p i a iza ion
us s be gi en o e e ybody, including child en, bu wi h child en ba ed
om selling hei s. While issuing ex a sha es o amilies wi h child en, like
child suppo , may be poli ically a ac i e, issuing non adable sha es o
child en would was e some o he whe ewi hal o gaining poli ical suppo
o apid p i a iza ion when i is mos needed. Fo his eason, limi ing he
dis ibu ion o sha es o all adul s o e en o all egis e ed o e s is poli i-
cally mo e e icien .
Go e nmen -asse gi eaways ha e been gi en di e en names o legi i-
ma ion and appeal o pa icula g oups. In a comp ehensi e su ey, Pi ie
(1985, pp. 47 - 49) lis s "gi ing o he public" as he i h o 22 me hods o
p i a iza ion dis inguished. He no es ha gi ing away whole indus ies,
e en hose ha would ha e conside able alue in p i a e hands, has been
sugges ed by many conse a i e hinke s. One o he mos p ominen o
hese, F iedman (1989, p. 577), has since called gi ing go e nmen -owned
en e p ises o he ci izens his own " a o i e o m" o p i a iza ion. Conse -
a i es end o iew e iciency gains om p i a iza ion as so la ge ha i is
unwise o socie y o wai o hem. While accep ing p i a iza ion by hook
o by c ook as long as i is as , hey ecognize ha unchallenged p ope y
igh s a e no likely o be es ablished on a heap o inside wheelings and
dealings ha he es o socie y iews as de auding hem o hei jus
inhe i ance om he s a e. E en wi h he mos conse a i e hinke s, a sub-
s an ially egali a ian one- ime dis ibu ion hus is a ecu ing heme.
Egali a ian appeal also unde lies p oposals o homes eading (e.g.,
Ro hba d, 1990) in Eas e n Eu ope and sugges ions o ouche (e.g., Moo e,
1990 and see D abeck, 1990, pp. 7 - 8) and social-di idend (Fa ell and
Scha es, 1990) schemes. Te ms such as people's p i a iza ion, equal-sha es
(S olpe , 1990), o socialis (Feige, 1990a) p i a iza ion ha e a simila ing.
They emphasize he es i u ion o s a e p ope y o he people a la ge. Go -
e nmen asse gi eaway has been ecommended unde hese names also in
cases whe e, in he iew o he p oponen s, hose a ge ed o acqui e owne -
ship would no ha e he money o inancing o ake up hei s akes om he
s a e o whe e equi y ma ke s did no exis un il he go e nmen 's asse
gi eaway pu equi ies in o play.
Focusing mo e on e iciency aspec s, Hinds (1990a, pp. 47 - 50) and
Dhanji and Milano ic (1990, pp.22-3 6) ha e p o ided he mos ho ough
ecen discussions o he en i e app oach and some o i s immedia e al e na-
i es. Saldanha and Milano ic (1990), Vuyls eke (1990, pp. 20 - 22), and
Hinds (1990b) ha e gi en u he hough o he o ganiza ion o he s a e's
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 167
holdings o apid p i a iza ion and o compe i ion policy p io o he
appoin men o managemen beholden o p i a e owne s a he en e p ise
le el. English's (1991) "p i a iza ion by gene al und", on he o he hand,
emphasizes inancial modali ies and he oundabou ness o he p ocess ha
makes hose who end up owning and using he indus ial asse s acqui ed
om he go e nmen 's holding us pay " ull p ice". This ou come can be
achie ed by ha ing he p i a iza ion us sell i s indus ial holdings o he
highes bidde , o eign o domes ic, as alue is b ough ou , wi h he sales
p oceeds, ne o any deb s o be se led by he us , hen passed h ough o
po en ially all he adul esiden na ionals o a coun y.
Wha Feige (1990b; 1990c) and English (1991) poin ed ou in his way is
his: I is possible o gi e away collec i ely (nego iable, bu ini ially no
edeemable, sha es in he p i a iza ion us o closed-end in es men com-
pany o specula i e alue), o he sake o equali y and b oad poli ical sup-
po , wha can and mus , none heless, be bough a ma ke p ices indi idu-
ally (sha es in he indi idual en e p ises bough , mos ly by ac i e in es o s,
om he us ) o assu e e icien alloca ion and use o capi al. By decoup-
ling he dispe sed holdings in he us om he, qui e possibly concen-
a ed, acquisi ion o indi idual-company blocks o sha es sold by he us ,
p incipal-agen p oblems o ope a ional con ol could be o e come (see
Dhanji and Milano ic, 1990, p. 26). Thus using he ini ial deg ee o eedom,
p o ided by he a ailabili y o go e nmen asse s, o egali a ian dis ibu-
ion need no ge in he way o e icien combina ion: a he , an equal s a
would p omo e he p ocess o p i a iza ion on which e iciency gains
depend.
3. Combining Fiscal and In es o Indemni ica ion
In he spi i o people's p i a iza ion, he p ocess should no s a by
ans e ing o he mass o indi iduals isks so la ge and incalculable ha
qui e a ew o hem may ealize losses on hei o iginal subsc ip ions om
which i was a ional o expec gains. This injunc ion, howe e , does no
mean ha indi idual go e nmen en e p ises o sha es in holding com-
panies o asse us s mus be gi en away jus because o bank up cy isk o
because he sha es migh u n ou o be e y nea ly wo hless once he deb s
a e se led. Ra he , he p ice can be se in such a way ha he p oceeds
expec ed o be de i ed om he sha es will mee he equi emen o iscal
indemni ica ion while s ill ge ing widesp ead accep ance o hese sha es
om he popula ion a la ge. Wha ollows holds equally o (i) di ec
p i a iza ion o indi idual go e nmen en e p ises h ough "people's
sha es" ha a e a ioned ou o as many eligible adul s as will apply o
hem, and (ii) oundabou p i a iza ion by gene al und o us .
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168 Geo ge M. on Fu s enbe g
Technically, wha is gi en away in hese ins ances is equi alen o a call
op ion whose s ike p ice is equal o he ax paymen equi ed pe sha e. I
his "op ion" did no ha e a ixed expi a ion da e, he s ike p ice would
ha e o be aised o e ime o p e en ax e osion ha would end o lock
buye s in o he o iginally-issued sha es and dep i e he go e nmen o
eceip s o p edic able alue. Ei he way, he paymen in ended o iscal
indemni ica ion would be due only upon i s esale o he s ocks, which
would be equi alen o exe cise o he call op ion in he idiom used abo e.
The buye would ecei e a new s ock ce i ica e ee o con ingen ax lien
once he ax had been paid. Some o hese ax- ee ce i ica es should also
ha e been gi en immedia ely o ins i u ions o ounda ions ope a ing in he
public in e es , and o banks in exchange o go e nmen -en e p ise deb , o
s a a ma ke .
I he alue o such ax- ee s ock ce i ica es did no each he amoun o
ax due, axable s ocks would no be sold, and no ax liabili y would be p e-
cipi a ed. In his way i would be assu ed ha hose accep ing s ocks o
p i a iza ion- und sha es could only gain, no lose, he i s ime a ound as
hey would make no down-paymen o acqui e he sha es o iginally issued.
I he alue pe non axable sha e, say in he i s 2 yea s a e issue, had
s ayed below he ax liabili y bu abo e ze o, ha liabili y could be educed
o he a e age alue in he second yea , o less, o p e en inde ini e lock-in
o axable s ocks. I would also be possible o impose a capi al-gains ax
upon sale, ha ing gi en sha es in he p i a iza ion us a cos basis o ze o.
I would no a o such a ax because i applies a he ma gin, i s yield is di -
icul o p ojec , and i is a bad habi o ge in o. S ill his shows ha i is no
di icul o hink o ways in which he commandmen , "Thou shal no lose
om people's p i a iza ion," could be qui e s ic ly obse ed while s ill
indemni ying he T easu y and u u e axpaye s.
Lack o pe sonal buying powe , hus, can be o e come and so can much o
he alua ion unce ain y. The unce ain y o ax yield ha de i es om he
unce ain y o alua ion o go e nmen en e p ises can be educed mos eas-
ily i he e is an all-encompassing, and hus maximally di e si ied, p i a i-
za ion us . Se ing ax liabili y on a single- us sha e will help achie e
iscal indemni ica ion wi h a much highe deg ee o ce ain y han ixing
di e en specula i e ax amoun s o sha es in less di e si ied us s some o
which may become wo hless. The ques ion o how p ope ly o mo i a e he
uni a y go e nmen p i a iza ion us - o a he he se e al compe ing
di es i u e-managemen companies i should commission o sell he us 's
a ious holdings and liquida e i - need no conce n us he e. Once he e is a
clea manda e o apid di es i u e, such ques ions can be submi ed o he
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Pa e o-Op imal P i a iza ion o Gaining Poli ical Suppo 169
compe en ad ice o in es men houses and unde w i e s in London and
New Yo k.
4. Vouche s o Deal wi h Mone a y O e hang?
P i a iza ion could be used o educe mone a y o e hang in some o he
socialis sho age economies by ge ing people o pay o sha es igh away.
To p oduce he mone a y con ac ion equi ed o a oid gene al in la ion
when p ices a e decon olled, he go e nmen could use he p oceeds o
epu chase public deb om he s a e banking sys em. The en i e ope a ion
hus would end up sh inking he inancial asse s and liabili ies o he s a e
banking sys em and con ac he money supply by subs i u ing go e nmen
eal o mone a y asse s in p i a e po olios.
Auc ioning o sha es o domes ic esiden s is o en c i icized as a o ing
hose who managed o en ich hemsel es h ough abuse o powe unde he
o me , socialis egime. Ye he c i ics a ely o e al e na i e solu ions
o he p oblems p esen ed by mone a y o e hang and ill-go en gains.
Ne e heless, insis ing on cash in ad ance would ule ou combining he
allu e o equali y wi h he bene i s o e iciency in gene a ing popula sup-
po o p i a iza ion o ans o m socialis economies.
In p epa ing o Ge man mone a y union ea ly in 1990, he cen al bank
de eloped plans ha would ha e combined ( he a oidance o ) mone a y
o e hang and "people's p i a iza ion" in an in e es ing way. Residen s o
Eas Ge many would ha e been gi en buying powe o e sha es in he Eas
Ge man en e p ises o be p i a ized in lieu o c ea ing a mone a y o e hang
h ough con e sion o Eas (Ge man) Ma k in o DM a an undesi ably high
1:1 a e. Al hough his plan e en ually came o naugh , i is wo h desc ib-
ing in some de ail.
To p e en con ibu ing o aising he money balances o Eas Ge man
esiden s well abo e hose hey would be expec ed o hold in iew o hei
expec ed income and new po olio-di e si ica ion oppo uni ies, he Ge -
man Cen al Bank (Deu sche Bundesbank, 1990) p e e ed making he mon-
e a y exchange a a 2:1 a e. Then 1 Eas Ma k would command only 0.5 DM
immedia ely, bu his exchange would be swee ened wi h low- in e es bea -
ing ce i ica es o he balance. These i e-yea ce i ica es-o -deposi (CDs)
would bea a below-ma ke in e es a e o a ound 3%, and a ace alue
equal o ano he 0.5 DM pe Eas Ma k exchanged. They would be edeem-
able in s ock o o me ly go e nmen -owned en e p ises o a leas i e
yea s, s a ing soon, a e issue, o in cash (a pa ) wi h he p i a iza ion
und, bu only a e 5 yea s. In he la e case, he p i a iza ion und would
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170 Geo ge
M.
on Fu s enbe g
d aw on he cash asse s al eady accumula ed om he sale o sha es in indi-
idual en e p ises o g oups o ac i e in es o s and bo ow in he capi al
ma ke s as needed o edeem in cash any o he CDs p esen ed.
To di ec edemp ion o s ocks, an equi y-con e sion p emium would be
g an ed implici ly by allowing he CDs o be used a ace alue o pu chase
s ocks a ma ke p ices well be o e he end o he i e-yea wai ing pe iod
ha would apply be o e he e could be cash edemp ion a pa . Sha es in
o me ly Eas -Ge man go e nmen en e p ises would i s ha e o be
b ough o ma ke by selling o he highes bidde s, wi h only a po ion
ese ed o edemp ion o CD claims a ising om he con e sion o money
balances by Eas Ge man esiden s. These edemp ions would hen ake
place a he p ices es ablished in he unde w i ing.
Wi h he Bundesbank plan ejec ed in a o o 1:1 exchange o mos o
he money balances o Eas Ge man esiden s, p i a iza ion ceased o be a
ma e o he people. Th ough he sp ing o 1990, he hen s ill Eas Ge man
" iducia y ins i u ion" (T euhandans al ), o p i a iza ion us , ba ely
mo ed, in ending o hold back any p oceeds om p i a iza ion o subsidize
ope a ing de ici s and o es uc u e he us 's as holdings. In his way,
public-sec o was e, inside ea he bedding, and poli ical manipula ions
could ha e con inued o a long ime.
The iducia y's law and managemen we e changed in July 1990. The new
law equi ed he immedia e b eakup o he socialis combinâ es in o sha e
companies o limi ed-liabili y companies ha would a i s s ill be wholly-
owned by he us . Es ablishing such companies in ol es ixing hei asse s
and liabili ies and hen p oceeding o an examina ion o he en i e business,
managemen and accoun ing sys ems being ins i u ed. Passing his exami-
na ion allows he ini ial balance shee s and income s a emen s, ha o m
pa o he p ospec us o p i a iza ion, o be app o ed.
Since July 1990, he us has made la ge wo king-capi al loans o he
businesses i owns, many o which would o he wise be ailing. The en e -
p ise losses inanced by deb claims aken on agains he us 's asse s sub-
s i u e in pa o unemploymen insu ance and ela ed bene i s ha would
o he wise ha e o be paid om he gene al budge o he social us unds.
Keeping ailed go e nmen en e p ises going is an indica ion ha iscal and
pe sonal indemni ica ion ha e won ou o e people's p i a iza ion. Had an
expec a ion o he la e been allowed o become conc e e and a ac i e o
he Eas Ge man public, i could ha e kep compe ing uses o he p oceeds
om p i a iza ion in check by coun e balancing bo h he iscal claims o he
s a e and he pe sonal claims o s akeholde s in go e nmen en e p ise.
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