The Transformation of the Property Regime in Croatia and Slovenia
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View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by The Australian National University The Transformation of the Property Regime in Croatia and Slovenia Željko Ivanković A thesis submitted for the degree of Doctor of Philosophy of The Australian National University November 2009 Declaration I certify that this dissertation is product of my own work and that to the best of my knowledge all sources used have been properly acknowledged. Acknowledgments From 2006 to 2009 I attended a number of philosophical seminars at the Australian National University. The method of analysis and discussion, which differs from the form of discussion that prevails in the seminars of continental philosophy, was revealing to me and refreshing; this helped me to sharpen the discipline and consistency of my investigation. However, a constant discussion with my supervisor Jeremy Shearmur, his objections and positive criticism of my ideas, contributed to the improvement of my research more than anything else. I do not want to exaggerate, but I do not have adequate words to express my gratitude to Jeremy’s persistence in getting me to refine my ideas and to explain how much I appreciate his patience in the improvement of my English writing. Particularly important were Jeremy’s explanations as to how a reader might interpret my insights and conclusions, which would be against of my original intentions. Jeremy’s advice as to how to avoid the trap of ideological interpretation were really invaluable. It was a great encouragement for me when Geoff Brennan, a member of the panel, supported my choice of a property rights approach and later advised me how to sharpen my explanation without going into unnecessary digressions. Contrary to my belief that I was fully familiar with the history of self-management in the former Yugoslavia and with the process of privatisation, Robert F. Miller helped me to fix mistakes and introduced me to important facts about socialism across Eastern Europe. I would like to thank my friends from Croatia, Slovenia, Bosnia and Herzegovina, Sweden, Australia and the USA who supported my investigation, provided me their opinions and helped me to collect sources and literature. However, there is no market which could value the support that I received from my family, my wife Marija Legat, and my children Franc, Jura and Veno. This thesis is dedicated to them and to my parents who passed away shortly before I concluded my work. Abstract The transition from socialism in Eastern Europe during the last decade of 20th century could be rightly observed and analysed as a chapter of the great battle between ideologies such as liberalism, libertarianism, socialism and communism, or as a competition between the political programs of liberal democracy, social democracy, orthodox socialism and so on. Both politics and ideologies use such terms as a “free market” or “fair trade” routinely. In contrast to this approach a philosopher doesn’t take these ideas for granted; “freedom” in “free market” and “fairness” in “fair trade” are complex concepts that should be analysed, their meaning put in a context, understood and explained. The same is true of notions of property, private property as opposed to public property and of the definition of a competitive market. These concepts are the subject of my research; how the ideas of property and market were understood and implemented during the process of transformation of socialism in Croatia and Slovenia. The intention of this research is to be a positive analysis of the transition in Slovenia and Croatia. My criticism that the distinction between private and public property was not entirely adequate in the context of transition, doesn’t imply that the process of privatisation of socialist property should have been avoided. Rather I found that the distinction between private and public property was analytically less adequate than the distinction between individual and collective property and open access for the explanation of the transformation of the property regime inherited from socialism (self-management) in Croatia and Slovenia. This later distinction was based on the concept of the costliness of property, which was initiated by the work of Ronald Coase and developed by Yoram Barzel. The concept of the costliness of property enabled me to conclude that privatisation in Croatia shared some substantial characteristics with initial appropriation of nobody’s 1 property and to understand why ownership arrangements with a dominant shareholder were favoured. Privatisation in Slovenia represented an evolution of a property regime while the dispersed shareholding that included employees and former employees was preferred. The finding that the exchange of goods and services is influenced by an implicit norm of behaviour (customary norms, or moral norm or even legal norms) and the insight that exchange would even fail to occur without an implicit assumption of norms on the part of all sides in an exchange, doesn’t amount to the imposition of a universal absolute norm of “fair trade” by the government. This would be an ideological interpretation of my arguments. The development of market institutions depends on numerous factors and influences, ideologies and political programs among them. My description of the transition in Slovenia and Croatia takes into account the influence of interest groups, political parties and also the ideologies which they used to legitimise their intentions. However, my focus is on two theoretical explanations, the neoclassical and the property rights explanation of a market economy that contributed to the formulation of the policies of privatisation in Croatia and Slovenia and participated in the creation of expectations about what would follow from future arrangements. Although I believe that my conclusions are clear and precise I feel obliged to emphasise that the criticism of neoclassical view is by no means a plea for governmental regulation as a solution for shortcomings of a particular market. Rather, I would like to point to the need to take institutions, traditions and cultural factors seriously and also that the adequate functioning of a market economy itself depends on institutions and cultural factors. Therefore I expect that my thesis, over and above its value as a detailed treatment of privatisation in Croatia and Slovenia, should be a contribution to the understanding of basic concepts of property and market and to the explanation of the development of market institutions. Contents Chapter I Privatisation and the transition from socialism: two approaches 9 1.1 Two quote 10 1.2 Two theories 11 1.3 Two paths 14 1.4 Two models 18 2.1 Preliminary comment 19 2.2 Political and economic spheres 21 2.3 Ideas and interests 24 2.3.1 Experts 24 2.4 Theory and reality 26 2.4.1 Normative and descriptive theory 26 2.4.2 Unintended consequences 28 2.5 Brief summary 29 Chapter II The traditional understanding of property 33 1.1 The concept of property 34 1.2 The components in the bundle 35 2.1 What makes an owner? 37 2.2 Private vs. public 39 2.2.1 Terminology 42 2.2.2. Resources and the regime of their use 43 3.1 Privatisation and initial appropriation 45 3.2 Lockean principles of appropriation 46 3.2.1 Labour and the spoliation proviso 47 3.2.2 The sufficiency proviso 48 3.3 Lockean principles and privatisation 49 3.4 The distinctive feature of initial appropriation 50 3.4.1 Initial allocation and initial appropriation 51 3 4.1 The neo-classical view of transition 52 4.2 The Nirvana scenario 53 4.3 A critique of the neoclassical scenario 54 4.4 Privatisation and initial appropriation 55 5.1 Basic position 57 Chapter III An alternative understanding of property 59 1. The new understanding of property 61 1.1 The costliness of property 61 1.2 Three characteristics 62 2.1 The Problem of Social Costs 64 2.2 The Coase Theorem 66 2.3 Two lines of interpretation 67 2.4 Short presentation of the examples 68 2.5 Transaction costs 70 2.5.1 The neoclassical understanding 71 2.5.2 The property rights understanding 73 3. The new understanding of market 74 3.1 Markets with costly property rights 75 3.2 Market transactions 76 3.3 The genesis of the rules of exchange 77 3.4. Short summary 79 4. 1 Individual and collective ownership 80 4. 2 Collective ownership 82 4.3 Ownership structure of the firm 83 4.4 The evolution of property regimes 85 5. Concluding remarks 87 Chapter IV Self-Management and Social Ownership 89 1. 1. Communal ownership of workers’ cooperative 91 1.2 The myth of self-management 91 2.1 The basic concept and key controversy 93 2.2 For and against self-management 95 2.3 The beginning of self-management 97 2.4 Directors and working councils 99 2.5 Towards “market socialism” 100 4 3.1 Theoretical analyses 101 4.1 The emergence of the management class 104 4.2 Banking under socialism 105 4.3 The Agreement Economy 108 5.1 Performance 111 5.2 Summary and brief comment 111 5.2.1 Ownership structure and the self-management legacy 112 Chapter V The Privatisation Debate 115 1. The latest reforms within socialism 115 2. Public ownership, private ownership and “no-ownership” 117 3. Methods of privatisation 121 3.1 The transferability of property rights 123 3.2 Tunnelling 124 3.3 Elimination of incumbent owners 125 4.1 The market and the role of the state 128 4.2 The market without information 132 4.3 Macroeconomic conditions 135 5. The moral issue 138 6. Short conclusion 139 Chapter VI The Process of Privatisation I 143 1.