53827 Public Disclosure Authorized
SOCIALIST ECONOMIES UNIT • COUNTRY ECONOMICS DEPARTMENT • THE WORLD BANK Conference on Privatization and Ownership in Eastern and Central Europe
n June 1:(-14 a conference on Indicative of the wide range of op sides by advocating particular options,
Public Disclosure Authorized privatization and ownership tions discussed was the paper pre but rather pointed out the reasons O changes in Eastern and Cen pared by two World Bank economists behind the positions. The essence of tral Europe took place in Washington, Farid Dhanji ofEM4CO and Branko their paper is provided below. organized by thE: European Depart Milanovic of CECSE. They offered ment of the World Bank and funded an exploration of the environment The plethora of divestiture options by the Research Committee of the for divestiture in Eastern and Central does not simplify choice. From an Bank. Those attending included Europe and examined the advan individual perspective the choice of a prominent academics and tagesJdisadval!tages of the many preferred model will vary depending policymakers from each Eastern and "models" of ownership change under on the weight given to possible objec Central Europelln country, partici discussion. The authors did not take tives and the appreciation {or dis- pants from othey' countries and from the GECD and E]~C Commission. The agenda consisted ofar. overview of the conceptual issue~:, ofpdvatization and What's inside... a review of possible ,trategies. This
Public Disclosure Authorized was followed by cDuntl"ypresentations The Road to a Free Economy The Bank'. Eastern and Central from Hun !;ary , Pola'ld, Yugoslavia, European Program Czechoslovakia and Bulgaria. The Professor Janos Komai's new book second day's agenda began with pre provides his vision ofthe road to a free The World Bank's ECEP is an initia sentations on the exp'!riences of Chile economy in Hungary. For him this is a tive originally designed to deepen un· and Mexico, where wlde-ranging significant departure; although he is derstanding of the problems confront. privatization p1'ograms have been one of the most eminent writers on ing economies in transition from cen· carried out. Discussion included socialist economies, this is the first tral planning to market institutions time in 33 years that he has put forth (page 7). analysis of worker Sf If-management a comprehensive economic policy pro in Yugoslavia and the impact ofprofit posal (page 3). Quotation ofthe month (page 8). sharing scheme~; in a number of in dustrial countries. Legal and man Algeria: SequencingLiberalization On the World BankJIMF Agenda agement issues and the practice of (page 9) privatization were also covered in The Algerian economy suffers from panel discussion~,. inefficient resource allocation and a Book and Working Paper Brier. distorted incentive structure, legacies (page 10) Two lunch;~on sessioLs offered an op ofover 20 years of rigid central plan ning. The government's medium term Public Disclosure Authorized portunity to he:~r "f:'om the inside" Letters to the Editor (page 11) objective is to raise economic perfor about the Italian and Kew Zealand mance by sustained progress towards experience, witn presentations by BibUography or Selected Article. a market-oriented economy (page 5). (page 12) Professor R Prodi, fermer President of IRI, and Roger Douglas, former Minister of Finance dNew Zealand.
Volume 1. NumbE1r 3 June 1990 Socialist Economies in Transition The World Bank/CECSE missal) of practical difficulties in objectives of reform programs will be less the strategies for financial sector implementation. In thisrespectthere considerably diluted ifthe new mar development and privatization are is no "correct" answer about how to ket economy is based on an extensive coordinated, weaknesses in the former privatize. From a group perspective, network of special privileges or other may reflect ad hoc and perhaps hap all decisions are highly political, me defenses against efficiency. Moreover, hazard responses in the latter. The diated through still-emerging pro experience elsewhere testifies to the activities of Privatization Offices cesses, invoking strong interests and difficulty of removing concessions once should, in this regard, be subordi lobbies, and with a genuine possibil given. Itis imperative, therefore, not nated to this wider perspective. ity of popular backlash in societies only that the privatization process be traditionally sensitive to wide diver transparent and absolutely above Finally, governments will continue gences of wealth. reproach, but that the rules of the to need to pay attention to the major "market" game are also clearly ity of state enterprises that will take Insofar as privatization strategies enunciated and adhered to in divesti a long time to be privatized or are emerge from this process, certain tures. otherwise left as government wards. questions deserve continuing reflec Encouraging a market orientation tion. Should the process be fast or Divestiture will be an integral aspect and fostering responsiveness to eco slow? Does the state need the rev of the development of financial sec nomic signals in these enterprises enues from privatization? Should en tors. The continuing evolution of will present a major challenge. The terprises be demonopolized before banking systems, pension funds, in wide variety of incentive devices being privatized? Should enterprises surance companies, securities mar management contracts, leases, bo be financially and technically re kets, etc., will depend on the decisions nuses tied to performance-should structured before being privatized, or concerning the depth, scale, speed be explored in this context. Equally can this be left to the new owners? and mechanisms of privatization. as important, governments will need How can ownership arrangements be There is great benefit in considering to insure that there is no discrimina instituted where the new owners take the two together. In particular, a tion in favor of state enterprises (credit an interest in performance? pure "case by case" approach to allocation, state orders, looser finan privatization may well overlook sub cial discipline), as against the rules These questions invite multi-dimen stantial opportunities to strengthen applied to the developing private sec sional, not simple, answers. and construct a modern and sophisti tor. • Divestiture models are not exclusive. cated financial system. Indeed, un- Itmay be perfectly possible, in fact, to give workers and managers a stake in their firms, give away a proportion of Milestones of Transition enterprise equity to thegeneral popu • North and South Yemen declared The ruling council of the General lation (either directly or through in their unification into one state on May Agreement on Tariffs andTrade agreed stitutions), and obtain revenue for 22. Institutionalizingthe union is well to Soviet observer status after Wash the state through general sales. These under way: on May 26, the two parlia ington and Tokyo dropped its objec "combination" options are beginning ments were merged into a single 301 tions. However, the Soviet delegation to surface in the privatization de member assembly; the central banks at GAIT is not allowed to take part in bates and deserve considerably more are in the process of merging; the riyal the Uruguay Round negotiations. elaboration and defense than they and the dinar are now legal tender ata The Soviet Union is interested in be have thus far achieved. YR26=SYDl rate; ajointcurrency will coming a full member ofGAIT. be introduced by the end of the year; Whether the privatization process is and the first joint budget is being pre • The Supreme Soviet, the standing pared. A multiparty system of govern parliament of the Soviet Union gave fast or slow is really only relative. mentis envisaged, with elections in 30 President Gorbachev a mandate on Even in thebest scenario, itis unlikely months. In the meantime, a loose fed June 13 to speed the introduction of a that the most state assets can be eral system will enable the North and more market-oriented economic sys divested in less than a few years. The South to smooth differences in laws tem. Gorbachev may use his power of near complete unpreparedness of the and regulations. Yemeni unification, presidential decree - overriding both legal, financial and fiscal environ with amarketofl2 million people, win the parliament and the government ments underpin this expectation. improve the climate for foreign invest to de-nationalize state property, draft ment: market-opening moves in the anti-monopol y controls, establish joint During this period when firms are South, as illustrated by the new in stock companies and a stock exchange, readied for divestiture, it may be ex vestment law in March, will be con reform the banking system, and pro solidated. vide new legal status for small busi pected that governments will be be nesses and entrepreneurs. Gorbachev sieged by requests for exemptions, • The Soviet Union, stepping up its will likely go ahead in July with a concessions, protection etc., from firms drive to integrate into the world series of presidential decrees on insti about to be privatized or from new economy, took a seat as an observE'r at tutional reforms, and by autumn the owners. It will be extremely impor GAIT in May for the first time s:ince government is expected to produce a tant to resist these pressures. The the 96-country trade forum was con legislative package to supplement improvemen t in overall economic vened more than four decades ago. these decrees. performance that is one ofthe major
June 1990 2 Volume 1 • Number 3 Socialist Economies in Transition The World Bank/CECSE The Road to a Free Economy
rofessor ;Janos Komai's short over for a couple of weeks from, say, Schumpeter mold) endowed with the book published recently ("The the World Bank, may fall under the technical and managerial know-how P. Road to a Free Economy spell of such simulations"). "Market involves complex cultural and insti Shifting from a Socialist System: The socialism", therefore, is an impossible tutional changes (Komai calls the Example of Hungary, W.W. Norton & goal for him; not because social sector process "embourgeouisement") that Company, New York/London, 1990, managers are corrupt or incompetent, cannot be accelerated beyond a cer 224 p.) provides Kornai's vision ofthe but because the culture within which tain pace. The reason is that such an road to a free economy in Hungary. they operate has not prepared them entrepreneurial class has to grow "or For him this is a significant departure; - nor can it ever prepare them - to ganically," and that "mere imitation although heis one of the most eminent behave as entrepreneurs. of the most refined legal and business writers in this generation on socialist forms of the leading capitalist coun economies, this is the first time in 33 This leaves only three options for tries is not sufficient to ensure their years that he has put forth a compre improving efficiency: general application" and may indeed hensive economic policy proposal. It • unrestricted entry of new pri amount to "give the 'big leflp' yet was published first In Hungary before vate firms; another try." the free electi(lns, when its potential • priatization of existing social influence was at :its height. As an sector firms; Another constraint on the speed of indication of the exhortative tone of • abandonment of fruitless at conversion is financial. First, Komai the book (very different from his other tempts to turn social sector managers maintains thatthe state cannot afford writings), it was published in Hun into entrepreneurs and search instead to "squander" social property (both garian with the th.le "A Passionate for a second-best approach for con productive assets and housing stock) Pamphlet in the Cause of Economic trol. by giving itaway or by selling it. below Transformatie,n" . "realistic prices" (replacement value). For Kornai, these are not alternatives. In addition, he wants to transfer own The discussion is organized under The system would be transformed into ership to entrepreneurs who are will three broad headings - ownership, a "dual economy" initially still domi ingand able to assume financial risks stabilization and political economy. nated by tightly-controlled social sec from the outset. Since the Cre.Eltion of In all cases, Kornai brings the reader tor firms, with a gradual transition to tangible wealth takes time, frle pro firmly back to basic economic prin privatization until at some point the cess of privatization is de term; ned by ciples. private sector dominates and sets the ground rules. Ownership and privatization On the issue of ownership, he calls for Kornai starts from the proposition full liberalization of private sector that, with few exception, trying to activities (entry and exit, pricing, make the social (st.ate-owned) sector contracts, employment, currency ex efficient would be a hopeless task, for change) combined with strict finan a number of systE~mic reasons. For cial limits on public enterprises. Al in stancE~, sinct; managers are part ofa though he favors privatization, he unified network of senior managers argues that the process sh()uld be and government administrators, both careful and that all transactions decentralization and effective hard should be strictly at market prices. ening of the budget constraint of the In-between solutions to the owner firm are unalLtainable. As for any ship problem - such as holding administrator operating in a hierar companies, "cross-ownership" be chical environment, the size of the tween public companies, or labor operation under his control and the managed firms - are greeted with satisfaction of his constituency (su skepticism. pervisors and subordinates) will al ways be the primary motive for ac To arrive at an efficient private tion. Kornai is "fed up" with the ownership system, an entrepreneur "practice of simulation" of capitalist ial class has to emerge. This currently institutions grafted upon a social does not exist outside the small-scale "", ...JI sector, such as "simulated price for service and crafts sector, and is rare mation, capital markets or stock ex within this sector. The emergence of a "Jk. changes." ("Only westerners who hop vibrant entrepreneurial class (in the i From the Soviet magazine KrokodU
Volume 1. Number 3 3 June 1990 .__._------_._------_._--...... _- ...------_...,"
Socialist Economies in Transition The World Bank/CECSE
the speed with which potential "tan sector like the civil service until the public en terprises, a unified exchange gible investors" (Kornai's term) can private sector is strong enough to rate with currency convertibility, and build up the necessary financial as dictate the rules. He suggests that liberalized foreign trade. But Kornai sets. Implicit in this consideration is social sector operations be made fully includes some fairly unconventional another proposition: portfolio inves "transparent" and thatfirms be made proposals in the area of taxation, ar . tors (investment funds, insurance accountable to and controlled by the guing against a personal income tax funds, pension funds etc.) may have parliament, not by other branches of (because of its intrusiveness) and a supportive role, but they should not the government administration. againstanyprogressivity in tax rates. be the primary agents cfprivatization. Managers should be appointed, their As to the latter, he continually ex Kornai explicitly rejects the notion mandate and powers carefully cir horts Hungarians to change their that society should distribute credits cumscribed, and their performance thinking-to understand that it is to "impersonal private ownership" or reviewed and rewarded as for any good for society ifa person works hard through the "intangible stock market." other senior civil servant. and makes a lot of money. His pre Instead, only "hard loans" to stake ferred tax system would include a holders willing to offer their personal Surgery for stabilization single-rate VAT with universal cov property as collateral. erage, a linear payroll tax, a flat-rate Kornai distinguishes between an profits tax, and a uniform tariff. Because of these constraints, Kornai initial "package" for "stabilization" rejects the notion that privatization "surgery" in his term - (to be eom The following elements make up the "should be governed by the guiding pleted within one to two years) and a core ofKornai's longer-term transition principle of speed," which he calls framework for longer·term develop· strategy in pragmatic combination: "irresponsible." In the final analysis, ment. He argues that the execution of • run social sector firms by largely Kornai suggests that an "organic some required tasks should not be relying on principles of efficient ad transformation" may take over two prolonged and that they cannot be ministration of public agencies; decades or more. Until such time, a accomplished by small steps. Instead, • I=arry out privatization of social "dual economy" would prevail. these measures mustbe taken in "one sector firms at a pace at which the stroke". private sector can acquire them, given On the basis of the premise that the its growth of managerial know-how social sector firms really "belong to The "treatment" advocated for stabi· and risk capital. The goal is ultimately the sphere ofgovernment" and "should lization is quite traditional: lower to dispose of all those social assets the be treated accordingly," he sketches a inflation, a balanced budget, credit private sector would use more effi· second-best approach: run the social restraint, strict wage disciplin1e in ciently. • carry out privatization of social sector housing stock atapace at which private households can acquire it. The Economic Transformation in Hungary and Po/and goal is to privatize eventually the whole existing stock. The lat.est issue ofEuropean Economy (March microeconomic implications by A.L. Hillman • invite in foreign investors (for 1990, Number 43) is dedicated to the topic of • Tax reform, trade liberalization and indus economic transformation in Hungary and Poland. trial 1'Catrw::turing in Hungary by D.M. Newbery new ven tures and acquisition ofshares (The quarterly i8 published by the Commission of • The elementoS of policy for rapidly redretl8 in existing firms). the European Communities, Directorate-Ceneral ing the Hungarian balance of paymentoS by 1. • switch from emergency mea for Economic and Financial AlTairs). The issue Szalksi sures for social stabilization to a com· focWlcs on a selection of studies by a group of • The reform of the Hungarian financial independent expertll who convened at the initia system by I. Szekely prehensive social security system. tive of the Directorate-General for Economic and • if possible, draw trade unions Financial AlTairs as part of PHARE (Poland and Papers on Poland into a pattern of "constructive coop Hungary Aid foR Economic reconstruction) task • Reform and budgetary policics in Poland, eration of the trade unions with the force. 1989-90 by S. Comulks state and the private sector." • ProspectoS for privatization in Poland by 1. The work of the independent expertll was coordi· Cl'OSfeld nated by Richard Portes, Director of the Centre • Energy policy and the environment in Po· The final section of the book on politi. for Economic Policy Research, London. Four land by C. Hughcs cal economy admits that the transi meetinga in Bruasels (the latcst convened in • Internal and international aspects ofmon tion process will be long and hard, February 1990) allowed the participantoS to com· etary disequilibrium in Poland by D.M Nud ment on early dralls of their respective papen • State-owned enterpriscs in Poland: taxa and Kornai tries to identify potential and exchange views On current developmcntoS in lion, subsidization and competition policies by supporters and antagonists. Many Poland and Hungary. The papers sclected for M.E. Schaffer groups have much to gain; the biggest publication in the March issue of European sources of potential opposition are Economy are: Paper common to both countrle. employees in the state sector,the poor, • Policy issues in the design of banking and Papers on Hungary financial systems for industrial finance by J. and the newly unemployed. As he • Subsidy reduction in the Hungarian Corbett puts it in his personal postscript: "I economy by I. Abel know the tremendous forces working • Reformofenterprise regulation in Hungary The introduction to the isaue was written by against the realization of these pro from tutelage to market by P.C. Hare Hichard Poncs. • Macroeconomic policy in Hungary aod itoS posals. But still, the proposal has a chance." •
June 1990 4 Volume 1• Number 3 Socialist Economies in Transition The World Bank/CEeSE Algeria: Sequencing Liberalization
lgeria faces tough challenges eluding formulation of precise fiscal reductions in treasury capital subsi in the years ahead. The and monetary targets. While refonn dies and by the creation of a body to A economy suffers from ineffi is far from complete, progress to date, oversee foreign borrowing. An ongo cient resource allocation and a dis together with firmer oil prices, has ing program of financial restructur torted incentive stmcture, legacies of significantly improved recent ing will help ensure the viability of over 20 years of rigid central plan macroeconomic performance. autonomous enterprises. Under a ning. The result has been inflated law passed recently, the central bank resource requirements to sustain Institutional reform has concentrated has been given a clear mandate to growth _. throllgh the 1970sand early on developing a legal framework to manage monetary policy. To assure 1980s, for example, investmentofover support decentralized decision-mak independence, the central bank gov 40% of GDP produced only about 6% ing. Public enterprises and banks ernor is now appointed for a sil(-year average annual growth. Against the have been granted autonomyandtheir term and can be removed only with background of high population ownership concentrated in eight great difficulty in the interim. Finally, growth,job creation has been insuffi holding companies. Financial disci agricultural reform has extended the cient to stave off high under- and pline has been tightened by sharp private sector's role by breaking up unemployment. High resource re quirements ha">'e caused public sector deficits, necessitating large transfers from the private sector. Over time, Les Fonds de Participation· persistence of this flow imbalance under pervasive price controls has Holding companies have been widely state's fiduciary agent, each holding created a stock imbalance in the form discussed in the context of transition in company has a mandate to oversee the of a "money overhang." While high oil Eastern and Central European coun financial health and strategic direction prices previously masked growing tries. Yet Algeria has moved further of those public firms within its portfo economic inefficiency, the 1986 col along this road by transferring state lio. Fonds representati ves sit on share holder councils (Assemblee Generale lapse of world petroleum prices pro ownership to profit-oriented holding companies. Undertheirreform program des Actionnaries), which approve 'busi duced large external deficits for the the Algerian authorities have distrib ness and financing plans drawn up by first time, worsening .creditworthi uted the shares of newly autonomous firm staff. In the past, these plans were ness. The consequent import com banks and firms among eight newly drafted by line ministry officials and pression precipitated a domestic cri established holding companies or Fonds approved by the now defunct Ministry sis - characterized by stagnating de Participation. Initially, each com of Planning. The Assemblee can also output, falling per capita consump pany is specialized in a particular sec decide to issue stock, distribute divi tion, and risinl; unemployment - all tor. For those enterprises within its dends, and restructure, or even dis of wh ich highlighted the sector, each Fonds has been given the solve, the enterprise. The Assemblee macroeconomic weakness of the largest portion ofshares, al though not a elects a majority of the firm's board (Le country. majority. While the Fonds remain pub Conseil d'administration), which lic, they have been given a mandate to chooses the managing dirE!ctor maximize their financial rate ofreturn, (Directeur General). While the ho:.ding Recent reform initiatives and compensation to holding company companies exercise oversight through managers is tied to the performance of the council and board, they are exp.!(ted In response to t.he onset ofthe crisis in their share portfolio. To establish to leave day-to-day firm manage:nent 1986, the authorities initiated major market val ues, enterprise shares can be to the Directeur General and his :~taff. institutional reform, accompanied traded among holding companies. To more recently by policy and incentive prevent one Fonds from dominating a While it is too early to evaluate their reforms. Institutional reforms, aimed particular firm, however, trading is impact, the Fonds represent a key a!!pect at decentralizing economic decision subject to a ceiling of 40% ownership by of the authorities' determined effort to raise public enterprise efficiency. To making, began with passage of legis any single company. With an eye to broadening the capital market, banks complement the autonomy process, lation in the agricultural, financial and firms can also hold shares. Treasury finance for new enterprise and industria:1 sectors in mid-1986. investment, traditionally available al Despite economic hardship and the The authorities expect the Fonds to most automatically, has been elimi social unrest tb.at f,)llowed, the drive isolate enterprises from the direct in nated. Public firms will be forced te) line for economic refonn accelerated. In nuence of sectoral ministry bureaucrats up credit from the, now autonomous, 1989, the government embarked on a who have traditionally exercised sub banking sector. program ofmacroeconomic policy ad stantial administrative control. As the justment and incentive reform, in-
Volume I, Number 3 5 June 1990 Socialist Economies in Transition The World Bank/CECSE all 3,400 state farms into 80-hectare close to zero. Under a new law, the however, would require a large dose cooperatives. prices of some 30% of output have of external resources, unlikely in the been freed, but the majority of prices Algerian case. Moreover, the country Political liberalization, following the are still subject to controls. has maintained a good external credit establishment of a new constitution record that could be endangered by a in 1989, has accompanied institu Future directions rapid increase in foreign borrowing. tional reform. Independent trade Political constraints also weigh unions have been sanctioned and the The government's medium-term ob heavily in Algeria; theauthorities may right to strike formally recognized. jective is to raise economic perfor have viewed the current political cli Political parties have been legalized mance by sustained progress towards mate as ill-suited to a "big-bang" ap and elections planned, beginning with a market-oriented economy. Com proach. municipal elections. In the June 1990 petitive market pricing will convey municipal elections the ruling Front the proper scarcity signals upon which Phased liberalization de Liberation Nationale was defeated decentralized decisions can be bused. by the Islamic Salvation Front. These To reach this goal, additional insti Despite prudence dictated by eco changes have etTectively ended the tutional and incentive reforms are nomic and political realities, the need 25-year political monopoly ofthe rul necessary, along with continued policy for tangible progress requires imme ing party. adjustment. diate action in priority areas. While the authorities are still formulating a Accelerating economic reform efforts, On the institutional side, public en liberalization sequence, the main the authorities have improved the terprise restructuring and financial structural feature of Algeria's macroeconomic policy framework, sector reform stand out as near-term economy, its access to substantial with the goal of restoring internal priorities. The World Bank is cooper hydrocarbon rents, could be used to and external balance. Compared with ating with the authorities in these underpin a phased liberalization. If the recent past, macroeconomic per areas with recently approved Techni backed by tight fiscal and monetary formance improved considerably in cal Assistance and Pilot Industry policies, this strategy could reduce 1989, under the influence ofhigher oil Restructuring Loans. Moreover, a the risk of excessive inflation and prices and the reform program. Led financial sector reform loan and a develop private competition to public by a rebound in agricultural output, cement industry restructuring project enterprises. GDP grew by a modest 2.8%. The are in preparation. budget deficit fell to under2% ofGDP The central idea is the rapid introduc and the current account deficit was While decentralization is well ad tion of competitive foreign exchange cut almost in halfin dollar terms. Per vanced, the money overhang and lack sales to public enterprises. Under capita consumption grew for the first of competition among public enter tight fiscal policy, hydrocarbon rents time since 1985. prises complicate the sequencing of accruing to the Treasury from the price liberalization. At one extreme, ensuing real devaluation could gen In 1989, the policy dialogue with the a one-shot liberalization of all prices erate budget surpluses, reversing the World Bank and IMF intensified, could produce immediate efficiency historical private sector resource culminating in Algeria's first-ever gains; but this is likely to cause sig drain and absorbing liquidity. Against IMF purchases and World Bank ad nificant short-term pain in terms of a background of private enterprise justment loan. Establishing strict enterprise bankruptcy, lost output, development and reduced liquidity, fiscal and monetary targets helped and increased unemployment. On gradual removal of remainingdomes restore budgetary balance and slow the other hand, very gradual price tic price controls would carry a smaller growth of money and credit. Recent decontrol, while likely to entail lower risk of monopolistic public enterprise etTorts have focused on strengthening transition costs, would de lay efficiency pricing and runaway inflation. monetary policy instruments and gains and would lack credibility. developing an external debt man Whatever economic liberalization agement strategy. Transition costs and credibility aside, strategy will be chosen, maintaining several key features of Algeria's supportive policies will be necessary Within the policy framework, price economy help explain the authorities' throughout the transition to harden liberalization and adjustment have apparen t preference to not liberalize the public enterprise sector's budget begun. There have been recent too quickly or too slowly. Given the constraint and ensure reversal of ex movements in the exchange rate, in potentially large money overhang, ternal and internal imbalance. The terest rates, and the prices of goods rapid price liberalization could gen government's ongoing public invest and services. Despite substantial real erate excessive inflation. Even if in ment review and planned domestic devaluation over the past three years, flation were controlled, the present tax reform should help sustain tight however, the persistently large gap monopoly power of many public en macroeconomic policy by rationalizing between official and parallel market terprises implies that many freely public investment and reducing the rates implies that the dinar remains set prices would still be inefficient. treasury's dependence on petroleum considerably overvalued. While real Reducing trade barriers represents a tax revenues. interest rates are no longer highly partial solution to the competition negative, they remain controlled and problem. A large increase in imports, James Parks, EM2CO
June 1990 6 Volume 1 • Number 3 Socialist Economies in Transition The World Bank/CECSE The Bank's Eastern and Central European Program
he World Bank's Eastern and doing. Repeated urgings at G-24 strong supply response at the enter Central European Program meetings to avoid duplicating efforts prise level, however, reform programs T (ECEP) is an initiative origi while dispensing reasonably consis will flounder. nally designed to deepen understand tent policy advice underscore this • Priuatization and ownership ing of the problems confronting preoccupation. issues are likely to be proceed slowly. economies in transition from central In a broad sense governments will planning to market institutions. The In its first year of operation, after need to manage and "regulate" not Bank launched the ECEP in Febru convening an "expert group" of only their "natural" monopolies but ary 1989 with the specific objective of policymakers from Eastern Europe, also firms that will be privatized. enriching the analytical dimension of distinguished academics, and IMF While considerable knowledge exists policy advice and, more generally, and Bank staff, the ECEP has con on the regulation of natural monopo strengthening the quality of the as centrated on three main areas: lies, little work has been done on sistance programs. The following ap • Macroeconomic management mechanisms for managing othernrms proaches were endorsed: during the transition to a more mar as central controls fall away. ket-oriented economy, particularly the • Reform ofthe CMEA is another • First, intensify work on critical associated questions of how to aban area ofconcern. CMEA trade will be aspects ofecononic reform where little don central control of prices while conducted principally atinternational is known, or where solutions to policy avoiding excessive inflation, and how prices and settled in convertible cur problems are nct evident. to sequence policy changes to mini rencies by early 1991. Because the • Second, widen the Bank's con mize economic costs. most substantive proportion of this tacts with outside researchers and • Enterprise behavior andreform, trade is the exchange of Soviet oil, institutes engag'ed in work on East including issues of monopolies, re natural gas and primary commodi ern and Centra: Europe. structuring, and privatization. ties for inferior manufactures from • Third, increase the Bank's ca • Safety nets to deal with the Eastand Central Europe, the smaller pacity to advise governments on ap social costs of adjustment, including CMEA countries will likely e) peri propriate policy reforms. severance and unemployment com ence substantial terms oftrade losses. pensation, pension reform, and hous The Soviet Union may well need to The Chief Economist of the Europe, ing. finance the ensuing balance of pay :.1iddle East, a1d North Africa Re ments deficits to smooth adjustment gion has formed a steering group to Much has been accomplished in these over a few years. In the process, help design and guide the program. areas, both in developing analyses as however, countries will become more Members represent the Bank's re well as through disseminating infor heavily indebted, raising new hsues search compleJ:, including the So mation through conferences and for the continuing flow of Western cialist Econonies Reform Unit workshops (e.g., the Privatization commercial bank credits. (CECSE), EDI, Strategic Planning, Conference, reported on thefirst page • The role of the state in all the the Sector Policy Department, and ofthis issue ofour newsletter). reforming countries of Eastern and the China. Depa rtment. Central Europe can be expected to Analytical priorities undergo major changes as govern In the wake ofllst year's revolutions ments withdraw from numerous ac and the trj!mencous interest andwork Over the nextyear the ECEP intends tivities. This will be reflectec, in a in Eastern and Cen era I Europe, the to focus on the following work: major reorganization and reorien ECEP hal; now taken on a more for • The most urgent analytical and tation of fiscal systems as bot:) the mal role. As paii, of the ongoing reor research priority is enterprise reform. content and composition of expendi ganization of the World Bank's Euro The responsiveness of micro-units to tures change, and as revenue sources pean department, a full-time position the changing economic environment are shifted from turnover taxe:; and for ECEP adrr.inistrator has been in reforming socialist economies is archaic company and payroll ta: Volume 1.. Number 3 7 Junel1990 Socialist Economies in Transition The World Bank/CECSE • Very little work has been done try, policy advice will cover such t.op in developing standards and regula on local government. Not only are ics as unemployment compensat.ion tions, incentive policies, and upgrad local governments responsible for the and retraining schemes, old-age pen ing management capacity. Much of delivery of vital social services (in sions and social security schemes, and the Bank's effort is through sector cluding housing), they are often the financing and delivery of health care. and project work, for instance, in the effective owners of a large number of (Housing sometimes falls under this recent loan to Poland. An increas enterprises. Their role is likely to heading.) In addition, however, the ingly important topic is assessing the change significantly as reforms accel ECEP wiU sponsor comparative ana macroeconomic costs of reducing pol erate. lytical work and disseminate the in lution in Eastern Europe. • Work on social "safety nets" is a formation to the countries. major focus of attention and will con • The environment is a major' is For more information on ECEP, con14ct Farid tinue to be part of the economic and sue. The Bank is playing a very Dhanji in EM4CO, (202) 473·2968 or Christine sector work program. In each coun prominent role in assisting countdes Kessides at (202) 473-2962. • Quotation of the Month URecognizing political constraints, I cial expense. However, thatis unlikely, in "Third, the President and Congress would urge five economic initiatives partbecause official debtisso muchlarger should exhort American business to [for Eastern Europe], some of which than commercial debt in Eastern Europe, invest in Eastern Europe. The Presi may be out of sync with our allies. that the private sector will go first. The dent has agreed to help orchestrate strategy should thus be to induce com private sector volunteer efforts, but "The first is debt forgiveness, a new mercial debt reduction in tandem with there is no substitute for real Ameri Bush Plan for Eastern Europe to official. can entrepreneurial commitments. complement the Brady Plan for Latin Investmentsinjobs as well as ideas are America. Neither political party is "Western Europeans, who hold the brunt in order. contemplating foreign aid increases or ofcurrent debt, have misgivings, but de granting the Executive Branch any spitethisitistheobligationofanAmerican "Fourth, and perhaps most important, thing like the flexibility it needs to Presidency to lead. Precedent exists wi th the United States ought to negotiate a manage prudentlyourexisting foreign the Brady Initiative, with the mutual free trade agreement with the coun aid program. While geostrategists decisionsofthe pastseveral years to write triesofEastern Europeand the Bal tics, within the leadership of the majority down sub-Saharan Africa debt, and wi th beginning with Poland. party have propounded the stunning the London Accord of 1953 in which the thesis that the United States should allies agreed to reduce $2 billion of Ger "Fifth, despite budget problems athome proffer direct aid to an economically man debt in order to strengthen demo and the contingent liabilities implicit unreconstructed Soviet Union, my cratic governance in Bonn. in lending through international fi sense is that the driving priority ought nancial institutions, the United States to be for the United States to empha "Given the Marshall Plan and post-war should become a constructive partner size, above all, the need to preserve the German debt restructuring, we have ev in the proposed European Bank for gains for freedom in Eastern Europe. ery right to speak to our allies with moral Reconstruction and Development. Ata In this context, we have little choice force. Ifthe Europeans are discomforted, time when substantial troop reduc but to emphasize reducing old debt so be it. The fact is that justas the Brady tions are under serious consideration rather than raising false expectations Plan changed the landscape of interna in the European theater, the United about substantial new commitment. tional finance with its very introduction, States should replace military leader a personally stamped Bush initiative of shi p with economic. Now maybea time "Accordingly, I have introduced legis this nature would so change the to reduce troops; it isn't time to reduce lation that authorizes the President to expectational framework in Eastern Eu economic ties. America cannot turn its write down public sector debt in East rope that in one form or another Western back on Europe, especially at this time ern Europe on a case-by-case basis. European governments would be hard of such wrenching - and hopeful pressed not to accede. We can't prudently economic and political transition." "Attendant to such an approach are go it alone; we can insist on allied unity, three perplexing issues: the obliga not for our sake, butfor the sake ofstnbil tions of the commercial banks; the at ity on their continent. titude of Western European official creditors; and the problem of prece "The second initiative, on which the U.S. dent. Congress has already made a down-pay ment, is to provide modest direct aid, Remarks delivered by US Representative "Treasury is particularly concerned preferably to advance private sector de Jim Leach at a seminaron EasUln& Europe that the cartnotcome before the horse, velopment rather than bolster social pro sponsored by the IMFand Georgetown Uni that commercial banks not have their grams or debt service. versity. May 18, 1990. credit liabilities strengthened at offi June 1990 8 Volume 1, Number 3 Socialist Economies in Transition The Wond Bonk/CECSE On the World Bank/IMF Agenda Credits to Tanzania ported by a $250 million World Bank centers. The five-year, $75 million loan. The loan will finance develop project will help generate jobs, stem Tanzaniawill rehabilitate its primary ment and rehabilitation of existing urban migration, and reduce Algeria's and regional road networks, which gas fields, evaluation ofrecently dis dependence on imported food. have deteriorated to the point of un covered gas fields, the expansion of dermining the nation's economic re transmission and storage facilities, Yemen Expands Health Care covery program. with an IDA credit of and the adoption of new gas process SDR 139.9 million. The project will ing and desulfurization technologies. Yemen will expand the coverage and assist Tanzania's economic recovery quality ofhealth care services through by reducing transport costs and al Technical assistance and stafftrain a project to be partly financed by an lowing agricultural products better ing will be provided to energy-sector IDA credit of SDR 11.7 million ($15 access to markets. The $871.1 million agencies to help them improve man million). The project will train about project includes rehabilitating about agement and increase efficiency. In 600 people in the country's 11 gover 2,890 kilometers of unpaved primary support of the project, the Energy norates in administrative and sup roads and about 3,000 kilometers of Sector Management Assistance Pro port services, including personnel ad regional roads, restoring 30 bridges, gram (ESMAP) of the World Bank ministration, accounting, statistics, and improving 10 vehicular ferry and the United Nations Development and computer skills. The project in crossings. Various countries and in Programme will conduct studies on cludes constructing pharmaceutical ternational organizations are energy-sector restructuring, gas pric facilities as well asmaintenance shops cofinancing the project. ing, gas-sector development, and the for biomedical equipment, and pro environmental impact of energy use. viding technical assistance to More than 200,000 primary and sec strengthen the AI-Thawra hospital in ondary school !;tudents will benefit Loans to Algeria Sana'a as a national center for health from a project t~) rehabilitate and re management. vitalize the edU(!ation system. IDA is Viable public enterprises in Algeria supportingthe project with a credit of will gain greater access to necessary Bank Supports Reforms SDR 29 million ($38.3 million). technical and financial resources in Hungary through an industrial restructuring Tanzania's education sector, once projectthat is being supported by the Hungary's drive to stimulate economic exemplary, is on the brink of collapse. World Bank with five loans totaling growth and establish a competitive Primary school enrollment has $99.5 million. The loan beneficiaries market economy is being supported dropped from 96 percent of all eligible are the Algerian government, three by a $200 million structural adjust children in 1979 to 78 percent in 1987. industrial companies, and a data pro ment loan from the World Bank. The Secondary school enrollmentis among cessing and management consulting loan will support the new the lowest in th e world, with only 3 company. The project will help the government's medium-term economic percent of those betv,reen the ages of three industrial enterprises define reform to revive economic growth by 14 and 17 attenliing school. their medium- and long-term corpo reducing inflation and improving the rate strategies; identify inefficiencies country's external creditworthiness. The $63.6 million project aims at im in management, marketing, financial Policy reforms to improve the perfor proving the govE~rnment's capacity to management, pricing, production and mance of enterprises form the core of plan, manage, and fillance education technology; and define and carry out the economic program. Measures services. 'I'he project ·.vill train educa actions and investments to implement include reform of ownership of state tion managers at the national and their strategies within the framework enterprises to facilitate their trans local levels. Sut: port will be provided of a detailed restructuring plan. formation into modem corporate form to the Ministry of Education for col and to promote their privatization. lectingand analyzing information and To increase agricultural productivity Other measures include import Jib in updating the (oun try's educational and reduce food imports, Algeria will eralization, price decontrols, financial strategy. Meastres ..vill be taken to carry out a project to develop strong system reforms, and promotion of fi encourage the privat.~ sector to assist and responsive research and exten nancial discipline in enterprises and communities an::llocal authorities in sion services. The World Bank is sup banks. improving educational services. porting the project with a loan of$32 million. The project includes support Measures will be taken to restrueture Poland Expallds Production of for INRA, the national agricultural or liquidate unprofitable enterplises, Natural Gas research institute, in coordinating reduce subsidies to public enterplises, programs and carrying out basic re and promote a dynamic private sector Poland will increase production of search. Five experimental farms will as well as small- and medium-!,cale natural gas through a project sup- be upgraded into regional research enterprises. Volume 1, Number 3 9 June 1990 Socialist Economies in Transition The World Bank/CECSE Book and Working Paper Briefs Wlodzimierz Brus and Kazimierz Laski defines socialism as "the painful road to broken by the revolution from which the FROM MARX TO THE MARKET: capitalism. It may be premature to see 'real socialism' economy emerged." SOCIALISM IN SEARCH OF AN in marketsocialism simply a stage on this ECONOMIC SYSTEM road (or a slide, as many would say), but Wlodzimierz Brus was Professor of Mockrn. Oxford University Press, OxfordlNew there is little doubt... that the distinctions Russian and East European Studies at the York, 1989, 177 p. between capi talist and socialist economic University of Oxford until his retirement in systems, as hitherto perceived, become 1988. Kazimierz Laski is Professor ofEconom· thoroughly blurred under market sodal In this book two distinguished Polish ics at the Johann Kepler University of Linz, economists working in the West discuss ism. If, therefore, marketization is ac Austria. the theoretical and practical aspects of cepted as the cure for the economic ills of efforts to change the socialist economic 'real socialism', not only the original *** system in such a way as to avoid the worst Marxist promise has to be cast aside as excesses of both market capitalism and anachronistic, butalso the very concept of Mary Shirley central planning. The authors, both of transition from capitalism to socialism. THE REFORM OF STATE·OWNED whom were involved in the process of The evolution of 'real socialism' comple ENTERPRISES: LESSONS FROM reforming the Polish economyin the 1950s ments in this respect the reverse regular WORLD BANK LENDING and 19605, examine the Marxist claim to ity: while advanced capitalism fails to The World Bank, Policy and Research socialism's economic rationali ty andstudy display the expected propensity to trans Report #4, Washington D.C., 1989,64 p. the application ofthi s conceptin the "real form itself into socialism, the more ':real socialism" ofCommunist Partyorthodoxy socialism'maturesthemoreitiscompelled The World Bank hasover the past decade as well as in the tentative attempts at to borrow from the capitalist armory. shifted much of its work on state-owned "market socialism" in Yugoslavia and enterprises from strengtheningindi vidual Hungary. Concentrating on common fea "The recourse to market socialism means organizations to addressing wider insti turesin the evolution ofsoci ali steconomic that socialism should actually cease to be tutional and policy concerns. This report practice ratherthan on factors peculiar to perceived as a bounded system, tran reviews the Bank's experience with these individual countries, they draw on na scending the institutional framework de enterprises and provides recommenda tional experiences to pinpoint the ad veloped in the past and, hence, by defini tions for future reform. vances thathave been made and the Oaws tion, postulating its total replacement by in models thathave been developed. They a newinstitutional foundation ... Recourse The author examines the changing role of also assess the possi bili ties of synthesiz to market socialism means, on the c:on state-owned enterprises in the economy ing socialist principles with the exigen trary, that the very idea of the grand ofdeveloping countries. She also looks at cies of the market. design of a supremely rational economy the mixed experience ofdeveloping coun has been acknowledged as utterly falla triesinintroducingdivestiture programs. In their concluding remarks the authors cious and that the true and most difficult say that a cruel East European wisecrack problem is how to restore the continuity *** Alan Roe and Jayanta Roy Economic Survey of Europe TRADE REFORM AND EXTERNAL ADJUSTMENT:THEEXPERIENCES OF HUNGARY, POLAND, PORTU· The UN Economic Commission for Europe 1989 andoutlook for 1990, possible effects of GAL, TURKEY, AND YUGOSLAVIA has just published its Eeonomic Survey a German monetary union, and effects of The World Bank, EDI Policy Seminar of Europe in 1989-1990 A key feature in the Eastern reform process on the restofthe Report #16, Washington D.C. 1989, 32 p. this issue is a chapter on "Economic reform world); another chapter on Eastern Europe in the East: a framework for Western sup· and the Soviet Union (background; Centrally planned economies face funda port". It compares the current situation policymakers' expectations, economic per with the transition ofWestern Europe from mentally different problems when re formance; reliability of statistics; outlook forming trade policies than do market a war economy in 1948; there are some for growth in 1990; policy framework for striking similarities but also some funda 1990 and beyond; developments in the ser economies. This report examines the mental differences. The authors review the vice sector); a section on East-West Eco progress of, and constraints to, trade re role of the Marshall Plan and the European nomic Relations (world trade and payment!!; form in five countries of eastern and Payments Union in the post-war transfor East-West trade; aid packages; i nternationlll southern Europe. Seven broad themes mation; they argue that the concept ofthe initiatives in support ofEastern reforms); a are considered: the origins ofthe need for original Marshall Plan should be turned section on Economic Integration and the adjustment; the nature of the necessary upside down, so that technical rather than Export Performance of West European adjustment; therole oftradereform during financial assistance predominates. They go Countries Outside the European Commu adjustment; the unique problems with on to suggest a number of priorities for nity; and a cha pter titled Europe's Trade in Western assistance. A special chapter Engineering Goods: Specialization and trade reform in socialist countries; the provides authoritative information on re Technology. The Survey provides more than policy content ofadjustment and the role form developments in 1989 and 1990 in 100 statistical tables and charts. of devaluation; the sequencing and the Eastern Europe and the Soviet Union. characteristics of successful trade liber alization; and the international environ The Survey includes a chapter on Western ment for trade reform. Europe and North America (overview of (Softcover, 413 pages, US $78.00) *** June 1990 10 Volume 1. Number 3 Socialist Economies in Transition The World Bank/CEeSE concept in any democratic system established parliament and a comptroller general within in freedom and leading towards a market the executive branch for internal audits and Letters to the Editor economy, has not been explicitly mentioned evaluation-there is a diITerence between the among the wide range of programs awaiting terms. Or perhaps, the Swedish approach To the Editor: the architects of the reform process: account cou Id be tried. according to which the national ability - that legal and ethical obligation that audit bureau wouid not report to the parlia Your first articles and your request for contri any democratic government has to inform the ment but is no iess elTIcient, ef1cctive and butions inspires me to make a few remarks, people what it is doing with the public funds independent? which may deservp your consideration. entrusted to it. Accountability is found in a proper division of powers and in a truly inde Should we recommend to the new brand of First: Could you present a matrix-like sum pendent - administratively and fmancially stateauditors thatthey emphasize theeconomy, mary, by region, ofthe Socialist·Marxist econo external control body reporting to the parlia efficiency and eITectiveness (value for money) micsyour grou p plans to deal with, divided into ment about the financial behavior of the execu type of modern public auditing, or should we (i) socialist economi es in transition,( ii) socialist tive. tell them that the most imperative objective like economics moving toward orshowing indio that they should try to achieve, in the short cations of change, and(iii) established socialist To assist the new democracies in designing, term, is the performance of an efficie~t finan economics, diITerentiated between "member" organizing, staffing, and training must be a cial audit? How much do the properties or and "nonmember" of the World Bank? necessary engagement the Bank cannot but inventories really cost? Do they exist? Are embrace and support. This is only a part of a these receivables real1y col1ectable? Who owns Second: What would the Bank's attitude be in more comprehensive task. Bank management the assets? Who are the creditors? Arc these all terms of establishing pnorities and allocation would be wise to resume the "country studies" the outstanding obligations? Are there con ofresources, first regarding the socialist econo that were recommended in 1985 as a way to tingent liabilities? As you can see, the country mies as a whole, and then among the three improve financial management, accounting, study approach has important applications for categories? It seems eVident that one cannot and auditing to promote the concept and prac the evaluation of the socialist economies in adopt a "com mon working agenda" andtechnical tice of accountability. A market economy can transition. assistance approa(:h when dealing with coun not function properly without market aecount Angel Gonzalcz-Malaxechevarria - LATPS tries with such di!Terent de~ees of political ing: financial, cost and managerial. Any agenda commitment, ideological dependency, and for financial reform in the socialist economies cultural, social, and development·interaction. should contain a country financial manage Your letter raises many thought-provoking ment study, including: points, On the first question of presenting a Third: Would it be feasible and operationally • Assessment of accounting principles, matrix by region and type ofsocialist countries, convenient to create a new Socialist Economies standards, and practices and how they can be we have often been asked to define exactly which Regional Office (SERO) in the Bank? It would used to establish the concepts of market ac countries are considered "socialistn and whether include the three categories mentioned above. counting: revenue, income, cost, and profit these are seen as a homogeneous group. There SERO, that is, E.M4 plu~, would be pervasive • Regulations aITecting corporations and is no simple answer here: some countries term enough so that the current socialist economies public enterprises, banking accounting prac ing themselves "socialist" have, in fact, well· in transition may be withdrawn from SERO in tices (including such considerations as the developed institutions ofprivate property;oth· the future and returned to their natural goo· treatment of delinquent accounts), insurance ers that might not consider themselves socialist ~aphical region once they ~aduate to a mar and allied industries. carry a 'major legacy ofsocialist organization. ket economy, after passing through the neces • Estimation of the demand for financial In fact, it may be more appropriate to consider sary and conventional structural changes. I management and accou ntinggraduates by the economic systems in a continuum rather than sec more pros than cons with the adoption of emerging private sector and government enti in clear categories; many ofthe features found this scheme: ties. in the commonly-called socialist countries are • Rational optimization ofBank resources • Trainingin financial management, bud· present in other countries, too. Together with by reserving and allocating a budgetaryceiling geting and accounting at both private and the Socio·Economic Data Division (lECSE) of for all the socialist cou ntries, The available public sector levels; an assessment ofthe insti the Bank weare putting together a short reference funds would be distributed in accordance with tutional assistance needed for creating man book covering "socialist n and comparator their eITective response to change-the role of agement and business schools. countries. This will require such a classifica. the "parliament" in creating the legal infra • Plans to disseminate, at both private tion, but it is already clear to us that in the end structure il? a "sine qua oon"- and an inven and public sector levels, the meaning, purpose any choice will be quite subjective and will not tory of priorities e' tablished by the respective and application ofthe accounting and auditing please all. governments with Bank cooperation. standards issued by the International Ac • Operational experience gained from in counting Standards Committee and similar This bears on your second point, the desirabil· vestment projects and pro~ams in the first bodies. ity at consolidating work on socialist countries category -' perhaps with a workable under • Inventory of the existing availability of under one Region within the WorldBank. There standing with the flew European Bank, as well independent accou nting and auditing services are clearly externalities from comparative as with structural und sector adjustment lend in the country; plan to train local auditors to analysis, but given the continuum referred to ing, would be more efficiently translated to the become heads of the national offices of the above and the similarity ofmany policy issues second category cou ntries. international firms. In the meantime, the across socialist and other countries, (including • Bank starrcould develop a homogenous existing international audit firms in those the area discussed in the last part atyour letter, specialization in a new socioeconomic environ countries cou Id be used by the Bank as consu It accounting and auditing standards, which are ment, thus facilitaling the necessary dialogue ants. weak in many countries) my guess WJuid be with the new European Bank. that the benefits of centralization would not • CECSE policy and research specialists A separate topic is: what type of external con outweigh the manydif/iculties thiswouidcauSi! in the PRE Complex would interact more com trol organization is appropriate? Should it be - not to mention the problems associated with fortably with the pragmatists in Operational patterned on thl} French "Court De Comptes', "typingH of countries and economic systems. Divisions whose aims and interests would be currently adopted in the Mediterranean coun But your point certainly does suggest the desir directly compatible with similar CECSE con tries and some other in the South American ability of encouraging /lexible assignments of cerns. continent? Orshould it resemble the executive Bank staff across regions to enhanc.~ cross· and audit firm-1ikeNalionaIAudit Office in the country comparative experience of sirr..ilar is Finally, an observation that is probably a re U.K. orthe U.S. comptrollershi p agency(GAO)? sues. I1cction of one's own background and profes What about the double control systems of ,ional interests. I notiC(- that a fundamental Canada: an office auditor general reporting to •.van Gelb. CECSE Volume 1. Numi:::>er 3 11 Jun.:;) 1990 Socialist Economies in Transition The World Bank/CECSE I IBibliography of Selected Articles i Socialist Economies BRADA, JOSEF C. and DOBOZI, ISTVA.. ''Il, eds. SCHUMACHER, DIETER and MOBIUS, L'TA. Money, incentives and emclency in the Hun Trade relations between the GDR and the BERGSTEN, GORDON S. and BOVA, RL"SSELL. garian economic reform, pari II. Eastern Euro· European Community. Economic Bulktitt, Worker power under Communism: the In· pean Economics (U.S.)2S:95-187, Winter 1989-90. Deutsches Institut fur Wirtschafl.sfOl'8chung terplay of exit and voice. Comparative Ee SOCIALIST ECONOMIES IN TRANSITION is a regular publication for internal use of the World Bank's Socialist Economies Unit (CECSE) in the Bank's Policy, Research and External Relations complex. The findings, views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations. Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or of its Executive Directors or the countries they represent. Matyas Vince is the editor and production manager. Forcopies, send name and address to Matyas Vince, Room N-6027, The World Bank, 1818 H StreetNW, Washington DC 20433 or call (202) 473-6982. Infonnation on conferences on socialist economies, matelnal on subjectsofspccial interestto ourreaders,letters to the editor, or other contributions are welcome. June 1990 12 Volume 1. Number :3