NCPA - National Center for Policy Analysis

How Poland Is Privatizing

February 15, 1997

Poland has a unique approach to privatizing. In 1995, the government set up 15 government-owned investment funds, which were each given ownership of an assortment of formerly state-owned companies. Fund managers are expected to rehabilitate and then sell these companies.

  • About 500 Polish companies -- representing about 5 percent of the country's gross domestic product -- are in the hands of these state-owned investment funds.
  • The funds are to move into the private sector in 1997, when Poles and foreigners will be able to exchange privatization certificates for fund shares.
  • When the certificates were issued in 1996, 95 percent of Poles bought them for the equivalent of about $7 each.
  • Certificates trade at about eight times their issue price -- and foreigners have amassed more than half the amount outstanding.

While the system emphasizes profit and is superior to privatization schemes in many former communist countries, critics say there are problems.

  • Since Poland's pool of business talent is shallow, fund managers have trouble finding replacements for obstinate or incapable company executives.
  • There is also friction inside some of the funds -- run by a combination of western and Polish banks and management consultancies.
  • Observers say the funds' state-appointed supervisory boards are "packed with government cronies" -- who in some cases have hindered efforts to force companies to layoff workers, close production lines or sack uncooperative managers.

Privatization advocates hope that once shareholder pressure and generous incentives built into the scheme start to work, progress will accelerate.

Source: Polish Privatization, "Floating Away," Economist, February 15, 1997.

 

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