Working Paper
Privatization, Asset Distribution and Equity in Transitional Economies

The economies in transition are experiencing unique changes in the distribution of assets. The growth in the share of private ownership is occurring through the privatization of state-owned assets and through the birth of private firms. The changes in the property rights regime are exceptionally complicated in transitional economies. In the period of central planning the state not only possessed practically all assets, but also provided secure employment, low-priced housing and subsidies for industry. As the socialist system is replaced by private ownership and a much reduced role for the state, a completely new system of property rights must evolve, in addition to the changes in legal ownership. When a country is experiencing this kind of institutional change, it is obvious that the resulting distribution of wealth might sharply deteriorate, and the whole transition process could lose its social acceptability. Income inequality and poverty have increased in all transitional economies during the past decade. A part of the growing income inequality has been induced by greater asset concentration, which has a special significance in transitional economies, in which the share of capital and entrepreneurial income is rising. The inequality problem has been particularly crucial in the early transition years, because privatization and the secondary markets of privatized assets have triggered a redistribution of assets at prices well below market value. The scope for concentrated asset distribution is evident. In this paper we examine the changes in the distribution of assets during economic transition. We compare the initial conditions, privatization methods, the secondary markets of privatized assets and the birth of the enterprise sector in different transitional economies of Eastern Europe and East Asia. The main task is to analyse the way in which different policies and conditions affect the equity of asset distribution and the degree to which various countries have succeeded in avoiding the concentration of assets into the hands of a small privileged class and in encouraging the creation of an efficient and more egalitarian private sector. Finally, we outline several paths for the changes in ownership structure that have emerged in these countries.