Political influence was very high during this first phase of economic reform. As stated earlier, state owned corporations were great determinants of the political careers of many politicians. Employees and managers played a great role in political circles and politicians used to offer favors to these corporations’ management and employees in return for political favors. Managers were also afraid that if a market economy took over from the planned economy, they could not get access to government subsidies they were getting from the political circles.
A gradual reform created room for a weak economic reform that allowed for political influence on major businesses whether state owned or private institutions. Basically, in a market oriented economy, managers in private institutions have no obligations to follow the orders of the politicians. This was a major hindrance towards privatization in Eastern and Central European countries since most government officials felt that they could lose ‘support’ for their political moves and initially, it became a major hindrance to economic reform in these countries.
Traditionally, in the communist countries, managers, politicians and employees used to negotiate for subsidies. Manager could go to politicians and threaten them that they could fire or lay off employees if their demands for funding were not met. If this happens, politicians may end up losing their popularity amongst employees. Politicians on the other hand would negotiate for a share of business profits which usually resulted from government funding (Iatridis and June pp 47-51). Inefficiency was high in the organizations and this had negative implications on privatization as well as economic reform.
However, a move towards privatizations in the past few years has been able to achieve the economic and political goals of Eastern and Central European countries. Fair distribution of resources, depoliticization of economy and establishment of sound economic reforms in these countries has been achieved via privatization. One of major political success of privatization is that it has been able to put a demarcation between politics and economic reform (depoliticization) and it has been able to ensure that the objectives of its multiple stakeholders are achieved.
Traditionally, political objectives included hiring many employees and accumulating personal wealth. Privatization on the other hand has various objectives, to bring about creation of wealth, avoid political influences in business management and improve efficiency of enterprises by improving entrepreneurial dynamism. In Russia for example, privatization has been able to bring about development of management competencies and skills and also to depoliticize economic reform (Boycko, Andrei and Robert, para 6).
Privatization has been able to create a “political constituency of owner taxpayers” who are often opposed to interference from the government in economy since it increases their taxes thus reducing their profits. This in turn leads to depoliticization via political mechanism instead of an economic mechanism. Privatization places resources and organizations to private sector. The aim of the private sector is to improve its returns while reducing its costs.
Political interference through increased taxes to fund political agendas would only hinder this objective from being achieved and privatization has helped in ensuring that politics do not interfere with their operations. This in turn leads to improved economic performance via privatization and this is a critical strategy that has helped restructuring the economy (Boycko, Andrei and Robert, para 8). However, privatization has not fully been able to depoliticize the economy. In Russia for example, some politicians are still succeeding in involving the private firms for their political agendas.
Some of these companies are still receiving subsidies today in exchange for higher employment. The situation is not different in Italy where most of the private firms still maintain very close ties with politicians. As such, for complete depoliticization to occur, other measures need to be undertaken to complement privatization in Eastern and Central European countries. Privatization in most Eastern and Central European countries was made in a manner that could meet the diverse objectives of all the stakeholders including the politicians, managers and employees.
This privatization took place in a hostile political environment with most politicians highly opposing it as it was seen as a move to deny them their power over the economy and businesses. Previously, managers and employees used to lobby the government for higher wages and funding and this was also threatened by privatization. Balancing the demands of these stakeholders was thus a difficult task for these nations. Privatization thus has been slow especially in Eastern Europe.
Unlike largely believed, rapid privatization would have many political benefits and it would also deepen reforms in Eastern and Central European countries. So far, much economic progress has been experienced in the recent years. These countries have opened up borders for foreign direct investment, associated with privatization, although many restrictions still exists in regard to this. These countries have also been able to employ their resources in a productive and more efficient way which has geared economic growth.
Unlike previously held believes, employment terms has improved and entrepreneurial skills and competencies developed. Europe is today among the highly developing continents in the world with a very low unemployment rates. Investment in the private sector contributes highly to the GDP of the Eastern and Central European countries, some of the benefits of privatization. However, more privatization still requires to be undertaken so as to speed up the process of economic recovery and success (Iatridis and June pp 77-85).
Conclusion Privatization as mentioned earlier is rapidly increasing around the world today. Unfortunately, in the past there was no or little information pertaining to this phenomenon which is today gearing economic growth and development in most parts of the world today. However, this is slowly changing especially in traditional communist countries. However, in most of these countries, privatization is characterized by political influence although moves to depoliticize this process are being undertaken.
In most eastern and central European countries, political influences have been taking place since this wave of privatization began in the 1980s. Although privatization is still slow in these countries, it has been able to depoliticize and reform their economies. Work cited: Anderson, Robert E. et al. “Privatization and Restructuring in Central and Eastern Europe”. Retrieved on 21st May 2010 from, http://rru. worldbank. org/documents/publicpolicyjournal/123pohl. pdf. Boycko, Maxim, Andrei Shleifer and Robert w.
Vishny, “Privatizing Russia”, Retrieved on 21st May 2010 from, http://www. economics. harvard. edu/files/faculty/56_privatizing_russia. pdf. Fitzgerald, Elizabeth M. “Identifying Variables of Entrepreneurship, Privatization, and Competitive Skills in Central and Eastern Europe: A Survey Design. Retrieved on 21st May 2010 from, http://www. allbusiness. com/specialty-businesses/719351-1. html. Iatridis, Demetrius S. and June G. Hopps, Privatization in Central and Eastern Europe: perspectives and approaches. ISBN 0275951324, Greenwood Publishing Group, 1998