Equality, Participation, Transition: Essays in Honour of Branko Horvat

Derek C. Jones and Niels Mygind 167
been met in Estonia as, for example, in the other constituent republics
of the Soviet Union, particularly Russia, though perhaps less so than in
the Visegrad countries.
At the same time, it is important to remember that the large scale of
the private sector has not been achieved by one set of privatization initiatives
but rather has been accomplished, as in many countries, by a
series of initiatives. In the main, these privatization measures do not
reflect a consistent approach to privatization but instead changing attitudes
and political contexts. Thus, in the first stages of privatization in
Estonia many concessions were made to insiders. For example, between
1987 and 1989 in several cases, so-called people’s enterprises were
transferred to employees free of charge. While this strategy was soon
ended – and in 1990 management buyouts became a much more common
way of privatizing – employees were able to buy up to 20 per cent
of shares at reduced prices. But by 1991–2, the sale of enterprises to
employees with special rights was ended. Since then, the emphasis has
been on selling off large firms via a Treuhand-like arrangement, though
since 1994, a system of vouchers has been used to enable Estonian
citizens to obtain minority positions in privatized firms. Overall, it is
estimated that 90 per cent of privatization transactions have occurred
through cash tenders, with 30–40 per cent of those assets held by
foreigners (EBRD, 1997).
The upshot is that formerly state owned firms that are now privatized
are not a homogeneous set but rather one reflecting an array of
‘privatization vintages’ as well as differing privatization policies. Also,
not all ‘privatized’ firms are equally ‘privatized’. In some, the state
continues to retain an ownership interest that is sometimes substantial,
other times not.
We would expect that these policy and institutional differences
might modify some of the theoretical propositions discussed above. For
example, concerning the effects of ownership on economic performance,
the motivational effects of insider ownership may be expected
to be blunted somewhat when shares are gifted (rather than bought by
insiders who risk some of their own savings). At the same time the
existence of many different ownership packages (and often in the same
industry) provides an unusual opportunity to test some of the key
propositions – for example, in the possibility of ownership complementarities.
In designing our empirical strategy, we will attempt to take
some of these institutional considerations into account, namely, the
timing of privatization and also whether or not the state continues to
own a part of the privatized firm.