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

Derek C. Jones and Niels Mygind 177
In our econometric work on the impact of privatization on performance,
we construct several indicators of the growth rate of economic
performance and estimate models in ‘privatization’ time. For the case
of Estonia (and unlike findings for the Visegrad countries) this particular
approach is not found to work very well – in the sense that the estimated
models consistently have fairly low overall explanatory power.
As such, this result is consistent with the hypothesis that the key influence
on business performance is not ownership (for example, Horvat,
1982).
In terms of specific findings, when a privatization dummy is used,
the effect on economic performance of the movement away from state
ownership is found to be significant and in the expected direction only
for the case of sales. This finding appears to be quite different from
what has been found for Visegrad countries (Frydman et al., 1997),
though for the case of Russia the evidence (Jones, 1998) is that privatization
per se had even weaker consequences for economic performance
than we find here for Estonia. Thus, on balance, there is support for
the hypothesis that private ownership does deliver improved performance,
but when this particular empirical approach is used to study
the effects of ownership upon economic performance, for Estonian (as
for Russian) firms, it is difficult to conclude (as Frydman et al., 1997 do
for firms in Poland, Hungary and the Czech Republic) that ‘the privatization
effect may be a shock to the transition’.
When we account for differences in economic performance by introducing
particular measures of majority ownership (rather than a single
privatization dummy), we find that firms with all forms of majority
ownership have faster growth of sales than do firms in which the state
has a majority interest. This is consistent with the estimates that use a
simple dummy. Also, for other performance measures, such as labour
productivity, there are often no statistically significant differences
between forms of majority ownership – including state ownership.
Thus there is little support for the hypothesis that majority ownership
by employees is a form of privatization that is to be avoided. 21
In accounting for differences in economic performance during transition,
our previous discussion points to the potential role of variables
other than majority ownership levels. Hence we undertook a series of
exercises which were designed to provide various extensions to the
approach of Frydman et al. (1997). In one set of exercises, for some performance
measures (for example sales growth), we find evidence that
the preferred specification is one that includes measures not only of
majority ownership but also of minority ownership. Furthermore, we