Privatisation in Transition- The Polish Way

Abstract: The focus of this study is on the privatisation process in a state of transition. This study set out to distinguish the essential factors which explain and promote the emergence of a dominant private sector. From that, two different approaches to privatisation are examined and analysed; the Washington consensus and the Evolutionary approach. The Washington consensus emphasises on the speed of the privatisation process, while the Evolutionary approach advocates for the organic development of the private sector by implementing an institutional setting favourable for private economic activity. Thus, a question emerges in the development of the private sector: What is the relative effectiveness of, on the one hand, fostering an appropriate market environment and, on the other, implementing an effective privatisation program? The comparison of the two approaches is elucidated in the Polish privatisation process. Initially, Poland adapted the Washington consensus approach. Following the focus on speed, efforts were made to introduce a mass privatisation program (MPP). However, due to informal constraint- the lack of knowledge of what privatisation and private activity implied- and the formal constraints- i.e. the macroeconomic situation and the subsequent stabilisation and liberalisation program, the Washington consensus failed to implement rapid ownership transformation. Rather, the Polish privatisation process was characterised by the Evolutionary approach. In this context, although the privatisation ‘from above’- promoted by the Washington consensus- was a general disappointment, the indirect privatisation in Poland- i.e. IPO sales- was found to be a surprising success generating substantial revenues for the state. However, the main findings of this study show evidence that the successful development of the Polish private sector is a result from the favourable market environment established in the Polish economy- macroeconomic stability, hard budget constraint, competitive markets and property rights. Furthermore, this study concludes that the extraordinary growth experimented by the private sector share of GDP is due to the emergence of the de novo firms, which generates efficiency and welfare gains to the Polish economy. This is evidenced through the empirical studies presented in this study and through the extraordinary GDP per capita development experienced during the studied period.