Privatisation in the Central and East European Countries

Abstract

The newer EU member states (except for Cyprus and Malta) became either part of the Soviet Union or in its zone of influence following World War II. As a result, these countries were obliged to follow communist ideas regarding the political system and the economy. The people of these countries made continuous efforts to rid themselves of the system of a centralised political power and attempted to develop a more flexible economic system. These attempts were mirrored in the Hungarian uprising in 1956, in the ‘Prague’s spring’ during 1968 and also in the fighting of the Solidarnost in Poland in the early 1980s. In Hungary, the reform of the economic system in 1968 led to the establishment of a better functioning economy. However, these attempts either failed or were not sufficient to accomplish an effective economy and by the late 1980s a wide strata of the leading intelligentsia, even members of the Communist Party, thought that the system itself needed to be changed. With the weakening of the Soviet Union, the time for change arrived. The Baltic countries achieved their independence and a democratic multiparty political system was established in the region. The next step of the transformation was the establishment of a market economy. In the framework of this transformation of the previously state-owned companies were privatised; the markets (labour and capital market), the price system, and foreign trade were liberalised; and restrictions on business and individuals were removed, reduced, or simplified with the intention of encouraging the efficient operation of markets. In this way, the former centrally planned economies were transformed into market economies dominated by private property. The intent of this chapter is to give an overview of these processes, focusing on privatisation and its economic and social impacts.