Privatisation, Human Capital, and Long-run Development Strategies in Transition Economies

Abstract

This chapter focuses on macroeconomic aspects of privatisation. It considers ways in which privatisation might help (or conceivably hinder) the transition economies’ macroeconomic objectives. Chief among the latter is the aim of catching up with successful market economies, following several decades in which the centrally planned economies of the former Soviet Union and Eastern Europe fell progressively further behind per capita real income levels in industrialised market economies (Ofer, 1987). The aim of this chapter is to consider how privatisation might contribute towards increased growth rates in transition economies. For this purpose we need to understand the determinants of economic growth. The first part briefly introduces key ideas about economic growth, and considers how privatisation might play a role. It argues that whilst privatisation has the potential to raise growth rates, this depends crucially upon the presence of a range of facilitating factors which were often missing at the start of transition. Some of these facilitating factors, for example well-functioning capital markets, have already received extensive treatment in the literature. One important facilitating factor which has received less emphasis, however, is human capital. The rela-tionship between privatisation and human capital is the main focus of the chapter.