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BASIC ECONOMIC QUESTIONS

BASIC ECONOMIC QUESTIONS. DISTINCTION AMONG ECONOMIC SYSTEMS PROPERTY RELATIONS DECISSION MAKING WHAT - maximization of utility, product market, consumers, restrictions, planner HOW - maximization of profit, labor and capital market, producers, restrictions, planner

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BASIC ECONOMIC QUESTIONS

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  1. BASIC ECONOMIC QUESTIONS DISTINCTION AMONG ECONOMIC SYSTEMS • PROPERTY RELATIONS • DECISSION MAKING • WHAT - maximization of utility, product market, consumers, restrictions, planner • HOW - maximization of profit, labor and capital market, producers, restrictions, planner • TO WHOM- product and factors market, planner • WHEN - capital market, planner

  2. THE CHANGES OF THE ECONOMIC SYSTEM

  3. COMPONENTS OF TRANSITION • Privatization • -objectives - efficiency, justice, democracy • - complexities of privatization • - privatization models • - outcomes of privatization • Macroeconomic stabilization • - assumptions and Washington agreement • - transformational depression • Microeconomic restructuring • Creation of a new economic system • A Case: Slovenia

  4. DILEMMAS OF PRIVATIZATION MECHANISM Free distribution Sales to whom to whom to everybody - to employees to citizens - to foreigners - equally Patterns - by age - stock market - by years of employment - auctions Patterns - workers-managers by outs • direct - debt equity swaps • indirect - direct sales • Restitution - increase of capital • in kind • compensation

  5. PRIVATIZATIONS IN “OLD” EU COUNTRIES (1) (2) (3) (4) (5) (6) Austria10199482.0045.492.691.27 Belgium21995100.0057.253.671.47 Denmark2199494.9563.003.011.72 Finland8199981.4768.209.147.10 France341994-9567.2226.2784.235.79 Greece6199881.0560.445.194.26 Ireland2199982.5050.004.445.22 Italy1997-9969.7336.8585.217.18 Germany 10200075.5840.7946.652.17 Netherland5199477.8149.7113.913.55 Portugal22199776.7230.4519.3217.65 Spain11199853.4426.3544.557.64 Sweden5200081.0643.0013.095.51 UK 441986-8786.808.7898.887.04 (1) Number of companies; (2) the year of utmost activity; (3) share of government before privatization; (4) share of government after privatization;(5) value of privatized assetsbill €; (6)value of privatized assets in GDP of 2000

  6. PRIVATIZATIONS IN CEE COUNTRIES Czech Republic: a rigid socialist system, 96.7% of production in state industries, Vaclav Klaus, shock therapy to market without adjectives, restitution (100.000 units), small privatization - sales (12300 units), large privatization – public auctions, public tender, direct sales, sales of shares for vauchers, employees stock ownership plans; vauchers collected by private investment funds, direct sales of companies Avia Praha, Skoda auto, Tabak Kutna Hora, banks, telecomunications etc. To foreign owners Estonia: small scale privatization in 1990, large scale Privatization Act of 1992- direct sales to foreign investors, vauchers in 1994 marginal, Eesti Telekom, Estonian Air (Denmark), Estonian Shipping Company (American/Norwegian), Tallina Vesi (utilities), electricity, banking sector Hungary. “gulash socialism”, centralized privatization for small scale privatization, management by-outs, former owners, new phase in 1995 by selling companies to multinationals, golden share in some companies PRIVATIZATION BAROMETER

  7. THE OWNERSHIP STRUCTURE OF LISTED COMPANIES IN SOME EU COUNTRIES Country (1) (2) (3) (4) (5) EU average 4 19 32 16 29 Slovenia 18 25 23 29 8 Poland 30 2 9 20 39 Hungary 9 7 7 4 73 Lithuania 0 31 4 12 53 Norway 25 17 16 8 34 Italy 10 30 19 27 14 Sweden 9 10 28 13 40 Finland 8 9 2 7 74 Denmark 7 19 26 16 26 UK 0 2 51 15 32 Greece 0 25 19 34 22 Germany 6 45 17 14 18 (1) public, (2) non-financial companies, (3) financial companies, (4) households, (5) foreigners

  8. SHARES OF FOREIGN STOCK IN CEE TRANSITION COUNTRIES Country stock FDI/GDP in % Share of foreign banks 1994 1999 2003 in assets 2001 Czech Republic 11.0 14.148.090.0 Estonia 9.2 19.377.698.9 Latvia 7.6 13.935.165.2 Lithuania 0.7 5.727.278.2 Hungary 17.1 25.351.888.8 Poland 4.1 5.824.968.7 Slovakia 6.1 4.231.585.5 Slovenia 9.2 9.520.720.6

  9. MACROECONOMIC STABILIZATION Assessment of economic situation: D>S, Washington agreement; Increase of Supply: liberalization of imports, pure socialist production goods; Decrease of Demand: price liberalization, restrictive credit policy, restrictive fiscal policy; freeze of wages, fixed exchange rate; Results: economic depression, measured and actual, unemployment, social diferentiation; Slovenian transition model; ignorance of Washington agreement, gradualism, floating exchange rate

  10. THE ASSESSMENT OF ECONOMIC SITUATION IN SOCIALIST COUNTRIES Aggregate supply and demand curves Prices Demand Supply P Ps Shortage Qss Qds output Q

  11. TRANSITION MODELS IN CEE COUNTRIES 1.Baltic 2.Visegrad 3. Slovenia Starting position EE, LT, LV CZ,HU, PL, SKSI Privatization sales to sales to free distribution foreigners foreigners MW by-outs Stabilization fixed ex.rate switching floating fiscal discipline adaptable adaptable Social Considerations absent present important Restructuring absent by FDI decentralized Problems CA deficit CA deficit balance emigration budget deficit EMU problems MODEL neoliberal embedded neocorporativist neoliberal

  12. TRANSFORMATIONAL DEPRESSION CEE CIS countries

  13. JOBLESS GROWTH?

  14. SUSTAINABLE GROWTH?

  15. EXPENDITURES FOR HEALTH AND EDUCATION1994-2003

  16. GINI COEFFICIENTS, 2000-2006

  17. SOCIAL COHESION INDICATORS IN NMS

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