Getting the Numbers On Eastern Europe
JOURNALISTS have been reporting on the dramatic economic changes in Eastern Europe in the last few years, talking to individual entrepreneurs, reporting on privatization plans.
Now academics have turned their sights on the region. Their sense of thoroughness and order can add some dimension to the often more anecdotal findings of the journalist. The National Bureau of Economic Research was holding a conference in Cambridge, Mass., this week on the "Transition in Eastern Europe." Among the 19 papers, one by Simon Johnson of Duke University's Fuqua School of Business, attempts to measure the growth of private business in three of these nations. The private sector, he concludes, h as done well in Hungary and Poland, but private firms have a long way to go to Czechoslovakia. In Poland, economic reforms under communism in the 1980s established, probably inadvertently, the basis for sustained Polish private-sector development. Hungary's communist government conducted similar reforms, with some intention of helping the private sector. Here's a summary of what's happened:
Hungary: The private sector employs between 650,000 and 1 million people, according to Mr. Johnson's "best guess." That implies its share of urban employment is in the range of 15 to 25 percent.
"The future growth of this sector is likely to be steady, with probably a slowdown in the rate of creation of new business," he says.
Limited liability companies, which numbered 451 in December 1988, had grown to 18,317 in December 1990 and 28,059 by May 1991. Some of these "new" firms may actually have been in existence earlier but were legally registered for the first time. Joint ventures involving foreign ownership have been multiplying. In the first nine months of 1990, 2,225 joint ventures were established. Partnerships exceeded 20,000 by the end of May, 1991. One estimate of the number of individual entrepreneurs is 300,000, but Johnson was not able to confirm that number independently.
The Hungarian government regards the private sector as an essential part of the economy and gives it some advantages over state-owned enterprises. Whether these advantages are sufficient remains controversial. The communist state's "monobank" - a single central bank and commercial bank combined - was dissolved in 1987, and five new state-owned "commercial banks" were created. These have close ties with large state firms. The State Property Agency plans to privatize around 10,000 shops "by 1992," or about
20 percent of all state-owned shops.
Poland: As of last September, state data show totals of 44,226 private spolki (companies), 3,512 joint ventures, and 1,365,644 individual entrepreneurs. The spolki and joint ventures together employ about 500,000 people and the entrepreneurs about 2.3 million. This means the private sector accounts for 23 percent of jobs outside of agriculture, Johnson calculates.
Efforts to sell state enterprises in auctions have not been very successful. At least 874 have been "liquidated," which usually means they end up being owned by their employees. The employees provide 20 percent of the price of the firm as a down payment, and can buy the rest from the state in installments. These privatized firms probably account for no more than 5 percent of total assets of state firms.
Privatization of retail space has been much more rapid. By mid-1991, 75 percent of shops were privately run, accounting for 80 percent of retail sales. These shops numbered 456,000.
The Polish private sector appears to be doing well, says Johnson. But taxes are high, credit conditions unfavorable, and privatization has been quite slow.
Czechoslovakia. There was rapid growth in the number of private businesses after the political regime changed with the "Velvet Revolution" of November 1989. These "businesses" numbered 1.13 million by last September. But perhaps 25 to 85 percent of those registered as engaged in business actually hold another job, sometimes in a private enterprise. Many are "would-be entrepreneurs." During the first nine months of last year, small enterprises contributed only 1.9 percent of the output of the Czech Republ ic and 0.5 percent in the Slovak Republic.
"It is unlikely that the [Czechoslovak] private sector will by itself soon amount to a large part of the economy," says Johnson.