Introduction
As a consequence of the collapse of state socialism in Central and Eastern Europe, many countries found themselves with a large set of publicly owned entities which often imposed a considerable burden on the public budget.
Hence governments designed different programmes to privatize these entities (which often could hardly be referred to as enterprises as they tended to display traits of bureaucracies) or at least to make them independent of public support. However, this task proved to be very difficult. For instance, the performance of the authority charged in Germany with the privatization of the state socialist industry inherited from the defunct German Democratic Republic gives a mixed picture of what could be accomplished under the most favourable of circumstances. As Table 21.1 indicates, out of a total of almost 14 000 enterprises in East Germany, a mere 354 remained to be privatized in the autumn of 1994. But all the assets had been sold for a triflingTable 21.1 The Treuhand legacy
| East German enterprises taken over Number still to be privatized* Enterprises in liquidation Private investment pledged Jobs guaranteed Revenues from sales of enterprises Management buyouts Enterprises acquired by non-German investors | 13 781 354 3701 $133.2 billion 1.4 million $41 million 2697 855 |
Note: * As of September 1994.
Source: Treuhand, in Gumble (1994). 41 million dollars, many had been given away for a symbolic price only and the prime purpose of the privatization activity was clearly to save as many jobs as possible; indeed, a total of 1.4 million job guarantees had been attained.
However, these job guarantees often had to be paid for dearly. For instance, the Ecostar GmbH in Eisenhuttenstadt required a financial commitment of about 500 thousand dollars per job saved (Gumble, 1994). These figures show clearly that different purposes can be obtained by managing or privatizing public entities. In fact, next to generating employment and the obvious aim of reaping a profit, any number of policy objectives can be pursued by operating a public enterprise. These objectives may lie in competition, regional, foreign, defence, cultural or environmental policies or, indeed, any conceivable public purpose that may form part of a political agenda. It is for this reason that the assessment of the performance of such a public enterprise is by no means a straightforward task. The difficulty lies in identifying the objective against which the operation of the entity needs to be assessed. It is here that a strict application of a law and economics analysis can be of major importance.