Direct Speech, Education and Science, EU – Baltic States, Legislation, Markets and Companies

Finally, the philosophical foundation of privatization – the high trust in the overwhelming advantage of private over public ownership now seems to be shared by fewer and fewer citizens. As a consequence, one can see now a clear process of reversal of the privatization logic.  Privatization was a key initiative of the market-based reforms introduced by the first Polish government after the fall of communism in 1989. Starting in the early 1990s, there had been a massive scale of full and partial privatization of SOEs. Privatization of small companies was very rapid, and almost complete by 1992 with 82% of such companies being privatized.

The political reason behind the quick process was to create a large group of private owners with commitment to the free market economy. The process of privatizing medium and big companies was much slower. The number of remaining SOEs has diminished but even today they still play an important role in the economy, with the largest state-controlled companies often being the dominant players in their industries. After 2010, the phasing out period is easy to spot, although the missing revenues were to be replaced with dividends.

Figure 1. Privatization revenues in Poland in 1990-2015 (PLN bn)

At the same time however, privatization process that has taken place in Poland since 2008 was to some extent the sham privatization (cf. sham surgery). The majority of companies were sold via tender or auction mechanism. Nevertheless, a significant part (24%) were sham privatized – taken over by other state-controlled companies, communalized, municipalized or transferred to various government agencies. Admittedly, in some cases pooling state controlled companies into one entity was an effective, marketing-focused strategy. Several companies that generated losses but possessed attractive assets were packed into a coherent entity (SPV) that would attract investors and enable selling the state-controlled assets more effectively. PHN (the real estate sector) was one of the first attempts. However, presenting other contributions to SOEs or government agencies as genuine privatization is obviously misleading.

The 2007-2009 financial crisis shook the neoliberal principles and paved way to nationalist and static policies. Now the privatization logic introduced in the 1990s is gradually being reversed. First, thePolish government partially nationalized the assets of private pension funds. Then, some large firms were regarded strategic and selected for continuous state control. Recently, the Ministry of Treasury declared (often via CEOs of the large state-controlled entities) its intention to increase national ownership in various sectors such as banking, energy, defense and insurance. In addition to that certain measures to strengthen state control over some companies (Azoty Tarnow) with mixed ownership were taken; poison pills and golden parachutes that prevent from losing control even in cases of minority state ownership.  One of the premises behind the process might be a shift towards so-called economic patriotism. It means strengthening of national presence and a halt on further internationalization of Poland’s economy.

The implementation of such policies is strongly influenced by domestic pressure groups and by the self-interest of political parties. There are a few reasons for this. The first is known as political rent seeking. Second, most transactions serve some political goals of the government: cutting public services’ prices, saving loss-making companies, supporting certain industrial policies, introducing “just” terms in consumer banking contracts. The government (2008-2015) seemed to search for social consensus on the privatization issue. It attempted to generate privatization revenues, but simultaneously tried to supervise more companies, create so-called national champions in a few sectors such as banking, defense, energy, insurance, or foster growth of specific industries (PIR – Polish Investments for Development).

The new government (Law and Justice Party won the election in October 2015) will most probably try to respond to the recent nationalist and statist sentiment and attempt to strengthen the national business against multinational, and the state against private. The process may have negative consequences: it can reduce competition, give way to political rent seeking and weaken the functions of market institutions. The increase of the economic role of the state can be regarded as reversal of the privatization logic that contributed so much to the success of Poland.

The work was supported by Narodowe Centrum Nauki (National Science Centre, Poland) under grant number DEC-2012/05/B/HS4/03546

Expert article published 17.12.2015. in issue №5 Baltic Rim Economies (BRE), which deals with the development of the Baltic Sea region.

 http://www.utu.fi/en/units/tse/units/PEI/BRE/Documents/BRE_5_2015%20.pdf