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4 Secondary privatisation in (essentially only) five countries As Myant (2001) writes, supporters of voucher mass privatisation in the Czech Republic expected that the two waves of the allocation of enterprise shares would be followed by a third wave during which the new owners (the voucher owners turned small shareholders) would “vanish like … brontosaurs”. The term used in the Polish privatisation literature for this vanishing process is “secondary privatisation”. It cannot be precisely defined, but it refers to the termination of the highly dispersed ownership structure of company stocks that resulted from primary privatisation . Ending this structure, in other words, meant “unburdening” the citizens and/or the non-managerial personnel of companies from the property that they received (purchased under highly preferential circumstances) during voucher and/or insider privatisation. The supporters of mass privatisation have a valid point. The highly dispersed ownership of the shares could not last; it was not adequate to the circumstances in these countries in the time of privatisation—it was burdensome . Why? Concerning the shareholdings of citizens resulting from voucher privatisations , the answer is fairly simple. First, most citizens had no experience and very limited knowledge of what being a small shareholder meant. Rather than being shareholders, they wanted to increase their consumption (of course, partly via investments; not so much investments into securities but primarily into cars and the like, serving consumption more directly). Remember that in the Czech Republic, the country with the strongest capitalist traditions, the majority of citizens did not purchase the vouchers to which they were entitled until some Privatisation Investment Funds collecting these vouchers promised up to tenfold yields on them within one year (see subsection 3.2). Second, those who nevertheless wanted to become small shareholders learned quickly that the circumstances were not good. What was required 72 Politics and Policies in Post-Communist Transition was well-functioning, liquid stock exchanges, which did not exist at the beginning of the transition. Also needed were laws and/or codes of behaviour defending shareholders’ rights and interests, and just as importantly, well-functioning mechanisms of enforcement of the laws/codes. All this could not be established quickly, particularly if efforts to do so were weak (as they were among the countries studied, particularly in the Czech Republic , Russia and Ukraine, primarily in the first years of transition).1 (Below we will re-examine in more detail the differences of corporate governance from country to country.) In international literature it is a commonplace that under such circumstances small shareholders—if they exist at all—try to get rid of what they own. Until they do so en masse, this kind of ownership is burdensome. The position of small insider owners, i.e., non-manager employees who became shareholders, was another, much more complicated issue. The reason for this is that they were basically not financial investors. In principle, their positions as owners gave them some opportunity to control the firms where they as workers earned their living. Still, in the countries studied “there has also been a clear tendency for the share of employee ownership to decline, as lots of workers have sold their shares in the meantime, most frequently to managers but also to external owners” (Lowitzsch et al. 2006, p. 300). This is discussed further below. Of course, weaknesses of corporate governance had a role here, too— as did the sales of stocks received by people in voucher privatisations. This can be understood better by briefly comparing the United States and 1 According to Pistor (2000), among the countries implementing mass privatisation, in 1992 the Czech Republic and Russia had the weakest protection of small shareholders’ rights. It is also important that in other countries (in all other former communist countries , not only those investigated in this book), voucher privatisation started later than in these two, leaving time to improve the system of protection, and it did improve everywhere (except in Azerbaijan, where it worsened). Improvement could also be observed in Russia, but not (until 1999) in the Czech Republic. Keeping all this in mind, we may consider another, related problem irrelevant: namely, the enforcement mechanisms in question are expensive. (This holds not only for the supervision by government bodies and procedures of justice but also for internal supervision procedures of the companies themselves.) Thus, applying these mechanisms is not rewarding at medium-sized firms; consequently, in advanced market economies usually only shares of large companies are traded at stock exchanges. However, in the countries studied (of course, with...

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