为甚至考试准备的答案。姑且存之。

What is the rationale for privatisation? What are the trade-offs policy-makers need to consider when choosing a privatisation method? (topic 6)(Discuss the trade-off between the speed and the efficiency of privatisation)

1. There is probably no other issues caused more controversyl than privatization in former communist countries during their transition from command economies to market economies in 1990s. Even today it’s still a debatable issue (Shleifer and Treisman, Without a Map: Political Tactics and Economic Reform in Russia). From the experience, however, privatisation was a necessary part of the reform to address the inherent problems in command economy.  Of course, lessons could be learned from many failures as well. In following of the article, I will first discuss the necessity for privatization, and then move on to the available privatization models facing policy designer and makers. After that I will focus on the trade-off facing the policy. Finally I will discuss some of the empirical results.
2. Soon after the transition started, policy makers, economists and scholars realized the necessity for communist economies to privatize the state-owned sector. As warned by Jeffery Sachs in 1992, “The need to accelerate privatization is theparamount economic policy issue facing Easter Europe. If there is no breakthrough in the privatization of large enterprises in the near future, the entire process could bestalled for years to come. Privatization is urgent and politically vulnerable. “
3. Politically privatisation could be used as a way to rally support for reform at the beginning if growth is achieved, and as a way to compensate the losers through giveaway part of the state assets. Economically, the primary reason behind the urgent call on privatisation is based on successful experience and theories from western market economies, where well defined and protection of private property is widely regarded as one of the foundational condition for the efficient operation of free market economy, as pointed out by Andrei Shleifer and Daniel Treisman. In communist economies, means of productions are almost nationalized and controlled by state-owned enterprises (SOEs) or collective camps, which makes efficient use of the resources impossible.
4. The second reason for privatization to be necessity is to address the problems arose from the nature of command economy, due to lack of incentive, high coordinating cost, etc.In command economy, the state could not overcome the problems effective for: first lacking the incentive; second, lacking the effective tools such as proper contract or competitive labor market. The problems could only be dealt with more effectively on condition of private ownership of property right.
5. One more fundamental problem to be addressed is the problem of soft budge constraint (SBC). The concept was first introduced by Kornai in 1980 and since was regard as the key reason of many of the defects and failures in SOEs and command economies. Hard budget constraint could only be achieved on condition of private ownership.
6. One might think whether there was alternative choice other than privatisation, for example, the reform model in China. However, most of the commanding economies in 1980s don’t have the conditions as China has, which is that large number of labor in rural areas could be utilized for industrialization and expanding manufacture industries. Overall, reform without privatization is not economic, politically and social possible to reinvigorate the economy as failure of reform before 1980’s in USSR had proved.
7. The questions now is how to privatization? What’s the best way to do it? As Tomasz Mickiewicz pointed out, the concern of privatisation is not about a formal act of privatisation, but about an efficient transfer of control rights to investors (owners) capable of imposing a new set of objectives and strategies on the privatized company and also providing new resources. In reality, policy makers will have to trade-off between speed and quality in choosing privatisation model.
8. When transition began, the dissolution of central panning administration created vacuum and SOEs were actually left to be controlled by insiders. This fact left policy makers with two options: either accept the status quo and privatisation in the form of employees and managerial buyouts (typically based on heavily discounted prices of assets), or nationalize before initiating a privatisation to outsiders.
9. From economic point of view, privatisation to foreign investors would be the most optimal investors.  Outsiders, especially foreign investors, would provide better corporate governance, wider access to management skills and capital, created higher governmental revenue as well. The problems of incentive and SBC should be better solved as well. The challenge to privatisation to outsider is no sufficient demand from outside investors and it take longer time. In some cases the government could not wait longer enough and the price would be depressed at extreme low. Politically, the dominant role of foreign owners was not always accepted. Insiders with investors with connection to the politicians would oppose to privatisation to outsiders as well.
10. One particular problem with privatisation to insiders (employee and managerial buyouts) is often it’s difficult for employees to raise the necessary finance even with discounted prices of assets and payment by instalments. Moral hazard risk also exists for manager before privatisation. 
11. In practice, there is no perfect mode of privatisation and mixed models were actually applied in different countries. Empirical evidence showed that generally firms privatized to insiders or diffuse individual owners produced no significant improvement on performance, while privatization to insiders as a composite group, or outsiders brought significant improvement of performance. Djankov and Murell showed that the difference of privatisation to domestic blockholders and foreign investors are actually not so significant.
12. Conclusion:  From the lessons of privatisation in transition countries, ideal model was often not chose for political and economic reasons. In generally private ownership produced better output than public-owned companies; privatization to outside investors better than insiders, especially in Eastern Europe; concentrated ownership better than diffuse ownership. More important is to create institutions like property protections supportive for sustainable economic growth.