The Incomprehensible Post-Communist Privatisation

in Global Journal of Comparative Law
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One of the most important claims of the neoliberal policy prescriptions for Central and East European states in the early 1990s was that ‘communist’ property should be ‘privatised’. I contend that this policy prescription was based on a number of false assumptions about what ‘communist’ property was and about communist law. As a result, the post-communist process of privatisation was plagued by many unintended and negative effects. The consequence was the great enrichment of the former communist managers who were able to benefit from ‘privatisation’ at the expense of the public, in a process which was not ‘rights based’ or ‘democratic’. I argue that the reality of ‘communist property’ was totally different from that assumed by neoliberal agents and policies. The distinctiveness of communist property arrangements resided not in the absence of private property, which was tolerated under communism, but in the organisation of property as an administrative matter.

The Incomprehensible Post-Communist Privatisation

in Global Journal of Comparative Law

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8

 See e.g. Andreas Pickel‘Official Ideology? The Role of Neoliberal Economic Reform Doctrines in Post-Communist Transformations’Polish Sociological Review4(112) (1995) 361 at 362.

13

 See e.g. Joseph Persky‘On the Thinness of the Utilitarian Defense of Private Property’Journal of the History of Economic Thought 32(1) (2010) 63. See also Lawrence C. Becker ‘Review: Too Much Property’ Philosophy and Public Affairs 21(2) (1992) 196 for a critical review of the arguments brought in favour of private property by Waldron and Munzer following the classic liberal cannon and especially Alan Carter The Philosophical Foundations of Property Rights (Harvester Wheatsheaf 1989) for a critique of all philosophical arguments brought in liberal thought in support of private property including those of Demsetz.

15

Sunita Kikeri and John Nellis‘An Assessment of Privatization’The World Bank Research Observer 19(1) (2004) 87 at 92.

73

 See e.g. Inga Markovits‘Hedgehogs or Foxes? A Review of Westen’s and Schleider’s Zivilrecht im Systemvergleich’American Journal of Comparative Law 34 (1986) 113for the point that inheritance law served different purposes in the socialist countries in comparison with the ‘Western’ ones. But see John Quigley ‘Socialist Law and the Civil Law Tradition’ American Journal of Comparative Law 37(4) (1989) 781 at 801 for the continuity with civil law tradition on these matters in socialist times.

74

 See W.J. Wagner‘The Law of Contracts in Communist Countries (Russia, Bulgaria, Czechoslovakia and Hungary’St Louis University Law Journal 7 (1962–1963) 292 at 295.

80

 See e.g. George E. Glos‘The Czechoslovak Civil Code of 1964 and its 1982 Amendment within the Framework of Czechoslovak Civil Law’New York Law School Journal of International and Comparative Law 6 (1985–1986) 232.

81

 See e.g. Inga S. Markovits‘Civil Law in East Germany – Its Development and Relation to Soviet Legal History and Ideology’Yale Law Journal 78 (1968–1969) 1 (for an excellent history of the intellectual ideas of the German and Soviet civil codes). See also A.K.R. Kiralfy ‘Legislation: The Civil Code of the German Democratic Republic (Das zgb der ddr)’ Review of Socialist Law 5 (1979) 79 (for a brief description of the main characteristics of the Eastern Germany Civil Code).

83

 See e.g. Gianmaria F. Ajani‘The Supremacy of Statutory Law in Socialist Countries: Scholarly Opinions and Operative Rules’Review of Socialist Law 11 (1985) 123. See also John Quigley ‘Socialist Law and the Civil Law Tradition’ (n 73) 802–808 (for an ample review of the ‘socialist’ legal scholars sustaining the continuity); Rudolfo Sacco ‘The Romanist Substratum in the Civil Law of the Socialist Countries’ Review of Socialist Law 14 (1988) 65; and Mihaly ‘The Role of Civil Law Institutions in the Management of Communist Economies: The Hungarian Experience’ American Journal of Comparative Law 8 (1959) 310.

86

George E. Glos‘The New Czechoslovak Commercial Code’Review of Central and Eastern European Law 18 (1992) 555.

88

Dominik Lasok‘The Polish System of Private International Law’American Journal of Comparative Law 15 (1966–1967) 330 at 331.

93

 See e.g. Petru Buzescu‘Joint-Ventures in Eastern Europe’American Journal of Comparative Law 32 (1984) 407 for a discussion of ‘joint ventures’ in cee socialist law. For the American origins of the joint ventures transplant and for its applications in the Asian and socialist countries see M. Dornarajah Law of International Joint Ventures (Singapore: Longman 1992). The joint ventures received a great deal of attention in the legal literature in the 1970s and ’80s; therefore we cannot cite here all the relevant literature on the subject.

94

Gianmaria Ajani‘La circulation de modèles juridiques dans le droit post-socialiste’Revue internationale de droit comparé 46(4) (1994) 1087 at 1090.

97

 See e.g. Kazimierz Grzybowski‘Reform and Codification of Polish Laws’American Journal of Comparative Law 7 (1958) 393for a discussion of the conscious effort of late 1950s Polish drafters of the socialist codes to continue the interwar legal tradition. A similar influence is discernable in the work on the Romanian ‘socialist civil code’ commission in the late 1960s although the proposed civil code was not enacted the Romanian authorities preferring to keep in force the Civil Code of 1865. Interestingly enough where the Romanian authorities decided to replace portions of this code with ‘socialist laws’ as in the case of ‘physical or juridical persons’ family etc. the interwar work on the civil code informed the choices of the socialist lawmakers.

101

 See e.g. Marshall I. GoldmanThe Piratization of Russia: Russian Reform Goes Awry (London and New York: Routledge2003) 74–75 for a discussion on how Russia’s privatisation was shaped by regulations passed during the Gorbachev era. See also Wladimir Andreff ‘Transition through Different Corporate Governance Structures in Postsocialist Economies: Which Convergence?’ in: Henk Overbeek Bastiaan van Apeldoorn and Andreas Nölke (eds) The Transnational Politics of Corporate Governance Regulation (London and New York: Routledge 2007) 155 at 158 for the point that the legal transformations of corporate structures and governance in the last years of communism led to a virtual takeover by insiders managers and/or employees in nearly all the cee countries.

107

 See e.g. Paul H. Brietzke‘Designing the Legal Frameworks for Markets in Eastern Europe’Transnational Law 7 (1994) 35 (discussing the fallacious assumptions of the neoliberal ideology with respect to what was to be done to transform the command economies of socialist cee states into market economies). See also Carol M. Rose ‘Economic Claims and the Challenges of New Property’ in: Verdery and Humphrey (eds) Property in Question (n 31) 275.

108

 See e.g. Kathryn Hanley‘How Russian Enterprises Cope with Payment Problems’Post-Soviet Affairs 15(3) (1999) 201; and Kathryn Hendley Peter Murrell and Randi Ryterman ‘Law Relationships and Private Enforcement: Transactional Strategies of Russian Enterprises’ Europe-Asia Studies 52(4) (2000) 627 (for the impact of absence of trust and the incomplete commercial legal infrastructure in the strategies for the contracts’ conclusion and execution adopted by the ‘post-communist’ Russian enterprises).

110

 See e.g. Paul H. Rubin‘Growing a Legal System in the Post-Communist Economies’Cornell International Law Journal 27 (1994) 1 at 2 (for the point that much of the economic literature on the first years of post-communist transitions focused on property while ignoring the problems posed by the society based on the market) and Paul H. Brietzke ‘Designing the Legal Frameworks’ (n 107). The problems of agency and corporate governance were also ignored albeit after the failed voucher privatisation in Russia and the Czech Republic they become more salient in the legal scholarship under the heading of corporate governance. See e.g. Jeffrey M. Jordan ‘Patronage and Corruption in the Czech Republic’ sais Review 12(2) (2002) 19; John C. Coffee ‘Privatization and Corporate Governance: The Lessons from Securities Market Failure’ Journal of Corporation Law 25 (1999) 1; Bernard Black Reinier Kraakman and Anna Tarassova ‘Russian Privatization and Corporate Governance: What Went Wrong?’ Stanford Law Review 52 (2000) 1731.

114

 See e.g. Andrei A. Baev‘The Transformation of the Role of the State in Monitoring Large Firms in Russia: From the State’s Supervision to the State’s Fiduciary Duties’Transnational Law 8 (1995) 247for an interesting discussion on the conceptual difficulties encountered by civil and socialist lawyers in designing an optimal post-communist corporate governance structure in the context of Russian privatisations. See also John C. Coffee ‘Starting from Scratch: The Legal and Institutional Steps to Viable Securities Markets in Transitions Economies’ Review of Central and East European Law 27 (2001) 7 for a more detailed discussion of what was missing in the Czech and Russian voucher privatisations.

125

 See e.g. George Gluck‘Foreign Investment in Hungary: An Overview of Recent Legislation’Whittier Law Review 12 (1991) 166noting that the ‘window of opportunity’ for such privatisations was foreclosed as a result of the nomenklatura privatisation scandals in March 1990 by Act VII of 1990 on the State property agency and on the management and development of related property and by Act VIII of 1990 on the protection of state property entrusted to enterprises. As far as I know there are no empirical studies documenting how the agency was capable of monitoring the managers’ activity although a particularity of the Hungarian scheme was that it was designed to attract foreign investment.

131

 See David Stark‘Recombinant Property in East European Capitalism’The American Journal of Sociology 101(4) (1996) 993.

135

 See Jadwiga Staniszkis‘“Political Capitalism” in Poland’East European Politics and Societies 5(1) (1991) 127.

147

 See e.g. Kent Klaudt‘Hungary after the Revolution: Privatisation, Economic Ideology and the False Promise of the Free Market’Law and Inequality (1995) 303 (for a general discussion on the case of Hungary).

151

 See G. Gulsun Arikan‘How Privatizations Affect the Level of Perceived Corruption’Public Finance Review 36 (2008) 706. For a rebuttal of simplistic neoliberal conceptualization of post-communist corruption see also András Sajó ‘From Corruption to Extortion: Conceptualization of Post-communist Corruption’ Crime Law and Social Change 40(2–3) (2003) 171.

154

Charles Reich‘The New Property’Yale Law Journal 73 (1964) 733.

164

 See e.g. Anastasiya Ryabchuk‘Right Revolution? Hopes and Perils of the Euromaidan Protests in Ukraine’Debatte: Journal of Contemporary Central and Eastern Europe 22(1) (2014) retrieved July 2014 http://dx.doi.org/10.1080/0965156X.2013.877268 linking the Ukrainian Euromaidan to the 2013 Bulgarian protesters’ portrayal of the political and economic elites as ‘communists’ as most of them ‘belonged to the old Communist party nomenklatura that took advantage of the transition for their own private gain’ ibid. 3.

165

 But see e.g. Jacques Rupnik‘From Democracy Fatigue to Populist Backlash’Journal of Democracy 18(4) (2007) 17; Béla Greskovits ‘Economic Woes and Political Disaffection’ Journal of Democracy 18(4) (2007) 40; Ivan Krastev ‘Is East Central Europe Backsliding? The Strange Death of the Liberal Consensus’ Journal of Democracy 18(4) (2007) 56 for some democratisation woes of successful countries just before the advent of the great economic crisis. To the contrary see e.g. Grigore Pop Eletches and Philip Levitz ‘Why No Backsliding? The EU’s Impact on Democracy and Governance Before and After Accession’ Comparative Political Studies 43 (2010) 457. For more recent studies see Paul Blokker New Democracies in Crisis? A Comparative Constitutional Study of the Czech Republic Hungary Poland Romania and Slovakia (Routledge 2013); Kristina Mikulova ‘“Potemkin Europeanisation”? Dynamics of Party Competition in Poland and Hungary in 1998–2004’ East European Politics and Societies (30 July 2013); Attila Ágh ‘The Triple Crisis in Hungary: The “Backsliding” of Hungarian Democracy after Twenty Years’ Romanian Journal of Political Sciences 13(1) (2013) 25; Dalibor Rohac ‘Hungary’s Goulash Authoritarianism’ The Wall Street Journal 27 February 2014.

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