Slovenia’s Privatisation Failure and Failure to Privatise

Posted by in Analize, Gospodarstvo 03 Dec 2014

On 1 May 1998, privatisation in Slovenia was declared officially over – an occasion marked by the coming into force of a new law. Passed only weeks earlier, it was aptly titled the ‘Act Concluding Ownership Transformation and Privatisation of Legal Entities Owned by the Development Corporation of Slovenia’. Fifteen years later, independent observers still report that the State holds an excessive ownership stake in the Slovene economy. International institutions indeed admonish Slovenia for not having privatised enough, even though a massive privatisation had taken place. In 1990, there were 3,709 ‘socially owned’ companies operating in Slovenia (Smith, Cin et al. 1997). Approximately 1,500 were at least partly privatised, the remainder ended in insolvency or liquidation (cf. Simoneti, Bohm et al. 2001). By 2010, the State had retained significant shareholdings in 79 companies in 7 industrial sectors (AUKN 2011). However, this official figure understates the true involvement of the State with the Slovene economy. It accounts neither for investments held by State-owned enterprises (SOE), nor for collateral on non-performing loans seized by State-owned banks during the recent economic crisis.

As lately as in April 2013, the OECD complained over the ‘already large state ownership in the economy’. The organisation also noted that ‘privatisation of non-financial corporations supported by the definition of a clear asset management strategy, underpinned by a well-defined distinction between strategic and non-strategic holdings, could attract valuable equity’ (OECD 2013, p. 65). Only a month earlier, an IMF mission to Slovenia had concluded: ‘Misconceived defence of “national interests,” including the reluctance to sell assets to foreigners, burdens the budget and unduly prolongs the corporate and financial sector distress. A prominent privatization could convey a powerful signal to international investors’ (IMF 2013).

This article argues that the Slovenian experience with privatisation has been marked by two phenomena. First, the Slovenian State did not exit enough business – there was widespread failure to privatise. Second, the privatisation campaigns that were undertaken suffered from several severe problems – there was widespread privatisation failure. Both phenomena were related even though the precise relationship can be modelled in several ways. For instance behaviourally – privatisation failures could have been common knowledge and were reflected in non-negligible ‘failure expectations’ that inflated the expected costs of privatisation (thereby contributing towards failure to privatise). The article assesses several ways of defining and modelling privatisation failure and the failure to privatise.

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