Social consequences of privatisation assessed

Since the mid-1990s, Bulgaria has seen a massive process of privatisation. This article examines the social and employment aspects and effects of privatisation, which have included major job losses and outbreaks of tension, as of mid-2004.

Privatisation in Bulgaria started officially in April 1992 with approval of the Law on Transformation and Privatisation of State-owned and Municipal Enterprises. A decentralised approach was chosen for implementation of the process. This means that the competencies are distributed among various institutions - the Privatisation Agency and sectoral ministries are responsible for the privatisation of state-owned enterprises, while the municipalities are competent for the privatisation of municipal property in their area. The distribution between the Privatisation Agency and the various ministries of the responsibility for particular state-owned enterprises was based on the amount of these enterprises' fixed assets.

According to official Privatisation Agency data, as at 31 May 2004 the shares and stock of 5,080 former state-owned enterprises had been sold. As of the same date, some 56.57% of the assets of state-owned enterprises had been denationalised, that is 85.66% of assets subject to denationalisation. The overall financial volume of the privatisation deals signed is USD 8,791 million. The sale of large enterprises from the major economic sectors - chemicals, metals, defence, mechanical engineering, food and light industry - has almost been finalised.

The two figures below show the development of the privatisation process in Bulgaria over the 1993-2004 period, based on Privatisation Agency data.

Institutions involved

The Privatisation Agency was established at the beginning of the privatisation process, and is competent for the privatisation of the largest number of state-owned enterprises. It develops programmes and carries out so-called 'cash privatisation'- ie sale against cash or other means of payment, as opposed to the investment bonds used for 'mass privatisation'. The Privatisation Agency is directly subordinate to the cabinet.

The Post-Privatisation Control Agency controls the fulfilment of privatisation contracts, and monitors potential violations of the privatisation legislation or the obligations of specific privatisation contracts. The Agency may impose penalties and, in the worst cases of non-performance of obligations, may request that the privatisation deal be broken. Such reversal of privatisation deals is extremely difficult, requiring a court to force the buyer to return the shares it has acquired by the virtue of the privatisation contract. An obstacle to breaking privatisation deals is presented by the changes in the legal status of privatised enterprises, such as capital increases and the presence of new investors. Where privatisation deals turn out unfavourably or the law is breached, the officials who allowed the violation are to be held responsible (with personal responsibility for both sellers and buyers).

Social effects

As in almost all 'post-socialist' countries, the privatisation process in Bulgaria has been accompanied by political problems and severe conflicts of interests, which have resulted on occasion in public scandals.

There is thought to be low public trust in the privatisation process and a general lack of support for it. The reasons have been numerous and have often related to particular privatisation deals. As a whole, the practice of privatisation in Bulgaria has arguably provoked a negative attitude towards denationalisation and raised doubts about its effects. The basis of this prevailing public opinion is what is regarded as the high social price of privatisation. Delays in the process, including the late start of actual privatisation (which began only in 1997), but also the way it was implemented - such as the privatisation schemes and procedures used and the lack of solvent local investors - helped produce social tension around every privatisation deal.

Commentators argue that a responsible attitude by the social partners towards privatisation is an important prerequisite for public political consensus on how privatisation is to be be implemented. If the social partners, and especially, trade unions, pursue their own specific interests and are not aware of and do not exercise their role as a 'corrective' in the political process, including denationalisation, it is argued that the result will be a misuse of the social aspects of privatisation and its use in favour of certain groups and individuals. An example cited is Bulgaria's 'worker-management enterprise' scheme, which critics claim has allowed the legal 'draining' of the assets of state-owned enterprises, and is thus often referred to as the worst privatisation method in eastern Europe. More recently, an increased influence of trade unions has, critics allege, had a negative impact on economic development, again because of an 'incorrect' interpretation of the social aspects of privatisation - for example, critics cite cases where managers and employees of an enterprise are entitled to obtain ownership and/or participate in management, without taking responsibility for the company’s condition.

The state’s efforts to compensate for the negative social effects of privatisation have mainly involved imposing on the new owners contractual social commitments, such as a commitment to retain a certain number of jobs for a certain period, or to pay compensation and provide social support in cases of redundancies.

Ever since the start of the privatisation process, it became apparent that the social commitments in the privatisation contracts often cannot be fulfilled, and therefore in the majority of cases the Privatisation Agency agreed to reduce the burden through annexes to the contracts. Using this technique, the state arguably transferred the redundancy problem to the trade unions and the new owners. The government has found indirect ways to continue supporting privatised enterprises where social tension is rising, for example by obliging the remaining non-privatised monopolies such as the National Electric Company and Bulgargas, plus state institutions such as the National Social Security Institute (NSSI), to reschedule the debts of these privatised firms. This practice continues. It has not attracted severe criticism from the international financial institutions, which are financing many programmes related to Bulgaria's economic reforms, but has a debatable social effect. Since such measures are often not part of the overall restructuring plan for a particular privatised enterprise, but instead appear to seek to lessen social discontent in particular situations, the logic behind these decisions seems unclear and, according to critics, violates free market principles. It is argued that by transferring the debts of private entities to all taxpayers, the state only postpones the failure of some privatised enterprises and allows some unscrupulous owners to continue draining off assets.

Commentary

Some Bulgarian observers argue that privatisation processes in central and eastern Europe are not analogous with those in western Europe. The uniqueness of the process in central and eastern Europe results from both the different starting conditions and the necessity to transfer a significant part of public wealth to private entrepreneurs within a very short period. Privatisation in the transition economies has been part of an overall change in society - it is not only individual enterprises in individual economic sectors that are being privatised, but the whole economy is undergoing denationalisation.

The high social price of the Bulgarian privatisation compared with most of the former socialist countries - eg the Czech Republic, Poland, Hungary and the Baltic countries - has been evident from the increased unemployment resulting from privatisation and the inability of the state in the transition period to compensate for it by using appropriate social measures. The state’s efforts to compensate the negative social effects of privatisation have mainly been directed towards imposing social and employment commitments on the new owners of former state-owned enterprises. (Rumjana Zeleva, Balkan Institute for Labour and Social Policy)