Voucher privatization with investment funds: an institutional analysis

David Ellerman

No 1924, Policy Research Working Paper Series from The World Bank

Abstract: Common wisdom among post-socialist reformers has beento use voucher investment funds to provide the corporate governance needed to restructure newly privatized enterprises after mass privatization efforts. The idea has been that mass privatization would spread the ownership too wide and make corporate governance difficult. The author examines the likely institutional behavior of voucher funds and the possible effects of their development on a transition economy. Since most policy advice has been in favor of voucher privatization with investment funds, the author can be seen as playing the devil's advocate, but his argument is institutional, not statistical. Policymaking requires insight and foresight into how institutions will tend to function. He concludes that voucher funds will introduce a bias in the economy away from the real industrial sector toward an ersatz"financial sector"that will have little if any positive financial role but will be well-protected by friendly regulators. One long-term consequence of voucher privatization with investment funds, according to this view, is a de facto"industrial policy"of real sector decapitalization in favor of short-term rent-seeking by fund managers through board sinecures and lucrative side deals with portfolio companies and through financial market manipulation and paper entrepreneurship in the"financial sector."Without strong corporate governance from the funds and without stable ownership of their own, many enterprise managers will exploit the post-socialist version of the"separation of ownership and control"to grab what they can in the form of salaries, bonuses, perquisites, and side deals. The most likely results of the strategy of voucher privatization with investment funds may be a two-sided grab fest by fund managers and enterprise managers -- together with the accompanying drift, stagnation, and decapitalization of the privatized industrial sector.

Keywords: Economic Adjustment and Lending; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Economic Theory&Research; Banks&Banking Reform; International Terrorism&Counterterrorism; Banks&Banking Reform; Economic Adjustment and Lending; Environmental Economics&Policies; Economic Theory&Research (search for similar items in EconPapers)
Date: 1998-05-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:1924

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().