Janine Wedel - Collision and Collusion - The Strange Case of Western Aid to Eastern Europe

The responses of officials and managers under both regimes were similar: Just as they had engaged in certain “fictions,” ranging from subtle readjusting of figures to outright falsification, to meet prespecified targets under central planning, so they employed the same kinds of fictions in the aid process to please the Western consultants and the donor community. Some so-called privatizations proved to be paper transactions only.91

Just as there were obvious reasons for the original development of ochkovtiratel’stvo, so there were reasons for its use in the postcommunist era. By unwittingly encouraging the habit of ochkovtiratel’stvo, aid served to reinforce some of the old communist ways. Yuriy Yakusha, economic affairs counselor at the Embassy of Ukraine in Washington, D.C., cited a “discrepancy in understanding” between donors and Ukrainian authorities as to what could be accomplished with regard to privatization in a given time frame. “They [the donors] were expecting a little unrealistic rate for privatization”: 800 enterprises each month. “Technically perhaps it was possible,” Yakusha conceded, but there was “real political opposition” and a property registration system was not in place. There was “definitely” a lot of pressure to deliver quick privatization, said Yakusha, “no matter [at what] expense and what outcome. It’s a kind of socialist planning.”92

Yet whether its aims were realistic or not, the donor community typically continued to press for speedy privatization, in part through its consultants in Central and Eastern Europe, who were not only engaged to assess individual companies, but later in the aid effort also worked directly with ministries responsible for planning the privatization of state-owned enterprises. Under U.S. assistance, for instance, teams of resident consultants, supplemented by short-term experts who came in for specific tasks, were placed both in Poland’s Ministry of Privatization and Hungary’s State Property Agency to accelerate privatization efforts. According to USAID official Mark Karns, the teams were charged with the task of helping certain divisions in the ministries responsible for mass privatization to focus more on transactions and to enable the ministries to move to the execution phase.93 But politics could and did interfere with their work. After the change of governments in Poland in 1993, alternative projects had to be sought for the advisers who were just coming on board. There was a built-in tension between the visions and demands of donors, on one hand, and the realities and political constraints faced by local officials, on the other.94

No consultant or aid agency can reasonably be blamed for not predicting the twists and turns of Central and Eastern European politics. But the changing nature of privatization policies, combined with the time it took to get contracts signed and consultants into the field, made providing effective privatization aid difficult.95 An analyst who observed efforts by Poland’s Ministry of Privatization to answer objections to its mass privatization plan in 1992 holds that these efforts “indicate the ways in which it, the [Ministry of Privatization], and the foreign consultant presence all were politically sensitive and may have contributed to declining support for privatization.”96

Donors had generally assumed that the East would accept the political, economic, and social changes recommended by donor governments and the international financial institutions. According to Jan Krzysztof Bielecki, prime minister of Poland during 1991 (and also a minister in a subsequent government), no one in the relevant policy circles, from foreign advisers sent by international institutions such as the International Monetary Fund (IMF) to local officials, considered alternatives. At that time, “nobody [in the donor community] raised the issue of a social safety net,” recalls Bielecki, which he finds startling in retrospect. “We forgot, donors forgot.… [No Central and Eastern European aid recipient asked] the donors to insist on a social [safety] net.” The fact that nobody “took it into consideration as a necessary political factor” ultimately “strengthened ex-Communist forces in these countries.”97 Bielecki was only one of a number of politicians in Poland and the region whose tenures in office were short-lived. Both Poland and Hungary have elected socialist/leftist governments, as have some nations farther south and east. Pushing reforms too hard could delay them even further because in some cases it could lead to a backlash effect that would serve to solidify opposition.

RETHINKING PRIVATIZATION AID

Clearly, one major issue in assessing technical assistance for privatization was its sensibility in the post-1989 Second World: To what degree could privatization aid—with its ideological implications on the donor side (reflected in how donors targeted, structured, and conditioned the aid) and inherently political overtones on the postcommunist (recipient) side—achieve positive results?

A related issue was corruption. With privatization inevitably came corruption – albeit to varying degrees, depending on the context and the privatization program being implemented.98 Some privatization programs held up in the West as “success stories,” at least initially, were in fact riddled with corruption.99 Involving donors and consultants in such a messy business as privatization not only rarely achieved positive results, but also, as we shall see in the Russian case (presented in chapter 4), the involvement of foreign consultants could be counterproductive.100

All around, ideological, institutional, and political constraints on the part of the consultants, the donors, and the aid recipients appeared to work against the effective use of aid money for privatization. Privatization called for a complex task of institutional change, involving building basic legal infrastructure such as property rights and viable systems of banking and taxation. Working with these politicized processes was a far more challenging task than achieving macroeconomic stabilization, in which a recipient government could bring inflation under control by decree or regulation.

It is telling that Central Europeans themselves were largely responsible for the varying privatization paths and programs on which they embarked. Most privatization that did take place in Central Europe (excluding Russia) could not be linked to foreign aid expenditures. Other developments in which foreign consultants had no role, such as the sale or liquidation of smaller state-owned enterprises at the local level and the considerable growth of private sectors, tended to be the chief engines of restructuring. In Poland, for example, the government brokered joint ventures of its most attractive firms and, in small towns, handed over state-owned small shops to the municipalities, which left them in public hands, sold them, or closed them. Much privatization was accomplished through liquidation, with the major players the Ministry of Industry and company insiders.101

A corollary point is that foreign aid in the large factories might have been helpful had it been directed not toward privatization per se, but toward working with the various interests to help solve problems. This aspect of the failure of frontal-assault privatization has been noted by anthropologist Gurr.102

Privatization aid also appears to have played a marginal role in finding investment partners. It is revealing that some Central and Eastern European companies committed to undergoing privatization and to finding joint-venture partners ultimately chose to bypass foreign aid and Western consultants entirely. When help was believed necessary, the companies selected and paid their own consultants, who answered directly to the companies. Likewise, when Central and Eastern European governments deemed the privatization of a company to be a priority, they too employed their own resources and those of potential joint-venture partners to get the process under way.