5.1 Introduction
To a large extent, the success of the transition in East Europe depended on the ability of the former state-owned firms in the region to increase the efficiency with which they employed resources and to conform to the dictates of the market. While it is true that macroeconomic stabilization was a prerequisite for improved economic performance, without major improvements in the performance of the region s firms the best that stabilization could hope to achieve was equilibrium, characterized by stagnant output, low incomes and lack of international competitiveness. Only if productivity, profitability and
competitiveness
at the level of the individual firm improved could output grow, incomes increase and integration into the global economy begin.
At the start of the transition there was considerable scepticism that managers of state-owned
enterprises
would be up to the task of modifying the operations of their firms so as to respond effectively to the emergence of markets and hard budget constraints (Kornai, 1990; Lipton and Sachs, 1990; Phelps
et al
., 1993). Once the
privatization
programmes
began
, concern shifted from the ability of managers to manage to the ability of the new
owners
to exercise adequate control over their firms through the available mechanisms of corporate governance (Boycko
et al
. 1995; Desai, 1996; Dittus and Prowse, 1994; Litwack, 1995; Stark, 1994).
[2]
Unlike the macroeconomic
outcomes
of transition, which can be
quantified
by means of data on output, inflation, employment, the amount of property privatized and so on, changes in the behaviour of managers and in the way in which firms are run are less amenable to quantification (Bornstein, 2001). Indeed the changes are often so subtle that it is difficult either to establish objective criteria by which to judge change or to determine accurately whether such changes have taken place. Accepting this caveat, this chapter uses detailed case studies of a relatively large sample of firms to determine how managers and firms in three transition economies “ the Czech Republic, Hungary and Poland “ reacted to the transition, and to investigate whether some common patterns of behaviour were evident, particularly among firms that were judged to be adjusting successfully.
[2]
For a description of privatization programmes see Brada (1996). Hart (1995) provides a useful survey of corporate governance from both a theoretical and a practical standpoint.
5.2 Sources of evidence: introduction to the case studies
The evidence on the behaviour of firms in transition economies is drawn
mainly
from case studies by the World Bank under its project ˜Enterprise Behavior and Economic Reforms . Two rounds of interviews were carried out in Czechoslovakia (subsequently the Czech Republic), Hungary and Poland. These
countries
were selected in part because transition was most advanced there when the project was designed. For each country, a local project leader was selected and a team of case study writers was
assembled
. These
teams
selected firms according to a common selection process that was designed to cover the major sectors of the economy, to include a variety of ownership forms,
size
and
likelihood
of economic survival, and to be flexible enough to allow for national
peculiarities
and the
willingness
of managers to participate in the interviews and data collection. The interviews, data gathering and presentation were carried out according to a common format.
The first round of 36 case studies was completed in late 1992. The 36 cases and a synthesis of their implications were published in Estrin
et al
. (1995). The second round of 18 cases, completed in late 1993 and early 1994, was published in Brada and Singh (1998). These cases were supplemented by eight additional case studies of Hungarian firms in 1992 (Brada
et al
., 1994) and six additional case studies of Polish firms in 1994 (Wosinska, 1995).
The use of a common questionnaire and a small team of case writers gave a consistency of approach and an interpretive validity that permitted stronger inferences to be drawn than would have been possible with cases compiled for differing objectives and by disparate
methods
and researchers. The use of parallel cases from three countries also helped to guard against bias,
especially
as the cross-country comparisons were accompanied by efforts to match some firms across countries by sector, size or ownership type.
Nevertheless there may have been an element of self-selection in the sample because firms that were doing well in the transition were perhaps more willing to participate in the survey than those that were likely to fail. While such self-selection would pose problems for some types of analysis, the purpose of this inquiry was to identify the commonalities in behaviour that existed among firms that appeared to be restructuring successfully. Thus an overweighting of the sample towards successful firms was desirable. The sample nevertheless included firms that were liquidated or dismantled after the case studies were written, as well as firms whose future is still in doubt.