Ever since the fall of the Berlin Wall, which also represented the fall of communism, there has been a talk about the privatization of state companies. You could’ve literally heard this term in every corner.
Let’s see what exactly privatization is, what does the process includes, and why it is easier to conduct it in some countries, while it is an extremely lengthy process in other countries.
What Is Privatization
Privatization is a process in which the state ownership of the company is transformed into private ownership, via different models.
The core of privatization is a transfer of state capital, or the capital provided by the state itself, into private capital, provided by individuals, or shareholders, depending on the company type.
Types of Privatization
There are three most important models of privatization:
- Privatization via direct sale
- Voucher privatization
- Selling shares to employees
Privatization via direct sale
The simplest model of privatization, and the first one that was used, is privatization via direct sale, which is still used today, in some parts of the world.
This privatization model includes a transfer of the state ownership to private individuals, and there are two main methods to do this type of privatization: public subscription of shares and direct sale to the highest bidder.
In the first method, the state needs to set the price of one share, and offer them to individuals, while the other method includes that state organizes auction, where the highest bidder wins, or the state can also negotiate directly with the potential buyers.
This method is proven to be the most efficient privatization method because it usually helps to increase economic efficiency, and improves the ownership structure.
However, in some countries, this method was not so successful, mostly because of the injustice problem it causes, since it had happened that not everyone had the same chances to participate in the auction.
Apart from that, if a foreigner would win the auction, some employees were looking at that as selling the state interests, and with that the sovereignty of the country itself, which had lead to massive dissatisfaction.
The second privatization model is the voucher privatization. This model is fairly simple. Residents were given the free vouchers, which, in return, they were able to use to purchase the shares of some company.
The number of given vouchers was different, and it depended on different factors, such as years of working, or the age, but also from other factors, depending on the type of industry.
Here we can mention two sub-models, Czech and Russian. In the Czech model, voucher privatization was organized on a central level, for a large number of different companies simultaneously, while the Russian model included decentralized voucher privatization, where every company individually did this process.
Selling shares to employees
This privatization model includes quite a significant price reduction of the company’s shares, or even giving them to employees, as well as managers, for free.
This model is the most painless for the already established ownership structure because the ownership is shared between the people, who are already employed in the company.
Employee shareholding is a model that was used quite a lot in Yugoslavia because it was the least hurting method from the political point of view.
The Most Popular Recent Privatizations
In 2014, it was announced that the popular coffee chain from Canada, Tim Hortons, will be merged with the Burger King.
Dell was bought off in 2013 for $24.4 billion, then went back public in 2018, after a series of transformations, when it was listed for around $24 billion again.
Tehnomedija and Vladimir Vrbaski
Balkan titan Tehnomedija was the most recent privatization victim since the company was bought off from the state in January 2020 by SCOM, whose owner is Vladimir Vrbaski.