DP1058 The Economics of Enterprise Restructuring in Central and Eastern Europe

Author(s): Philippe Aghion , Olivier J Blanchard , Wendy Carlin

Publication Date: November 1994

Keyword(s): Bank Recapitalization , Eastern Europe , Managerial Incentives , Privatization , Restructuring , Transition , Unemployment

JEL(s): P50

Programme Areas: Industrial Organization

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This paper begins from the twin observation that on the one hand, privatization which leaves control in the hands of the insiders has produced little restructuring while on the other, state-owned enterprises have engaged in some restructuring even in the absence of a clear prospect of privatization. It situates enterprise restructuring at the heart of the process of transition of the state-owned enterprise sector. A set of theoretical tools is assembled which permits the analysis of the speed and depth of restructuring, and clarifies the roles of managers, employees, the state, and banks in bringing it about. A mapping is provided between the theoretical predications and a large body of anecdotal evidence on enterprise behaviour in the Central and East European economies.