This article was written after a decade had passed since the socialist countries of Eastern Europe and the former Soviet Union embarked on the transformation to market economies. One of the primary tasks facing these economies was the privatization of the bulk of their enterprises. Debates raged in the early 90s about the best method of privatization. The method that at first seemed to work in the Czech Republic was voucher privatization with voucher investment funds. This “solution” was eventually promoted by the multi-lateral development agencies and Western academic advisors throughout the transition economies from Slovenia to Mongolia. This paper examines the “economic” arguments put forward in favor of voucher privatization and it gives an institutional analysis of how the investment funds might be expected to behave in spite of expectations seen through rose-colored glasses. As one of the “great” social experiments of the late 20th century, some lessons for the future are drawn.
This paper is also available as a World Bank Policy Research Working Paper.
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