Janez Prašnikar, Polona Domadenik, Matjaž Koman

The introduction of self-management in the early 1950s placed the former
Yugoslavia on the world map, demonstrating a third path of socioeconomic
development between market-based and centrally-planned economic systems.
Social property was defined as the property of all and none. It was managed byemployees on the principle of one employee, one vote. Until then, economic
democracy had not been introduced on such a large scale, and so the Yugoslav
economy soon attracted research attention from around the world. At themicroeconomic level, this literature was marked by a paper by Ward (1958).
Although the introduction of self-management in Yugoslavia was first andforemost a political project, it clearly had a significant impact on the behavior offirms and the economy.
The aim of our paper is to investigate whether the transition from a selfmanaged economy to a market economy – which took place in the countries of theformer Yugoslavia almost two decades ago and was characterized by theliberalization and openness of economies and implementation of difficult andcomplex market-oriented and structural reforms, including the transformation ofownership – had a positive effect on firms’ behavior and can therefore lead tofuture growth.
The issue of privatization and efficiency of firms in post-privatization
period is closely linked to question of restructuring. The firms that achieve higher
profitability in the period under study are supposed to undergone deep
restructuring in the past. On the other hand, loss-making firms tend to be groupedamong firms that didn’t adjust sufficiently (see Pinto et al. (1993) for example).
Evaluating the extent to which restructuring has been successful and thedeterminants of the desire and ability to restructure is crucial to the people andpolicy-makers in CEE economies. Recent theoretical and empirical studies
highlight managers as the key agents of restructuring. Under these circumstances,managerial incentives may be the dominant influence on whether or notrestructuring occurs.
In this study we analyze post-privatization firm behavior and restructuring
in former Yugoslav republics, more precisely in Macedonia, Montenegro andSlovenia in the in the frameworks of Prasnikar et. al (1994) and Roland (1996 &2000). Our analysis is focused on early phase of transition and also on late phaseof transition. This enables us on one hand to see how transition process affects thefirm behavior in a given country and on the other hand allow us to makecomparisons between countries.
The analysis of firm behavior is based on a co-operative non-symmetric
Nash bargaining solution concept. The model is a modified version of Prasnikar
et al. (1994) and reflects the objectives of all decision-makers in a firm as well as
their strategic interactions. It assumes that the polices of firms are jointly
determined by the workers, managers and external owners. Since firm behavior isprobably different if the majority owners are insiders (managers and workers)
compared to majority owners being outsiders, we have to distinguish between the
two types of firms.
In order to study the restructuring, we adopted Roland (1996 & 2000)
model. We divided restructuring process of transition firm into two stages:
defensive (cost-related) and strategic (revenue-focused) restructuring. While thefirst – defensive restructuring – deals with loss-making activities, the second
includes investment in developing firms’ main capabilities to gain comparativeadvantages. Studying the defensive restructuring would provide an answer to aquestion of how fast the firms adjust number of employees with respect tochanges in wages and sales. The second part, the strategic restructuring, cruciallydepends on firms’ investment in fixed (buildings, equipment) and ‘soft’ capital(research and development, marketing, management, human resources).
The empirical analysis is based on the questionnaires, supplemented byfinancial statement data. In Macedonia, the basis of our analysis consisted of
1,167 companies privatized in the 1994-1999 period and which had sent theirfinancial statements data to the Macedonian Agency of Privatization. Due toinconsistencies in the data, and unwillingness to response, we ended up with panelof 510 companies for 1994-1999 (early transition period) and 160 companies forperiod 2004-2007 (late transition period). In Montenegro, the basis of our analysis
consists of 225 firms that were planned for mass voucher privatization (MVP) inyear 2000. For them, we were able to acquire relevant information for the period
1998-2000 (early transition period). However due to liquidation, bankruptcy andother reasons only 127 firms were still operating in year 2008. Out of these firms
60 firms were chosen according to their size and importance for the Montenegro
economy. Since some of them were not willing to participate we ended up with 55
companies. For them we collect information for 2004-2007 period (lateprivatization period). To study early transition period in Slovenia (1991-1995) wecollected data from 458 companies, who had permission by the Agency ofPrivatization to start implementing privatization. The analysis of late transition
period in Slovenia (1996-2000) is based on 157 largest Slovenian companies thatwere privatized in the 1993-1995 period.
The key results of our research are as follow.
1) Investment in Slovenian firms in early phase of transition strongly depended
on the availability of internal sources (demand-side factors) and wereindependent from supply-side factors (as neoclassical and accelerator modelof investment claim). For companies that opted for predominantly insiderownership, the availability of internal sources is an important factor forinvestment, while the choice for “more” investment and “less” wages is alsoobvious. The bargaining model for Slovene firms in early phase of transition
reveals that a part of the surplus goes for wages and the part for investment.
This holds especially for the companies that opted for predominantly insider
privatization and in partially privatized companies. Wages in companies withpredominantly insider privatization model can be partially financed fromdepreciation. This is even more pronounced in companies with outsider
privatization, where wages are set mainly based on alternative wages.
Alternative wages also substantially determine wages in companies, wheremanagers established bypass companies.
2) Slovene companies are actively changing employment based on changes inmarket parameters. Their adaptation of employment is defensive (short-term)and strategic (long-term). Their behavior is in the second stage of transition is
guided by the profit motive regardless of privatization model (predominantlyinsider or predominantly outsider), while the ownership share of theemployees and employee participation have no statistically significant
influence on the intensity of company responses. The more export-oriented
the companies are, the more intensive is hiring. Restructuring of Slovene
companies in the late phase of transition through investment is proceeding
based on the profit motive. Dependence of investment on the availability ofinternal funds is present for all kinds of investment, which points at imperfectfunctioning of financial markets. There is no appropriation of internal funds
for higher wages, such as market wages (alternative wages), when speaking ofinvestment in fixed capital and training, but there is a choice for “more” forwages and “less” for “soft” investment (investment in R&D and marketing).
Employee ownership and the presence of employee representatives insupervisory boards have no significant impact on company restructuring, andthe same goes for export orientation of companies. Even companies that opted
for predominantly outsider privatization show no significantly different
behavior when investing in fixed capital and in training. This influence ispositive for investment in marketing, while it is negative and barely
significant for investment in R&D. The results of analysis of defensive andstrategic restructuring of Slovene companies in the studied period show thatthe key factor is inclusion of a company in the world competitive framework,
while companies with different structures and institutional characteristics
behave in a similar way.
3) The behavior of the Macedonian companies in the early phase of transition iscloser to the income per worker hypothesis than to profit maximization.
Companies which opted for predominantly insider privatization behave in thisperiod similarly as the companies that opted for outsider privatization,although the evidence shows that the latter used strategic restructuring to alarger extent, while the former used mainly defensive restructuring.
4) In the late phase of transition the process of restructuring in Macedonian firms
continued and resulted also in the behavior changes. Our data show, that inthis period behavior is closer to profit maximization.
5) The behavior of the Montenegro companies in the early phase of transition iscloser to the income per worker hypothesis than to profit maximization,
regardless of the ownership. At that stage very limited signs of defensive
restructuring are observed6) In the late stage of transition the data reveal that Montenegro companies madeon average the step ahead. Mainly they were able to reduce the number ofemployees (defensive restructuring) which contributed to the growth of the
productivity in a large degree. The process of strategic restructuring was based
mainly on investment in physical capital, while there is almost no investment(with few exceptions) in soft capital. This is pointing the transitional nature ofrestructuring in these companies and is accordance with the theory (Roland,1996, 2000) which stress that in the conditions of incompletely developed
financial markets and transitional “ownership”, the companies will take careof urgent investment, that will enable the renewal of existing physical capitalstock, which is needed for uninterrupted production (on going concern), andnot for new investment.
JEL: C33, D01, L2, 031, P2,