**1.** Introduction

What kind of privatization program is best suited to stimulate enterprise restructuring of formerly centrally planned economies? This question has been hotly debated since 1989. Two opposing views have been most prominent. The first view, expressed by most Western busiiness and political leaders is that privatization is best pursued case-by-case, with emphasis on sales to new owners including foreign investors. The sezond view, espoused by a minority of 'radical' economists and economists-turnedpoliticians was that restructuring is best pursued through economic incentives, combined with "mass" privatization of State enterprises to become widely held ('public') joint stock corporations. Hungary, for example, has followed the gradual, case-by-case approach; the Czech Republic and Russia have relied on mass privatization. In Poland, mass privatization has been held up for nearly four years.

The ultimate test, of course, is future productivity growth and rising welfare standards. We cannot yet measure these. The disaggregated data on production and employment by industry required to do this are either not available or unreliable.' The only objective measure available, comparable across countries, is export performance. Detailed export statistics provide not only an indirect measure of structural change, but export performance has a very direct impact on productivity, since higher exports will permit higher imports of scarce Westem capital goods and services (computers, machinery, process controls, telecommunication equipment, software, management consulting, etc.). In the near term, productivity growth will crucially depend on such imported items.

Trade data reveal to what extent firms have been able to reorient themselves to create and exploit competitive advantages. We now have four years of data, enough to get an idea of what is going on, and to compare the performance of the Central and East European Economics (CEECs) to one another.

The data suggest that the country that pursued mass privatization the most act;vely and credibly--the Czech Republic-has done the best in terms of restructuring its industries and reorienting them towards world markets. Those that pursued a gradualist approach-Hungary being the main example-have unuergone less change in the structure of exports. However, export growth has also been above-average. The two countries where the output collapse has been most severe-Bulgaria and Romania-have the weakest overall trade performance. Bu'lgaria differs from Romania, however, in that the composition of its ecports to the EU changed very rapidly, suggesting that substantial restructurinig is occurring.

Shifts in the structure, composition and geographic pattern of trade flows alone are, of course, i'ot necessarily indicative of restructuring at the leve-l of the firm. Firms could have reoriented exports from Eastern to Western countries without altering any of the characteristics of the goo-is involved, and therefore without restructuring. However, CMEA and Western markets were to a large cxtent segmented, with different quality standards and designs. Except for raw materials, the shift towards Westem markets is not possible without considerable 'restructuring' by adopting new product design, technologies, quality control, marketing strategies, and so forth. Restructuring may or may not involve visible actions such as plant closures and layoffs.

Aggregate unemployment may not embody much information on the magnitude of restructuring that is occurring in an economy. It has sometimes been argued that the Czech Republic's unemployment rate of only 3.5 percent indicates that much of the required restructuring is yet to come, especially as rates vary between 10 and 16 percent in the other CEECs. The export performance of the Czech Republic is at odds with this view.<sup>2</sup> The impact of the European Union's (EU) trade policy vis-a-vis the CEECs has been just as hotly debated as privatization.<sup>3</sup> Regmlts to date suggest that exports have not been