Vvratusa isa 2008

Review of the researches conducted since 2003

3.1 In Serbia

Judging according to the findings of the only representative research of social consequences of privatization in Serbia from 2001 to 2006 (unfortunately but indicatively no item asked about participation in decision-making), that the Center for education, research and privatization (CERP) of the United Branch Tradeunion „Independence“ carried out on the 50 out of the total of 2115 privatised enterprises in the collaboration with the Progetto Sviluppo, the discrepancy between wanted and realized in the process and project of privatization remained wide. Findings of this research suggest that trade unions in Serbia did not draw the lessons from the bitter Polish experience of the „great swindle“ or tender privatisation of productive and financial sector at rock bottom prices, flooding of domestic market by imported goods, deindustrialisation, high unemployment, increase of regional differences, ruine of agriculture, high indebtedness (Poznański, Kazimierz, 2000, Vratuša, V., 2001a). Trade unions did not secure active participation in the definition of goals and criterions of the destribution of results of local and national longterm just and sustainable economic and social development strategy, in the inactment of the comprehensive system of laws and legal acts regulating quantity and quality of ownership relations’ transformation and protection of work and social rights of the employed and those who lose the job, as well as in the close monitoring of the realisation of these fundamental social norms about which the minimum of social consensus should be reached, through uniting forces with interested citizens in all forms of social dialogue and sindical fight. Trade unions in Serbia, instead, divided and thus additionaly weakened, have allowed in great part that the privatization envelopes beside them in a chaotic manner and contrary to the interests of their dwindling membership and of the majority of citizens in general.

In nearly half of the enterprises included in the mentioned research (45,83%), the trade union did not take part in the process of privatisation, and in one fourth of them (22,92%), especially those that were privatised through auctions, the trade union was not even informed about the beginning of privatisation. In the enterprisesе that were privatised through tenders, in 60% of cases trade union did not have a representative in the tender comission, in 47,92% of cases it was not acquainted with the contract about the capital selling, and during the speeded up auction procedure in 13,33% of the enterpries survayed, social program was omitted and in the collective contract were not included leave checks and protection measures for workers after privatization (CERP 2006: 5-7, 9). ⁴
Beside active opstruction of the trade unions’ participation in the process of privatization from the side of the enterprise management, the CERP 2006 research detected also the existence of innaction, bad organisation, internal lack of information and of interest, but also of fear and feeling of powerlesness both among trade unin representatives as well as among the employees at large. Due to the lack of knowledge, right information, money and the wish that foreign „strategic partner“ buyes the enterprise, employees gave up the formation of the consortium in order to compete among other potential buyers. Domestic and foreign buyers, often hiding behind societies with limited responsibility registered in far away island tax havens, according to the view of tradeunionists survayed in 42% of cases did not fulfill their legal obligations concerning production investment, trade union and social responsibilities which were included in the selling and buying contracts, and in 23,33% of cases thay have even devastated the enterprises that thay have bought. Privatisation agency has begun the procedure in one fourth of the survayed enterprises for the break up of the contracts, but only after the „thiefs“ have already „sacked“ enterpirses even with the „support of the authorities“ according to the oppinion of the survayed trade union representatives in 13.33% of cases.
In the privatised enterprises included in the survey it came to the reduction of the number of employed by 39% (from 25.344 to 18.179), with leave checks for “voluntary” departure from the enterprise that varied from 50 tо 500 Euros for each year of previous employement. The new owners fired those “un-obeying” without any kind of leave checks, and gave employment to those “obeying” in the gray or black regime in 10.5% of surveyed enterprises. Every second person that lost employment remained still at the time of the survey on the evidence of the National service for employment. To those that remained employed or gained the job in surveyed enterprises, unfavorable laws and new owners diminished their working rights and social security. New owners of controlling shares’ packages began to organize “their own” trade unions, to pay on average one third higher wages for 113% greater scope of work of the diminished number of employed workers, and to pay out their investment obligations in 77% of cases not from fresh capital, but from the enterprise income, credits, selling of stocks and greater part of capital than legally allowed or through emitting managing shares not consulting minority share holders. Minority shareholders have organized themselves in one half of surveyed enterprises and in the rest they do not have access to the book of shareholders or have already sold their shares, often giving in to different pressures and disinformation.
Having in mind all these bad experiences, it is not surprising that absolute two third majority of respondents (62.5%) expressed their dissatisfaction with the effects of privatization (COIP, 8-13).
Another-words, privatization in Serbia in 2006 remained illegitime as it was in 2003 when the absolute majority of citizens opposed privatization of public enterprises and services and demanded some form of participation in decision making. In complete discord with such attitude of the absolute majority of respondents, but in accordance with the frequent demands of IMF to speed up the privatization of the public sector in Serbia (for ex. Jansson, Eric, 2005) the government continued to pursue the preparations for the privatization of public enterprises which employed around 140.000 workers or 11,7% of all employed in 2004 and which indirectly influence the standard of living of entire population through subsidized prices of infrastructural inputs and services. On the other hand, the government did not even announce the preparation of the legal regulation for the strenghthening of the participation of the employees and citizens in decision making and/or in ownership and profit. Some government members like the Finance minister Mlađen Dinkić have only attempted to diminish the great resistence to privatization in the trade unions of the public enterprises themselves due to expected mass layoffs and higher prices. They offered a “carrot” in the shape of the announcement of the government’s proposal that public enterprises’ employees would receive between 10 and 15 percent of shares in public enterprises on the basis of already existing law (Dinkić, Mlađen, 2005).
This often used cunning “divide in order to rule” soon gave the results. Trade Union leaders in public enterprises who had in the previous period pointed out to bad effects of decomposition of the public services’ big systems into production, transport and local distribution entities and of their subsequent privatization in the Western European countries, have begun to reorient their propaganda activity toward the enactement of the new law on public enterprises. Instead of the demand for legal forbidding of natural monopolies’ privatization, trade union leaders have begun to indiscriminately promote transformation of all public enterprises into share companies, in order to provide to their members and retired employees of public enterprises distribution of 15% of shares, and 15% more of shares to employees in education, health care and other citizens proportionaly to the years of employment. The most important part of the proposed new law was to distribute shares immediately according to their estimated real value before the tender selling of the state package of 70% of shares in order to prevent devaluation of shares and to enable after the restructuration of public enterprises the rise of their market value. Even though more than five hundred thousand signaturies have been gathered for these proposals of new laws, the president of the Parliament delayed their inclusion into the agenda of the Parliamentary session in October 2006 (Vesti, B92, 2006), relying on the stance of the financial minister that the conflict can be solved just through the amendment of the existing law on privatization from 2001 which provides for distribution of free shares to all adult citizens who still did not receive any shares after the completion of privatization process.
The impression derived on the basis of reading the trade union publications that there realy came to this change in the attitude of the trade unions leaderships toward the privatization of public enterprises, finds its indirect confirmation in the findings of the research conducted by the Insittute for the sociological research of the Faculty of philosophy in Belgrade in the summer of 2007 on the representative sample of adult citizens of Serbia (without Kosovo and Metohija) containing 1993 respondents and containing unfortunately halfed number of questions relating to privatization and participation in comparison to the research from 2003. Comparison of data in these two surveys indicates that respondents members of trade unions in 2003 have more often rejected privatization of public enterprises and have less often expressed themselves in favor of their privatization than respondents which are not trade union members, but the situation reversed in 2007. While the respondents “active” trade union members have increased their support for privatization, respondents who were not trade union members have even reduced their support for privatization in the case of water, banks, and especially oil, transport and health. Sub-categories of “active” and “not active” trade union members unfortunately did not exist in the survey 2003, so that i is not clear whether also at that time existed significant difference in the degree of opposition to privatization of public enterprises and support for participation in decision making between active trade union leadership (smaller degree) and often inactive common trade union members (much greater degree) (Table 1).⁵
Privatisation in Serbia was not only having problems with legitimacy, but also with legality for a long period of time. Successive laws on privatization have namely tacitly transformed great part of social property into state property without referendum, and sanctioned the compulsory and majoritary external privatization. Having in mind the failure to politically discuss and legally regulate the etatisation as the interim phase of the transformation of social ownership (Taboroši, Svetislav, 1993), it could be said that all privatization laws have in fact directly violated successive Constitutions. Constitutions have either privileged social ownership or equally protected “pluralism of ownership forms”, but have in fact sentenced the social ownership to disappearance, since they did not provide for the establishment of the new enterprises in social ownership. The new constitution was finally adapted through referendum in 2006 in the circumstances of the rushed preparations of the NATO member states under the leadership of USA to attempt to make permanent the results of the military imposition of the neoliberal privatisation strategy, the establishment of their military basis (Stuart, Paul, 2002) and control of regional and local resources through the proclamation of the “monitored independence” on the territory of the southern autonomous province of Serbia, in fact a new colonial protectorate permeated by the drugs’, arms’ and white slaves’ trade (Binder, David and Mendenhall, Preston, 2001; Ganapathiraju, Aditya, 2008). The threat to the sovereignty and integrity of Serbia was used to eliminate the category of social property from the Constitution without any serious public and parliamentary debate and thus to finally legalize for legalisation of speaded up external privatization.
The findings of the ISIFF 2007 according to which the percentage of complete opponents of public enterprises’ privatization has diminished especially among active members of trade unions, suggest the conclusion that neoliberal partisans of privatization in the government have begun to accomplishe their aim. The percentage of complete opponents of the public enterpises’ privatization has however still remained above 50% except for transport enterprises (47.65%) and banks (37.5%). It must be taken into account as well that the category of respondents who declared themselves for just a partial privatization up to 49% of the capital value rose to between one fifth and one quarter of all respondents.
Partisans of complete privatization in the government have therefore continued their campaign for diminishing of the citizens’ resistance to privatization. Just before the New Year’s festivities in December 2007, they have decided to pull through the Parliament according the urgent procedure, which they refused in the case of the more favorable trade union proposal from October 2006, their own less attractive proposal on the distribution of free shares of six public enterprises to employees and all adult citizens who still did not receive any free shares irrespective of the number of years they worked up to 15% of the estimated capital value which they will be able to sell by December 2010. The new law has been already criticized as an obvious attempt to buy new voters before the coming elections as well as the unscrupulous announcement of the new theaft, if the financial mafia first succeeds to impose a low estimate of public enterprises’ value on the basis of actual subsidized prices and afterwards to buy from citizens who need cash immediately their shares at rock bottom prices (Ladjević, Milan, 2007; Dragaš, Blažo, 2007). Already next survey if it is conducted with the same questions in two to three years will reveal if and how much the new law has succeeded to further diminish the resistence to privatization of public services, or on the contrary to increase it on the basis of bad experiences of its implementation.

3.2 The research of privatization and participation in other countries

Outside of Serbia as well there are no directly comparable empirical studies that could provide sufficient data for the answer to the question whether the clash between attitudes of specific social groups’ affiliates toward privatization and participation in decision making and real transformation processes detected in Serbia exists in other European countries as well, and whether this gap between the desired and the real has the tendency to diminish or increase. Contextual socio-structural and practical – political reasons for this non existence are similar: partisans of complete privatization nowhere in the world want that critical research and accompanying public debate about social relations’ transformation endanger private interests and in extreme examples call into question the very principle of private property over natural heritage of humanity.

There exist however some research findings that indicate that also outside of Serbia similar dissatisfaction with the wave of speeded up prvatization of public services is present. Thus in a recent study “Empowering Europe’s citizens?” Judith Clifton and others (Clifton, Comin, Fuentes, 2005) point out to “increasing social… tensions” caused by the accelerated privatization programmes of public services renamed into “services of general (economic) interest” (SGI). Privatization programmes took off across the EU from early 1990s, an increasingly integrated economy, especially after 1992 with the Treaty of Maastricht and the Single Market. The study points out the recognition that the EU has serious legitimacy problems in the eyes of its citizens, since even the firmest advocates of privatization are at a loss to explain its unpopularity in its birthplace: in the United Kingdom (UK) (Eriksen and Fossum 2004; Clifton, Comin, Fuentes, 2006).
The initial calls for enactment of some kind of a Charter for SGI were ‘bottom – up’ in the sense that they originated from interest groups (led by the EU social partner representing enterprises providing SGI, the CEEP) and trade unions (led by the European Trade Union Confederation, ETUC). These calls were motivated largely by distrust of the growing role of private corporations in public services, compounded by broader concerns about the effects that economic integration, privatization, liberalization and deregulatory policies would have upon jobs and national sovereignty. The EU’s response to these concerns of citizens about the future of public services Clifton and others are bringing into the context of EU’s broader effort to bolster its own legitimacy via the forging of a ‘social Europe’.
Critics of privatization, deregulation, liberalization and transnationalization, claim that the transformation of public services must be supervised or else the quality of services provided to citizens may be allowed to decline. (ibid: 421). Privatization can make it impossible for political control to be exercised, and it is not acceptable to reduce the political responsibilities of the public authorities in respect of services of general interests which were created for citizens. The political responsibility for services of general interest must continue to be clear, irrespective of the status of the service provider – private company, public sector company, inter-municipal body, public – private partnership – chosen by the public authorities to provide services of general interest. Critics of privatization have pointed out that in the case that private companies would pursue their commercial interests over and above social interests, this could negatively affect universal service provision and continuity of supply. As firms in the communications, transport and energy sectors became increasingly transnational, European non governmental organization have voiced fears that basic public services that once belonged to the local nation would now be owned and controlled by distant foreign interests motivated by short-term profits. Moreover, a hostile takeover by a foreign agent could threaten closure or massive redundancies, threatening the national interests of respective country.
CEEP and ETUC charter proposal insisted on linking the provision of SGI to the project of forging a social Europe, and it underlined that all citizens should be guaranteed the following rights to SGI by the supranational body: equal access, an absence of discrimination in provision, continuous working, quality and adaptable services, universal provision, safety, fair pricing, efficiency levels that can be verified objectively, transparency, participation and democratic control.
While the charter proposal was acknowledged by the EC representatives as an important contribution to the debate, they also pointed out that they also had to consult other important European bodies such as Parliament, the Economic and Social Committee, the Committee of the Regions, formal and informal business lobbies, as well as to conduct the open public consultation exercise. Clifton et all especially underline that between 1996 and 2000, the EC shifted its discursive practice towards SGI, abandoning an approach focused on citizenship and rights within member nation states, and assuming the retorics of reformed public service (NPM) and European citizenship. Though the representatives of EC claimed that they were motivated to show their neutrality on ownership, cynics tended to interpret this new terminology as a means of attempting to clear the way for the privatization of public enterprises, on the road to establishing „European champions.“(Ibid, 424).
According to the poll results, the vast majority of consumers claimed they had not yet witnessed improvements in quality, choice or customers’ interest protection. As regards service price, between 89 per cent and 94 per cent of consumers thought they still had not enjoyed price cuts in electricity, gas, water, railways or postal services. Only in telephone services were these figures lower (73 per cent) (431-2).
Beside these two studies concerning privatization of public services in EU, presently there exists just one research ouside of Serbia after 2003 that examines the experiences and attitudes concerning the process and project of privatization and participation. This research is the latest survey in a series of similar studies focusing this time the attitudes of stakeholders, institutional framework, incidence and effects of different employee financial participation schemes in the “new” EU Member States (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) and candidate countries (Croatia, Turkey and at the time of writing of the Report also Bulgaria and Romania). The summary of this research which was published in 2006 can be found in the Promotion of Employee Participation in Profits and Enterprise Results (PEPPER) III report (Jens, L., Hashi, I., Herwig, R., Uvalić, M., Vaughan-Whitehead, D., 2006).
Before analyzing the findings of PEPPER III report, it must be reminded that the most important milestone in the history of the EU policy and research concerning ownership relations and employee involvement in enterprise functioning presents the moment when the Commission of the European Communities (CEC) included PEPPER among the priority objectives of its Action Program for the implementation of the Community Charter of Basic Social Rights of Workers (CEC, 1989). EU Commission’s Recommendation on PEPPER I (Uvalić, M. 1991) was adopted by The European Council in July 1992 (Council of the EC, 1992). The European Council invited member states to facilitate and encourage the spreading of employee financial participation schemes in practice through fiscal and other benefits for both enterprises and employees. Updates in Report PEPPER II (CEC, 1997) and other studies showed that employee participation schemes have important beneficial effects⁶, as well as that they were the most developed in countries where legislative, fiscal, public campaign and other supporting measures were implemented, like in France and UK.
PEPPER III report reveals the existence of important differences concerning 1) the general attitudes of social partners and the government; 2) the legislative framework and fiscal incentives; 3) the incidence of financial participation schemes and 4) the empirical evidence on the effects of these factors on the improvement of employee motivation and enterprise performance. These differences exist not only between the so called “market” economies and “transition” ones depending on the scope of privatization of the state and other collective forms of ownership, but also within the latter group depending on the existence of workers’ self-management or strong trade union tradition that employees enjoyed already in the former socialist system. These traditions were transformed in Slovenia and Poland and in the much smaller amount in Croatia into the codetermination rights in the Management board or at the least membership in the Supervisory Board depending on the number of employees in commercialized companies, as well as into the ability to get for free shares or vouchers from 10 to 30% of the capital value or buy up to 70% of shares of their company at discounted prices.
Daniel Vaughin-Whitehead pointed out to the paradox that despite a strong tradition in both financial and decision-making participation in a number of former socialist countries, which could have led them through transition in line with the EC and EU PEPPER initiatives, neo-liberal theories and models of advisers from Anglo-Saxon countries and international monetary institutions have led transition in these countries in a different direction (76). Most of these countries except Slovenia have followed neo liberal approach in which there was little place to develop different participation forms in ownership and decision making. The assumption prevailed that majority external private capital would accelerate the pace of enterprise restructuring and strong capital markets emergence. Collective forms of ownership and decision-making in former socialist countries underwent dismantlement and legal changes in order to break the association of the cooperative movement with the former regime in the perception of the public. Operation of cooperative firms is since than regulated in accordance with other companies and commercial associations. Existing cooperatives in agriculture and other sectors were thus systematically liquidated as a symbol of collective work in the former regime in Bulgaria, Estonia, Hungary, Lithuania and elsewhere, while the creation of new cooperatives was discouraged since they allegedly present obstacle to free entrepreneurship (77).
Employee-ownership emerged almost unintended as a major privatization form in the first phase of the transition as the best tool to win over the broad public for privatization, in conditions of scarce domestic capital and in the absence of sufficient foreign direct investment. FDI were concentrated in just few central European countries, especially Hungary and Poland. ⁷
The authors of the PEPPER III report point out that in the later phases of privatization, however, none of the relevant social actors and partners in social dialogue at the national level, public authorities, employers’ associations and trade unions, had developed a coherent participatory policy.
Governments in former socialist countries did not put financial participation on their policy agenda as a priority and did not undertake appropriate support measures: they failed to introduce employee participation clauses into the relevant laws, to regulate employee share ownership program trusts, to propose tax exemptions or deductions to stimulate both employees and employers to engage in different participation schemes, did not improve limited access to credit and did not forbid temporarily the convertibility of shares. Failing to take appropriate financial or fiscal supporting measures, public authorities on the contrary contributed to progressive disappearance of employee ownership through a dilution to the benefit of the privileged managers and external owner property forms. In later phases of privatization many governments diminished employee privileges or completely removed them. In Estonija the government has at the earliest (1993) eliminated the preferential treatment of employees (145) and in Bulgaria at the latest (2000) (98). The auction and tender mainly to foreign investors became the main method of privatization. It is important to notice that also “left” oriented governments when they returned to power as in Croatia from 2000 to 2004, did not make moves in the direction of employee participation stimulation (113).
The mass vautcher privatization program (distribution of privatization money to all citizens for buying of shares of enterprises that are being privatized)⁸ in former Czechoslovakia did not establish mass employee share ownership since many people preferred to transfer their vouchers to investment funds or buy with them shares in other companies (133). After separation, the nontransparent privatization process in the Slovak Republic concentrated the ownership in the hands of supporters of the political party in power (254). Only the governments of Slovenia and somewhat Poland among surveyed countries attempted to preserve employee share ownership through legislation forbidding selling shares several years and encouraging resistance of insiders to takeovers by outsiders on the tender. Public authorities began to promote employee share ownership programs (ESOP) and works councils only in later phases of privatization in order to comply with the European Commission’s transposition of the “soft” Community acquis or less binding rules (78).

Trade unions in former socialist countries also manifested only limited interest in employee ownership as an alternative way of privatization (25-6). They used it with the aim to prevent respective firms going bankrupt and thus preserving jobs and to avoid the domination of ownership by private foreign capital and massive layoffs (Estonia, Hungary, Slovakia). Trade unions have rarely promoted profit-sharing (Bulgaria, Croatia) and still less often the property-owning democratic participation and thus gain from eventual improvements (Slovenia) or establishment of workers’ councils (Hungary, Lithuania, Poland) defending all employees’ interests rather than only the managements’(Romania, Slovakia) who often sell their shares in the last phase of privatization to external foreign owners. The absence of interest in employee participation was the most expressed among trade unions in Latvia, Estonia, Czech Republic, Slovakia, while Solidarnošć in Poland abandoned initial support to employee ownership schemes after decision to embark on the mass voucher privatization was made. The survey in Poland revealed that trade unions in state enterprises subjected to privatization through leasing to employees have practically disappeared (Kozarzewski, Woodward, 2003). The loss of power of the self-management organs that thay have fought out in these enterprises in 1981, thay have compensated through the representation of the employees in the Executive Board of the enterprise having more than 500 employees and through protection against being layed off while the employee representative mandate lasts and one year after that. Having in mind that in the majority of privatized enterprises the managers had the greatest power, researchers have concluded that in Poland predominates autocratic and not democratic type of management (Gardawski, 1995). In Romania in which at the time of writing of PEPPER III report there remained 40% of not privatized big state firms and one third of middle ones, trade unions were strong and had at the least one member in the Executive Commeety of oil and gas industry. In the case of selling of 8% of shares of PETROM company, trade unions have attempted to add to the relevant law the ammandement that only associations of the employees controlled by the trade union, and not the individual employee, can become the purchasers of the shares offered. The authors of the reprot point out that cases like this illustrate that the interests of the trade union representatives and the interests of individual employees need not be necessarily on the same line and that trade union leaderships sometimes attempt to achieve their aims at the expense of the rights of the employees. In the tripartite National social and economic council are known cases of such harmful accords of trade unions and employers supported by corruptive practices (242-3).
This general lack of the long term trade union strategy to develop new institutions promoting, monitoring, supporting and protecting employee share ownership from progressive dilution and confinement of trade unions in observed countries to traditional role of collective bargaining for higher wages, the authors of the PEPPER III report explain primarily by the bad feelings related to the miss-use of profit-sharing schemes during previous communist regime in the form of bonuses paid to employees and managers or through indirect compensation for welfare services like housing, holidays etc. These bonuses and compensations were financed from enterprise funds but were not related to enterprise results, were insufficiently distinguished from fixed wages and did not respond to objective performance, in short, were not motivating enough (82). The fall in living standards explains as well the dilution of employee ownership through selling of shares for cash. Low living standard induced workers to claim higher basic wage increases rather than distribution of flexible profit-sharing bonuses (28).
The lack of interest or even animosity of trade unions toward profit sharing legislation can be explained by trade union members’ fears that such laws regulating a variable portion of income linked to some measure of collective enterprise performance, would lead to lowering of predetermined fixed basic wages in practice and would involve risks resulting from fluctuations in income or from limited diversification of investments. This type of reasoning led to rejection of the relevant law concerning profit sharing schemes in Slovenia in 1997 and 2006 (462; Gajzer, D., Ivanovič, B., 2006).
The promotion of creation of works’ councils as required by the EU directives became the priority of trade unions in several new EU member and candidate states (28) at the beginning of the XXI century. Continuous fall in trade unionization is however observed in firms of all sizes (86), as well as their disunion. Decreasing and fragmented membership without any doubt weakens this key institutional prerequisite for forging consistent stance and policy for tripartite negotiations concerning work and employment conditions.

Managers in state and social firms in former socialist countries many of whom transformed themselves into private owners and employers have in fact in early phases of privatization initiated the employee share ownership. They did not have enough capital themselves to buy their company’s shares in order to avoid the takeover by external investor. In Hungary, Romania, Bulgaria and Slovakia managers used the most firm and bank credits to buy their company’s shares collectively at large discounts setting up employee share ownership trusts or associations to hold shares and act on their behalf in transactions with the firm itself, banks and state property agency. Other domestic external potential buyers without insider information on the quality of the firms were even more than insiders doubtful whether they can be successfully transformed into well-performing enterprises.
Managers often gave no voting rights (60) to non-managerial employees, intensifying thus the emergence of separation between two main forms of workers’ participation, in equity or financial results and decision-making. Managers in the role of employers often urged and sometimes pressured common employees to sell to them their shares in the later phases of privatization.
Poor motivation of employers to apply profit-sharing schemes can be explained by production crisis and high inflation which restricted the possibility of employers to distribute bonuses related to profits in the 1990’s. Employers continued to neglect profit-sharing policy however even when economic conditions improved (Vaughan-Whitehead, D., 1998). In former socialist countries associations of employers and managers do not consider employee ownership schemes as a priority, especially in small private enterprises according to PEPPER III authors. Employers’ disinterest (27) and reluctance (80) to implement Community acquis concerning employee share ownership and profit sharing, except for schemes aimed exclusively at the top managers in order to avoid taxes for this category of employees, the authors of PEPPER III observed the most among multinational companies in former socialist countries, like in Bulgaria, Estonia and Hungary. This contrasts sharply with employers’ efforts in their home countries or at the EU level to reduce obstacles to financial participation schemes. Recent study in Poland, Hungary, Lithuania, Latvia, Estonia and other new EU member countries (Vaughan-Whitehead, ed., 2005) revealed numerous ways in which employers in new EU member states in overall circumstances of high unemployment and low wages, circumvent still insufficient labor laws dealing with employee participation in enterprise results. Employers exploit the most often atypical fixed-term employment contracts with the self-employed instead of permanent contracts. This allows them to reach maximum flexibility with maximum avoidance of social contributions and labor regulations, staying just within less constraining regulations of civil law(83).
In absence of supportive legislation, genuine interest of trade unions and employers’ associations, as well as in conditions of low living standards, the proportion of employee-owned enterprises dwindled from 92% in 1993 to just 2% in 2004 in Estonia, from 80% in 1993 to 47% in 1995 and to just 1% in 1998 in Hungary, from 92% in 1994-95 to 30% already in 1999 in Lithuania, from 42% of the nominal value of 2586 privatized firms to less than 12% in 1998 in Croatia (Table 2). Substantial insider ownership persists still in just few countries like Poland, Slovenia and Romania (Jones, 2004).
In the market economies researched within PEPPER III report, there was no privatization law and share ownership was not related to employment position (Cyprus) or much smaller number of companies was privatized than in former socialist countries. Thus in new and candidate EU member market economies both employee ownership and participation through employee trusts remained (Turkey) or became after denationalization policies (Malta) very limited and concentrated in the hands of managers, with few tax deductions supporting employee ownership schemes and almost without the specific laws on financial participation. Just recent company laws permit joint stock companies to acquire their own shares in order to transfer them to their employees and financially assist the process, in accordance with the Second Council Directive 77/91/EEC of 13 December 1976 to promote employee financial participation by means of corporate legislation. These laws however have been rarely used in practice so far (20).
In the examined market economies laws on cooperatives did not change since their first enactment and there are no negative attitudes towards cooperative movement. In Cyprus almost half of the citizens are members of cooperatives. The government of Malta in order to win support of two main trade unions for the privatization of enterprises that were nationalized in the period of decolonization and in which was introduced self-management, introduced in late 1990’s financial participation in public sector through the setting up of cooperatives by the employees of a given department. The head of particular department can compete for tenders on behalf of the cooperatives or can allocate work to a cooperative within his/her department (449) Cooperative profits are tax exempt if there are generated in operations with other cooperatives or if they remain within the cooperative without being distributed as dividends.
The summary of the PEPPERIII report findings is presented in the Table 2. In this paper is not overtaken the Table from pages 42-45 of the Anex to PEPPER III report because in it was applied formal classification criterion – renk of the first letter of the name of examined countries. In this paper is implemented content relevant classification criterion – extension of different forms of employee participation in enterprises at the time of writing of PEPPER III report. Such classification criterion makes easier to perceive the regularity that in countries with the strong slef-management tradition (Slovenia and Croatia) and of the trade union movement (Poland) is registered participation of employees in both share ownership (ESO) and in management or at the least in the supervision of the enterprise.⁹ Even in Slovenia, however, in which there was all along considerable support of the trade unions, associations of shareholders and managers, as well as of the government through the projects of stimulating laws, ESO was reduced four times in comparison to early nineties (from 90% to 18% of privatized firms).
Similar reduction, but with preservation of ESO in more than 10% of the privatized firms was registered beside Slovenia, Croatia and Poland, also in Rumania and Bulgaria, in which governments had supported privatization through the management and employee buyouts until 1997 and 2000 respectively. In Romania and Bulgaria, however, national legislation did not provide for the participation of the employees in the management or supervision of enterprises. According to the absence of the institutionalization of the employee representation, massive use of ESO in the first phase of privatization and dramatic fall of ESO in the second phase of privatization, the closest to Romania and Bulgaria in the second classification subgroup are Hungary (in spite of the tradition of creation of workers’ councils during the 1956 revolution, 1968 and 1984 self-management reforms) and Baltic states (in spite of experience of workers’ councils from the time of Perestroika). In all these countries government support to ESO programs disappeared when the main form of privatization became the selling to external owner. Simultaneously, social partners have become either insufficiently interested or/and insufficiently active in the support o employee financial participation.
The third classification category comprises Czech Republic and Slovakia. In these countries ESO was ignored by both social partners and the government from the beginning of privatization in favor of massive voucher privatization and unsuccessful attempt at realization of employee and menagerial buyout. The existence of legal regulation of the employee participation in the enterprise supervising councils, however, nears Czech Republic and Slovakia to the first classification subgroup.
Cyprus, Malta and Turkey differentiate themselves into the fourth classification subgroup among the surveyed countries according to the predominantly market character of their economy and absence of real socialist historical experience. This classification category distinguishes itself by the strong tradition of cooperative movement, especially in the agriculture. In former countries of real socialism, on the contrary, widespread agricultural cooperatives until the symbolic tearing down of the Berlin wall 1989, are destroyed. The direct effect of the elimination of agricultural cooperatives in these countries was the dramatic fall in agricultural production.¹⁰
Meager incidence of employee financial participation schemes in new EU member states and candidate countries explains even scantier evidence on the impact of employeee participation on enterprise performance based on empirical research, especially after 2000. Very rare examinations of subjective attitudes vere mostly oriented on the respondents menagers, and only in one case on all employed. PEPPER III report therefore can only in a limited degree contribute to putting the attitudes to privatization and participation in Serbia into the comparative perspective.
The only representative research of the effects of employee participation on the enterprise results in Croatia was carried out by Tipurić (2004) on the basis of collection of subjective oppinions of managers. The high degree of satisfaction by the results of ESOP (56% satisfied, 19% very satisfied primarily in big firms, and only 14% dissatisfied, primarily in middle sized firms) Tipurić explains by the fact that it was menagers who played the key role in the establishment of the majority of Croatian ESOPs with the aim to maintain the control over their firms. They valued the most the contribution of ESOPs to the productivity increase through motivating employees to work more efficiently on the realization of the firm’s aims as well as to the improvement of the firm’s prestige in the public, and they valued the least the contribution of ESOPs to reising of new capital and attraction of the best experts. The finding of Tipurić that managers in the firms in which there exist real ESOPs valued less their contribution to participation of employees in the management than the managers in the firms having only some form of financial participation, can be interpreted either that those first mentioned managers are better informed, or, on the contrary that managers which do not have real experience with ESOP are fearing their possible effects in this realm. The majority of menagers surveyed estimated that ESOPs had small effect on the improvement of economic results, indirectly hinting that they were not interested in widening the existing programs. The authors of the report for Croatia conclude that even though the basic privatization model included some elements of employee financial participation, these elements did not give significant contribution to the successfulness of the Croat economy’s and individual enterprises’ transition, having in mind that “the transition process and its transformation of ownership have not significantly improved the efficiency, productivity or profitability of Croatian enterprises. On the contrary, output in the national economy, as measured by GNP, has been falling for more than a decade. This decline could be attributed to war and the damages inflicted by war; on the other hand, the majority of small, medium and large enterprises have also had poor results, even in those parts of Croatia not affected by the war. Employment has also fallen while unemployment has boomed… Recovery in the Croatian economy began, according to different indicators, between 1998 and 2001. The results of this recovery, however, have been less spectacular than the decline during the 1990s” (PEPPER III, 123) Such conclusions confirm that also in Croatia exists certain degree of dissatisfaction with the envelopment of the process and project of privatization.
In the entire PEPPER III report is mentioned just one research of attitudes of employees about participation in ownership at the occasion of privatisation in Turkey (Atasoy, 1997). In this research it was established that even 85% of respondents (out of which 43% were trade union members), had an interest in acquering the shares in the enterprises in which they work. Respondents have explained their interest by their intention to prevent bankruptsy of the enterprise, to be adequately remunerated for the good results of the enterprise as well as to participate in decision making in the enterprise (289). These results suggest that in Turkey the interest in employee participation in share ownership is much more expressed than the general preference for the participation in decision making in Serbia.
Having in mind so insufficient empirical evidence, it is not surprising that the authors of PEPPER III report remained without definitive conslusions about the impact of different employee participation schemes in enterprise results on the economic and social effects in both new member states and candidate states, especially in the second phase of privatization.
In the literature it is possible to find the most often the following critiques of employee financial participation: distribution of excessive wages, dilution of individual incentives and temptation to free-ride shirking on the job since rewards are linked less to a single worker’s contribution than to group performance; weakening of property rights of capital owners by distributive wealth confiscation scheme leading to dilution of the capitalist’s motivation, effective managerial power and control (A. Alchian, H. Demsetz, E., 1972, pp. 777 ff; , S. Pejovich, 1969); exposition of workers to higher degree of income risk beside unemployment risk due to impossibility of workers to diversify the use of their labor in different sectors and concentration of their savings in just the firm where they work (Meade, 1972;1989). Non existence of private property rights according to critics of self-managed firms leads to restrictive employment policies, above-optimal employment levels, maintain inefficient allocation of labor due to rigid response to changes in prices, technology and capital rental, to monopolistic behavior (Ward, 1958, pp. 566-89; Vanek, 1970), sub-optimal reinvestment of net income (Pejovich, 1969), preference for projects that quickly pay off within workers’ short time horizons, difficulties in raising outside fresh capital (Aghion and Blanchard, 1998) and high dependence on external finance leading to conflict between user and owner of capital and risk of debt finance when cooperative can avoid a substantial part of the loses by bankruptcy, leaving to cooperatives just the labor-intensive sector (Nuti, 1988)
The rare researches have shown in Hungary that in the beginning of privatization the majority employee owned firms were more efficient than other ownership forms in terms of per assets sales revenues (Kovács i Csite, 1999). The research on the sample of 666 enterprises in Estonia from 1993 to 1997 showed also that the enterprises in the employee ownership had from 13% to 24% higher productivity, and the enterprises in the ownership of domestic managers had higher productivity from 15% to even 31% than the productivity of the state owned enterprises. Employees and managers were not even able to take over the most profitable capitally intensive enterprises since their insufficient acces to investment capital (Jones and Mygind, 1999). Researches in Latvia confirmed that the productivity in the first years of privatization in the firms in employee ownership was higher or equal as productiviry in other ownership forms, but that they had from the begginning lower investment levels (Jones and Mygind, 2000). In Lithuania in the first phase of privatization some enterprises in employee ownership were capital intensive, in contrast to situation in Estonia and Latvia, and had as well relatively high wage levels. In these enterprises, however, there were just a fiew bank loans and the investment level was also low (Mygind, N. 2002b). In the survey of 220 enterprises Mygind (2002) established that in enterprises in the employee ownership the most important source of relatively low investments per employee is the internal saving. Prašnikar and Svejnar (1998) have established also in Slovenia that firms in the employee ownership are more dependent from internal investment funds than the firms in the hands of external owners. In Poland, in the first half of the 1990s the companies that were leased to employees were financially stable, but in the second part of the 1990s their bruto profitability, investments per employee and ratio investments/earnings have begun to fall in comparison with companies in foreign ownership, when it came as well to significunt layoffs. Kozarzewski and Woodward (2003) have on the basis of econometric analysis of the productivity in Poland concluded that there is no evidence that would corroborate the hypothesis that the employee ownership is in any significant way connected either positively or negatively with the enterprise results. The only study that Lizal and Svejnar (2002) conducted in Czech Republic on the representative sample of industrial enterprises in thirteen ownership forms, demonstrated also that companies in foreign ownership are investing the most and the least the cooperatives in domestic ownership, since they have the most difficult access to credits without regard to their size (141-142).
Researches in Hungary demonstrated that in two thirds of enterprises Hungary demonstrated as well that H 50% of shares came into the hands of menagers, and in the remaining third from 30 to 40% of shares (Karsai, 1993). In the second phase of privatization the common employees have sold their shares to managers who have thus increased their participation even to 99% of shares. The same researches have shown also that firms in the majority employee ownership were less succesful in terms of work efficiency than firms with minority employee ownership (Kovács i Csite, 1999). In the same way it is established that the Assembly of employee owners seldom controls and fires directors (Boda and Neumann, 1999) (176). Prašnikar and Gregorić (2002) have found that in succesful Slovenian firms having strong management, employees have the tendency to behave more like shareholders than the wage-earners, and that in firms with more employees in executive boards and therefore less powerful managers, market oriented behaviour is less represented and that these firms are lagging behind. Another form of employee financial participation, profit sharing, according to Vaughan-Whitehead can influence the reduction of differences in earnings within enterprise between managers and less payed employees, but that it can also contribute to the increase of differences in wages between economic sectors and enterprises on the basis of economic performance (81).¹¹
The study of Jones and Mygind (1999) established that insider owned companies have smaller degree of “flexible reactive strategic restructuring and adjustment” (in less euphemistic language layoffs) of the labor force than capital intensive foreign owned companies. The case study that included twelve Estonian enterprises in employee ownership however demonstrates that this ownerhip form is not an obstacle to search for the exit from difficulties manifested in the falling sale earnings in the reduction of employement (155). Empirical studies in Estonia and other former countries of real socialism also found that wages were often lower than the average in employee-owned enterprises, and that employee-owners were more likely to accept temporary wage cuts in order to promote enterprise profitability and avoid employment reductions (Mygind, 2002a). Domadenik et al. (2003) in Slovenia did not observe negative effect of employee ownership on the speed of defensive restructuring (oriented on costs through layoffs) and strategic restructuring (oriented on the earnings through investment activity) but they pointed out to the importance of the institutional surrounding and legislation in the realm of employement for all firms. On the basis of a survey of 125 empirical studies in 20 transition economies Djankov and Murrell (2002, 740-1) however found that insider ownership is associated with 50% less restructuring than privatization to outsiders. Jones (2004, p.172) claims on the contrary that it is premature to conclude that employee ownership is the main obstacle to economic restructuring.
Uvalić explains this lack of corroboration by wrong identification of the employee ownership in newly privatized firms of former socialist countries with dominant employee control in the labor managed firms and cooperatives. The most significant differences between privatizing enterprises in Central and Southeast European former socialist countries and Yugoslav self-managed ones is the non-existent direct individual employee ownership or private capital stakes in labor managed firms, on the one hand, but existence of the considerable amount of employee control in the labor managed firms, on the other. From the Western cooperatives firms in CSE countries differ by the fact that in the latter privatization laws impose limit to which employees can acquire shares at preferential terms and the fact that only one part of employees participate in ownership. Uvalić adds that in the circumstances when employee shareholders are apathetic, they seldom have active and effective control over enterprise decisions even if they have majority share (60’62).¹² Studies have shown that short term interests of employees as wage-earners prevail over their longer-term interests as shareholders only if they have a lower share of company’s equity than is their share in labor input supply (Nuti, 1995).
In spite of the inconclusive research evidence, the authors of PEPPER III report underline the potential beneficial effects of employee ownership participation and profit sharing schemes: through linking of employees’ income to exerted effort and enterprise performance, they strengthen workers incentives; they introduce more flexible payments systems in the place of a rigid system of guaranteed wages; they raise workers’ productivity through identification with the firm’s performance and thus improve overall enterprise efficiency. All these potential advantages of employee financial participation schemes could according to the authors of PEPPER III report more than offset the expected adverse effects (42, 67). The authors of PEPPER III report also insist on the claim that employee ownership that emerged spontaneously to substitute insufficient domestic and foreign investment, continues to be diluted in transition countries in absence of coherent policy of workers’ participation, and not on the basis of economic performance and governance criteria since empirical research did not find employee ownership to be less efficient (78) (Uvalić and Vaughan-Whitehead, 1997; Jones and Mygind, 2005).

Authors of PEPER III report wrap up that the use of employee participation schemes is still disappointingly low and that they almost do not appear in the negotiations for EU accession, allowing new EU member states to continue ignoring this policy area (87). They therefore recommend that CSE policy makers should like their colleagues in the West promote employee ownership through fiscal and other forms of stimulation, instead of introducing more restrictive conditions for employee ownership than in early phases of privatization (67) Pointing out to Western experiences, Uvalic and other authors of PEPPER III report propose also to policy makers in CSE countries to introduce profit-related more flexible remuneration schemes which might stabilize employment in periods of economic downturns, that were less possible in conditions of recession, falling wages and profits (298).

Vaughan-Whitehead concludes that observed contrast between the economic performance of financial participation schemes and their insufficient diffusion in EU member states presents good example of “a policy area where market forces are not sufficient to lead to a final outcome that may be desirable both on the grounds of economic efficiency and social equity” and that “policy push” and negotiations between relevant political, economic and social actors is needed at both national and EU level to reach potential positive effects of different employee participation schemes(84-5)
The lessons that can be drawn from the experiences of the process and project of privatization in the new member and candidate countries of the EU but also in the “old” member countries and one can freely say around the world, were formulated in the most pregnant way by one of the most deserving individuals for the fact that „the Slovenian transition model belongs to those less bad“. The economist Jože Mencinger, namely, explains that Slovenija was not only the most industrially developed Yugoslav republic and final exporter into the Western Europe with workers who remained half peasants what made conditions for the socially stable society. Slovenija had as well «taken to grips with transition in an entirely different manner from the one which various experts from the world recommended“ (Mencinger, J, 2001). Even though Mencinger fails to mention the role of Slovenian violent separatism in cooperation with Germany dominated EU in the destruction of Yugoslavia, the important lesson from Slovenia's transformation process and project remains to be learned – to rely on one's own traditions of self-government in the search for social relations’ transformation strategy.

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