|
Public policy pronouncements in the East European economies have
emphasized the overriding importance of capital market competition, but
theoretical considerations and experience elsewhere in the world suggest
that, while important, its effect will be limited in the absence of
other internal and external reforms. In Discussion Paper No. 640, Ken
Mayhew and Research Fellow Paul Seabright examine the
changing incentives for the efficient management of firms in Eastern
Europe. They contrast the internal constitution of the firm with the
various constraints imposed on its activities by external conditions in
capital, labour and product markets. They compare the progress towards
enterprise restructuring based on direct intervention in the structure
and constitution of firms in Eastern Germany with that based on hopes
for capital market reform in Poland. The contrast is less stark than it
first appears, since Poland also displays active competition policy,
some direct industrial restructuring, and significant new firm entry.
Finally they examine the potentially perverse consequences of
inefficient enterprise management for the progress of macroeconomic
reform. |