THE TRANSFORMATION of the Eastern European economies into market economies requires comprehensive action on three fronts: macroeconomic stabilization, liberalization of economic activity, and privatization of state-owned enterprises.’ Each of these is a monumental task. Nonetheless, privatization stands out as the most difficult and novel of the three, both conceptually and politically. There are enormous challenges in transferring state-owned property—which constitutes around 90 percent of industrial capital in Eastern Europe—to private hands in a manner that is rapid, equitable, and fiscally sound, and that accomplishes two fundamental goals: the efficient operation of the resulting private enterprises and the development of efficient capital markets.
