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Privatization Theory
Privatization is the essential process in both the political and the economic transition from socialism to capitalism. Property rights are one of the most important differences between the two systems because they create a system of incentives, which ultimately leads to a more efficient utilization of resources. Additionally, individuals can respond to market conditions faster and more efficiently than the state itself. Hence, the transfer of ownership from the state to private agents is a key process in transition. Some authors even argue that privatization is transition (Bennett et al. 5), since it leads to redistribution of power and lays the foundations for development of a free market.
The basic definition of privatization is a transfer of ownership rights from the state to individuals. In a broader sense, privatization includes all processes that help countries move from socialism to capitalism. These processes emphasize the rights and responsibilities of individuals and reduce the role of the state (Ledyaeva). A broader view of privatization helps to explain the interplay between the politics and the economic system of any country. Political forces played an important role in the transition of most Eastern European countries. Bosnia was certainly no exception, and politics and corruption both played determining roles in the process of privatization .
Privatization is supposed to result in a better allocation of resources in an economy, in the sense that resources can be used more efficiently to create social wealth. The new governing model in a privatized economy would respond to consumers’ preferences (demand) ra ...