Mass Privatization and the Post-Communist Mortality Crisis

This article is from the British medical journal The Lancet. The Summary and Introduction are given here; the full article can be obtained from our documents section or their website below.

Background During the early-1990s, adult mortality rates rose in most post-communist European countries. Substantial differences across countries and over time remain unexplained. Although previous studies have suggested that the pace of economic transition was a key driver of increased mortality rates, to our knowledge no study has empirically assessed the role of specific components of transition policies. We investigated whether mass privatization can account for differences in adult mortality rates in such countries.

Methods We used multivariate longitudinal regression to analyze age-standardized mortality rates in working-age men (15–59 years) in post-communist countries of eastern Europe and the former Soviet Union from 1989 to 2002. We defined mass privatization programs as transferring at least 25% of large state-owned enterprises to the private sector within 2 years with the use of vouchers and giveaways to firm insiders. To isolate the effect of mass privatization, we used models to control for price and trade liberalization, income change, initial country conditions, structural predispositions to higher mortality, and other potential confounders.

Findings Mass privatization programs were associated with an increase in short-term adult male mortality rates of 12·8% (95% CI 7·9–17·7; p<0·0001), with similar results for the alternative privatization indices from the European Bank for Reconstruction and Development (7·8% [95% CI 2·8–13·0]). One mediating factor could be male unemployment rates, which were increased substantially by mass privatization (56·3% [28·3–84·3]; p<0·0001). Each 1% increase in the percentage of population who were members of at least one social organization decreased the association of privatization with mortality by 0·27%; when more than 45% of a population was a member of at least one social organization, privatization was no longer significantly associated with increased mortality rates (3·4% [95% CI –5·4 to 12·3]; p=0·44).

Interpretation Rapid mass privatization as an economic transition strategy was a crucial determinant of differences in adult mortality trends in post-communist countries; the effect of privatization was reduced if social capital was high. These findings might be relevant to other countries in which similar policies are being considered.

The transition from communism to capitalism in Europe and central Asia during the early to mid-1990s has had devastating consequences for health: UNICEF attributes more than 3 million premature deaths to transition;1 the UN Development Program estimates over 10 million missing men because of system change;2 and more than 15 years after these transitions began, only a little over half of the ex-communist countries have regained their pre-transition life-expectancy levels.  But were these excess deaths inevitable?

Probably not. Not all countries have fared so poorly: although in Russia, an extreme case, the population lost nearly 5 years of life expectancy between 1991 and 1994, Croatia and Poland recorded steady improvements of almost 1 year of life expectancy during this same period.

What accounts for these differences in the pace of change in mortality rates across countries and over time? Research comparing Russian regions has identified the pace of transition, which was assessed by measures such as job gains and losses, as an important factor. Yet little attempt has been made to assess empirically the effects on health of the underlying policies pursued by governments and, as a result, the wider determinants of the mortality patterns across the post-Soviet world. One possible answer, we suggest, lies in the economic strategies that countries used to build capitalism out of communism.

There were two approaches to capitalism. Radical free-market advisers argued that capitalist transition needed to occur as rapidly as possible.  The prescribed policy was called shock therapy, with three major elements: liberalization of prices and trade to allow markets to re-allocate resources, stabilization programs to suppress inflation, and mass privatization of state-owned enterprises to create appropriate incentives. When implemented simultaneously, these elements would cause an irreversible shift to a market-based economy. By contrast, gradualist economists, also known as institutionalists, called for a slow transition, recommending that countries gradually phase in markets and private property while allowing time to develop institutions that are needed to make markets work well.


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