This paper is concerned with the effects of privatisation in South-East Europe, focusing on the experiences of Bosnia Herzegovina and the Republic of Serbia. The emphasis of the research is on the micro-level effects of privatisation. At the enterprise level, privatisation, which originated in industrialised countries, is intended to lead to greater internal efficiency. The policy is also associated with macroeconomic objectives as privatisation is expected to contribute to improvements in resource allocation, to bring in revenue from sales and to reduce fiscal demands on the state. In the countries of Central and Eastern Europe and the former Soviet Union, much was expected of privatisation which was seen as a cornerstone of economic transition. In this context, privatisation was
perceived as the means by which a private sector could be created, and was intended to bring about economic development as state enterprises were transferred to dynamic private agents, thereby creating a property-owning class which would demand the appropriate legal and institutional framework and the rule of law.

Initially the view was that privatisation should be carried out quickly by transferring shares in state enterprises to citizens for a nominal fee in order to create wide-scale share ownership. Subsequently it emerged that, while such methods quickly dissipated state control and achieved (at first) political support, without an effective institutional framework (taken for granted in industrialised economies) they failed to generate an effective system for corporate governance. Ownership was widely dispersed among shareholders who had little capacity to monitor the operation of privatised enterprises. Subsequently, greater credence has been given to a more gradual, case-by-case approach to privatisation. Aside from the effects of privatisation, overall the results from transition policies have been disappointing. While the countries of Central and Eastern Europe have experienced some economic improvements, those of the Commonwealth of Independent States (CIS countries – i.e. those that were part of the former Soviet Union) have seen a major economic decline since the start of transition.