The Permanent Income Hypothesis: A Test on Czech Privatisation

Since the late eighties, economists have been regarding the transition from command to market economies in Central and Eastern Europe with intense interest. In addition to studying the transition per se, they have begun using the region as a testing ground on which to investigate the validity of certain classic economic propositions. In his research, comprising three articles written in English and totalling 40 pages, Mr. Hanousek uses the so-called "Czech national experiment" (voucher privatisation scheme) to test the permanent income hypothesis (PIH). He took as his inspiration Kreinin's recommendation: "Since data concerning the behaviour of windfall income recipients is relatively scanty, and since such data can constitute an important test of the permanent income hypothesis, it is of interest to bring to bear on the hypothesis whatever information is available". Mr. Hanousek argues that, since the transfer of property to Czech citizens from 1992 to 1994 through the voucher scheme was not anticipated, it can be regarded as windfall income. The average size of the windfall was more than three month's salary and over 60 percent of the Czech population received this unexpected income. Furthermore, there are other reasons for conducting such an analysis in the Czech Republic. Firstly, the privatisation process took place quickly. Secondly, both the economy and consumer behaviour have been very stable. Thirdly, out of a total population of 10 million Czech citizens, an astonishing 6 million, that is, virtually every household, participated in the scheme. Thus Czech voucher privatisation provides a sample for testing the PIH almost equivalent to a full population, thus avoiding problems with the distribution of windfalls. Compare this, for instance with the fact that only 4% of the Israeli urban population received personal restitution from Germany, while the number of veterans who received the National Service Life Insurance Dividends amounted to less than 9% of the US population and were concentrated in certain age groups. But to begin with, Mr. Hanousek considers the question of whether the public percieves the transfer from the state to individual as an increase in net wealth. It can be argued that the state is only divesting itself of assets that would otherwise provide a future source of transfers. According to this argument, assigning these assets to individuals creates an offsetting change in the present value of potential future transfers so that individuals are no better off after the transfer. Mr. Hanousek disagrees with this approach. He points out that a change in the ownership of inefficient state-owned enterprises should lead to higher efficiency, which alone increases the value of enterprises and creates a windfall increase in citizens' portfolios. More importantly, the state and individuals had very different preferences during the transition. Despite government propaganda, it is doubtful that citizens of former communist countries viewed government-owned enterprises as being operated in the citizens' best interest. Moreover, it is unlikely that the public fully comprehended the sophisticated links between the state budget, state-owned enterprises, and transfers to individuals. Finally, the transfers were not equal across the population. Mr. Hanousek conducted a survey on 1263 individuals, dividing them into four monthly earnings categories. After determining whether the respondent had participated in the voucher process, he asked those who had how much of what they received from voucher privatisation had been (a) spent on goods and services, (b) invested elsewhere, (c) transferred to newly emerging pension funds, (d) given to a family member, and (e) retained in their original form as an investment. Both the mean and the variance of the windfall rise with income. He obtained similar results with respect to education, where the mean (median) windfall for those with a basic school education was 13,600 Czech Crowns (CZK), a figure that increased to 15,000 CZK for those with a high school education without exams, 19,900 CZK for high school graduates with exams, and 24,600 CZK for university graduates. Mr. Hanousek concludes that it can be argued that higher income (and better educated) groups allocated their vouchers or timed the disposition of their shares better. He turns next to an analysis of how respondents reported using their windfalls. The key result is that only a relatively small number of individuals reported spending on goods. Overall, the results provide strong support for the permanent income hypothesis, the only apparent deviation being the fact that both men and women aged 26 to 35 apparently consume more than they should if the windfall were annuitised. This finding is still fully consistent with the PIH, however, if this group is at a stage in their life-cycle where, without the windfall, they would be borrowing to finance consumption associated with family formation etc. Indeed, the PIH predicts that individuals who would otherwise borrow to finance consumption would consume the windfall up to the level equal to the annuitised fraction of the increase in lifetime income plus the full amount of the previously planned borrowing for consumption. Greater consumption would then be financed, not from investing the windfall, but from avoidance of future repayment obligations for debts that would have been incurred without the windfall.

The Position of Russian Provinical Officialdom in the Middle of the 19th Century: Law and Life

The study considered the discrepancy between the official status and real position of Russian provincial officialdom in the middle of the 19th century. The law was not entirely coherent in all aspects of the officials' life and activity, with ordinary deviations from the law being adopted in practice and accepted, albeit not openly, by the public and sometimes even by the authorities. The main law determining the rights and duties of governors was never followed to the letter and in reality governors' activities were determined by the common (unwritten) law existing in the governmental sphere. The volume and nature of the governors' rights depended on a range of factors, with specific regional features and the governor's personal qualities having a particular significance. The standard of living of government clerks was much higher than their official salary would permit and Matkhanova studied the most widespread cases of abuse, identifying those positions in the administration which offered the most opportunities for such abuses. At the start of the period and on the eve of the reforms public opinion towards the bribery of officials underwent a change. From the late 1850s onwards, there appeared among provincial officials a group of young well-educated clerks with liberal ideas and a new system of moral values which did not allow them to accept bribes or infringe the law in any way. There was also a non-official hierarchy side by side with the legally existing one. A significant role in governing the region, and one which has been underestimated by historians, was played by the head of the governor's office, but the reforms of the 1860s contributed to changing this state of affairs.

The Influence of the Social and Cultural Environment on a Child's Playing in the First Three Years of Life

The research focused on children's behaviour in playing with objects both independently and in interaction with adults. It was based on studies of 40 Slovene children in 4 age groups (6,12,18 and 24 months) and of 23 Croatian children in 2 age groups (18 and 24 months). All the children were sampled proportionally by their gender and the educational level of their parents (middle and higher). Several coding check lists with satisfactory internal consistency were constructed during the study and used to analyse the video-recorded playing sessions with each child. The basic conclusion reached was that even in early childhood playing behaviour differs significantly between the infants from the two Central European countries. The difference lies not so much in the structure or the content of the playing actions, but in the way in which the infants deal playfully with the objects. This difference appears regardless of the type of object the infants are playing with and even regardless of the playing condition. It can best be described as the difference between the first significant discriminant function activity versus passivity. The Slovene infants were found to be on the active pole and the Croatians on the passive one. Social and gender differences were much less significant than cultural ones in determining the structure, the content and the way of playing. Significant age differences appeared in all three aspects, which was consistent with general trends in infants' psychological development. The group define the Slovene interactive playing style as object oriented, while the Croatian one was largely communicated oriented. Within the experimenter-infant dyads, children of both cultures played at a developmentally more advanced level than they did with their mothers, showing that the mothers were not as successful at reaching the ZPD as were the trained experimenters. In addition, the children of mothers who attributed more cognitive benefit to play played on a more advanced level than those whose mothers attributed more emotional benefit to play. The quality of the object the children were playing with was also significantly related to the structure, content and partly the way of dealing with the objects. Highly-structured objects stimulated complex play and low-structured ones stimulated simple play, regardless of playing conditions. The group concluded that both culture and the quality of the available object have an important impact on young children's play. Through the playing interaction, the infants internalise culturally specific patterns of behaviour and culturally specific meanings. These internalisations become apparent very early in their lives, even in non-social situations. On the other hand, the objects themselves have an impact on the level of infants' play. When they do not provide sufficient perceptive and functional support for a representational action, the infants' play will lag behind their actual developmental capacities.