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Financial Participation

During the period of privatisation in the early 1990s employee share ownership was relatively widespread. Today, however, they do not play a significant role in the Latvian economy. Other forms of workers’ financial participation – in the context of cooperatives and profit-sharing schemes – are not well developed in Latvia.

Employee ownership schemes were common in Latvia during the privatization process. Its heyday was in the years 1992 to 1994, but it went into rapid decline afterwards.

The first stage of privatization started at the end of the 1980s, before Latvia gained its independence. The first steps towards the privatization of state-owned enterprises were made from the background of the “perestroika” process in the Soviet Union, starting in 1987.1 Up to 1993 it was possible for Latvians to lease state-owned companies and companies were also allowed to issue shares to up to 10% of their authorized capital. These could be sold at a discount or transferred for free to employees. In 1991 the so-called “small privatization” started. Mainly small enterprises were privatized by means of sales to the employees, auctions to a selected group, open auctions or sales to selected buyers. Employees working for more than 5 years at a company had a pre-emptive right to buy shares at an initial price set by local privatization commissions consisting of representatives of the state and the municipality, privatization experts and trade unions. This law was changed in February 1992, cutting employees’ pre-emptive rights. This “small privatization” process continued and by 1995 the majority of small enterprises with up to 100 employees had been privatized. More than half of these enterprises were insider-owned after privatization. Of the insider-owned enterprises slightly over half were management-owned enterprises and the rest (less than 50%) employee-owned.2

The privatization of large and medium-sized companies also started in 1992, but until 1994 the process was extremely slow. In 1994 the Latvian Privatization Agency was set up, which speeded up the privatization process. In the same year the Privatization Law was changed, and the leasing of state enterprises was no longer possible. From 1995 on, the privatization process speeded up, with enterprises either being sold, organized into statutory enterprises or liquidated. In this phase of privatization the employee participation was negligible. Apart from a few exceptions the largest Latvian companies were sold directly to financially strong investors, often from abroad.3

The large privatization of state-owned property and land, under the responsibility of the Latvian Privatization Agency, also included a mass privatization programme. Within this step of the privatization process vouchers were distributed to the population, according to the number of years lived in the country. These vouchers could be used in the privatization of state-owned enterprises. About 81% of all vouchers (including property compensation vouchers) were used for purchase of shares, so that by the end of 1998 about 13.5% of shares in privatized companies had been acquired by employees holding vouchers. Managers acquired about 13.6% of the shares using vouchers for payment. Vouchers could be used until 1 July 2005.

At the moment, the level of employee ownership is quite low, due to the fact that share ownership has usually changed from the employee to former employee (having left the company and kept the shares) or to management and in the end to outsider ownership (domestic or foreign), after a quite short period of time.

Cooperatives are relatively unimportant on the macroeconomic level, most of them being active in the agricultural sector or in property management. In 2005 there were 260 active cooperatives, including 120 workers’ cooperatives and 140 agricultural cooperatives.4

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.