Academic journal article Demokratizatsiya

Privatization in Russia: Preliminary Results and Socioeconomic Implications

Academic journal article Demokratizatsiya

Privatization in Russia: Preliminary Results and Socioeconomic Implications

Article excerpt

Privatization in Russia has prompted profound changes in the socioeconomic life of the country, including fundamental shifts in society, capital, and political power. The outcomes of privatization efforts will in many respects determine socioeconomic and political conditions in Russia not only during the contemporary transitional period but also far into the future.

Russian privatization--which is unprecedented in its economic and human scale--has entailed complex social and economic consequences. Among them are the emergence of a new social structure, based mainly on the distribution of former state-owned property; the formation of a new income structure with much greater differentiation than under the former regime, with incomes derived from private capital that never previously existed; the development of a new relationship between employees and management; and changes in work motivation and managerial practices. Anticipated economic consequences of privatization also include productivity gains, structural changes in the economy, and investment growth, which together promise to accelerate the rate of economic expansion. The principal social goals of the first privatization program included distributing former state-owned property on a basis of social justice and creating a massive middle class based on private ownership, which was widely perceived as necessary for social and political stability.

Ideology, Goals, and Stages of Privatization

The active stage of the privatization process was preceded by harsh polemics among economists, politicians, trade union leaders, and ordinary citizens concerning the ideology of privatization, its goals, forms, and methods. Three major approaches--each fundamentally different in concept--dominated the public debate. The first, most "liberal" approach was based on the proposition that state property should be sold to anyone who wants to buy it at the market price. That method of privatization is commonly used in Western countries and Japan when a government decides to denationalize a state-owned industry or company. A similar approach was also used to some extent in former socialist countries such as Hungary, Estonia, and Germany.

Leftist political forces and trade unionists, many from the newly established councils of work collectives, pursued a second approach, which maintained that it is necessary either to transfer an enterprise's assets directly to the work collectives or to sell firms to the collectives on an installment plan, using discounted government loans. Proponents differed on which model of ownership to pursue; precedents ranged from the Yugoslavian pattern, in which ownership is depersonalized and enterprises remain essentially quasi-state property, to direct ownership by workers, similar to employee stock ownership option plans in North America. In either case, the work collectives gain control over productive capital, and the collectives attain self-management.

A third approach advocated the free distribution of state-owned enterprises to the whole of the Russian population. That idea was based on the proposition that the Russian people had participated in the creation of national wealth, including all productive assets, during previous decades and therefore were entitled to share in the nation's material assets. To achieve citizen ownership, advocates proposed the creation of privatization accounts or privatization checks or vouchers. After extensive discussions, the third approach became the basis for Russia's first privatization program in 1992.

Obviously, no single approach to privatization is perfect from either a social or an economic point of view. The first one was unrealistic in the Russia of 1992. Neither companies, nor individuals, nor even criminal organizations had enough free capital to purchase state-owned firms at market prices. Nor did such investors exist abroad. Moreover, that approach failed to address issues of social justice. …

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