Privatization in Central and Eastern Europe: Perspectives and Approaches

By Demetrius S. Iatridis; June Gary Hopps | Go to book overview

face is where to find the funds to undertake new capital formation, without which no program for restructuring can succeed. The radical reformers in the Yeltsin administration were hoping that new external investors would supply this capital as they acquired control over enterprises. Major changes in the structure of ownership rights in these enterprises were expected, via the resultant changes in incentives to save and invest, to lead to significant increases in real saving and real investment. 16 But the paucity of external investors casts great doubt on the possible success of such an approach. Moreover, the low level of proceeds realized by governmental agencies from the privatization process has weakened the capacity of the state to play a major role in making investible funds to the nonstate sector (or to invest in the public infrastructure) even if it has the will to do so. 17

In the last analysis, the success of the privatization process in Russia will not be measured--as it so often is now--by the percentage of former state enterprises that have been transferred into nonstate hands. Rather, it will be measured by the success of these enterprises in restructuring and improving their economic performance, in producing needed goods and services, and in providing the basis for economic stability and social security.


NOTES

This chapter is a revised version of a paper presented at the International Conference on "Privatization and Socioeconomic Policy in Central and Eastern Europe," Kraków, Poland, October 18-21 1993. The author is grateful to the University of Michigan International Institute and Center for Russian and East European Studies for their support in enabling him to attend the conference.

1.
Because of space limitations, this discussion is limited to the privatization of enterprises. The privatization of land and of housing are important issues, but they raise a different set of problems that deserve more extensive treatment than is possible here.
2.
The full title of this legislation is the Law of the RSFSR on the Privatization of State and Municipal Enterprises in the RSFSR.
3.
This law, passed by the Supreme Soviet of the USSR in June 1990, envisaged the transformation of Soviet state-owned enterprises into collective enterprises resembling the former Yugoslavian model of quasi-worker-ownership.
4.
Outsiders include those whose attachment to an enterprise is based on an ownership stake rather than on work in the enterprise. Outsiders may be individual owners or shareholders or institutional shareholders (financial intermediaries such as banks, mutual funds, holding companies, and investment trusts).
5.
Insiders include all the people working in an enterprise. An insider-controlled firm may be effectively controlled by its managers, by its workers, or by some combination of the two; in the case of workers, control may be exercised either directly or indirectly via the election of representatives to a workers' council.
6.
For a more detailed summary and discussion of this and other documents related to the Russian privatization program, see Bush ( 1992, 1993); "Privatization in Russia: The Story is Just Beginning" ( 1992); and World Bank ( 1992, pp. 85-92). To simplify

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