Privatization in Russia

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Russian privatization was the reform consisting in privatization of state-owned industrial assets that took place in Russia in the 1990s, during the presidency of Boris Yeltsin, immediately after the collapse of the Soviet Union, where private ownership of enterprises had been illegal for a long time. The privatization enabled Russia to shift from the deteriorating Soviet planned economy towards market economy, but as a result a good deal of the national wealth fell into the hands of a relatively small group of so-called business oligarchs (tycoons), and the wealth gap increased dramatically. Many non-industrial assets, most notably, most of the social welfare and telecommunications, as well as strategic industrial assets, including much of the Russian military industry, weren't privatized during the 1990s. The privatization of the 1990s is still a highly contentious and polarizing issue in the Russian society, stirring up strong sentiments among the population, including the widespread negative attitude towards Anatoly Chubais, one of the most instrumental figures of the reform, and even calls for its revision.

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[edit] Spontaneous privatization

As new Soviet legislation in 1988-1991 effectively had transferred part of property rights over enterprises from the government to the employees and management and enabled the enterprises to withdraw from associations on their own, in the process of the so-called spontaneous privatization control over some industrial assets was acquired by their managers. However, this accounted for only several thousand enterprises, a small part of the Soviet industry.

[edit] Voucher privatization

The privatization took place on a much wider scale in the early 1990s, when the government of Russia deliberately set a goal to sell its assets out. As the Soviet Union collapsed, the government was forced to manage the huge and inefficient state enterprise sector inherited from the Soviet ecomomy. Privatization was carried out by the State Committee for State Property Management of the Russian Federation under Anatoly Chubais with the goal to transform the enterprises into profit-seeking businesses, not dependent on government subsidies for their survival. To distribute property quickly and to win popular support, the reformers decided to rely mostly on the mechanism of free voucher privatization, earlier implemented in Czechoslovakia, and on the nearly free transfer of shares to employees, as it was believed that the sell of property instead of the free transfer would have almost certainly resulted in a further concentration of ownership among the mafia and the former Soviet political and industrial elite, which they sought to avoid. Nevertheless, contrary to the government's expectations, insiders managed to have acquired control over most of the assets, which remained largely dependent on the state budget for years to come. Thus the initial objectives have not been fully achieved, although a great deal of assets became privatized remarkably quickly and provided some basis for market competition. The voucher privatization took place in 1992-1994. The vouchers, each corresponding to a share in the national wealth, were distributed equally among the population, including minors. They could be exchanged for shares in the enterprises to be privatized. Most people, however, weren't well-informed and were quick to sell the vouchers for money, unprepared to invest. Most vouchers and hence most shares ended up acquired by the management of the enterprises. Although Russia's initial privatization legislation attracted widespread popular support as it promised to distribute the national wealth among the general public and ordinary employees of the privatized enterprises, eventually the public felt deceived, and Anatoly Chubais became one of the most odious public figures in modern Russia.

[edit] Loans for shares

In 1995, facing severe fiscal deficit and in desperate need of funds for the 1996 presidential elections, the government adopted a loans-for-share scheme proposed by banker Vladimir Potanin and endorsed by Anatoly Chubais, then a deputy prime minister, whereby some of the largest state industrial assets are leased through auctions for money lent by commercial banks to the government. The auctions, however, lacked competition, as they were largely controlled by favored insiders. As neither the loans nor the leased enterprises were returned in time, this effectively became a form of selling for a very low price. Economically, this turned out to be a stunning success, as government ultimately managed to cease subsidising the then-inefficient enterprises, and their performance significantly improved under new ownership, contributing to the Russian economic growth in the 2000s. However, the scheme has been perceived by many as unfair, and it is the loans-for-shares scheme that gave rise to the class of Russian business oligarchs, who have concentrated enormous assets, further increasing the wealth gap in Russia and contributing to the political instability.

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