Fragmentation of state authority, lack of a clear legislative base, unreliability of the legal system, collapse of the industry, bisection of the GDP, runaway inflation, capital flight, rises in crime and corruption, tremendous decline in life expectancy: the political, economic and social results of Russia’s transition from plan to market under Yeltsin are devastating. Within a few years the “mighty” Soviet Union fell back from a major power to a third world economy, dealing with problems like mass poverty and epidemics.
In light of these disastrous outcomes the question of what “went right” during the transition process seems to be even more appropriate then the question of what “went wrong”. However, while it seems to be obvious that the stabilization and liberalization attempts by the Russian government predominantly failed, privatization, the third core facet of transition1 , “has been touted as a one of the major successes of the Russian government’s economic transformation policy. By the beginning of 1996 77.2% of medium-size and large enterprises had been privatised, accounting for 88.3% of total industrial output.”2 On the one hand, according to the Russian government’s Western advisers this privatization is the fastest in
human history and “seems to be one of the few positive fruit of Russian economic policy since 1991”3. On the other hand, a common point of view is that its implementation led to an unfair distribution of state assets and only benefited a minority of Russian population. This debate is going to be the main focus of this paper. By discussing the general importance of the private sector to a democracy, the aims of privatization, its subsequent reforms, and its results, I intend to assess the contribution of these reforms to the process of Russian democratization.
Table of Contents
1. Introduction
2. Democracy, Market Economy and Privatization
3. Soviet Legacy
4. Gorbachev’s Economic Modernization
5. Privatization under Yeltsin
6. The Opposition
7. Impacts on the Democratization Process
Research Objectives and Themes
The paper examines the socio-economic and political consequences of the Russian transition from a planned to a market economy during the Yeltsin era, specifically analyzing the role and outcomes of privatization. The central inquiry evaluates whether the privatization of state assets contributed to the democratization of Russia or fostered a corrupt, oligarchic capitalist order.
- The relationship between economic reforms, privatization, and democratic stability.
- The influence of the Soviet legacy and Gorbachev-era economic policies on subsequent privatization.
- The mechanics and implementation of voucher and cash privatization programs under Yeltsin.
- Political opposition and the evolving public perception of privatization reforms.
- The resulting concentration of ownership and its impact on the democratic transformation process.
Excerpt from the Book
5. Privatization under Yeltsin
According to the liberal economic theory privatization, the two main goals of privatization are to improve “the performance of the privatized enterprises by making them accountable for their own performance … [and to] give a broad segment of the Russian population a stake in the process of economic transformation through the transfer into their hands of some share of enterprise ownership.”12 However, its political implications seemed to be even more important to the Yeltsin administration. “Reformists in the government launched the privatization campaign [already] in the summer of 1992 … [primarily] to build a popular base of support for the reforms.”13 Being afraid that the chaotic state of things caused by the shock therapy could strengthen the conservative opposition and slow down or even stop the transformation, they intended to use the privatization of state assets as a means to ensure the irreversibility of the transition process. Doing so, the Yeltsin administration ignored that neither the aims of stabilization nor the aims of liberalization have been successfully accomplished so far.
The ambitious privatization program was mainly organised by Anatolii Chbais, chairman of the State Property Committee. He “argued that transferring assets into private hands through a Czech – style voucher scheme would build a popular constituency for change and outflank the opposition to reform.”14 The direct sale to outside investors including foreigners as proposed by international organizations like IMF and World Bank seemed to be an infeasible alternative which would take longer and be highly unpopular among the population.
Summary of Chapters
1. Introduction: This chapter introduces the devastating socio-economic results of Russia's transition and outlines the paper's focus on evaluating the impact of privatization on Russian democratization.
2. Democracy, Market Economy and Privatization: It explores the theoretical link between economic stability and democracy, justifying the need for a competitive private sector in the Russian transition.
3. Soviet Legacy: This section analyzes the inefficient, bureaucratic nature of the Soviet Command-Administrative System and the rise of the "Nomenklatura" who influenced later privatization.
4. Gorbachev’s Economic Modernization: It details the limited reforms of the Gorbachev era, specifically the 1987 Law on the State Enterprise, which inadvertently sowed the seeds for later "insider control."
5. Privatization under Yeltsin: This chapter evaluates the design and execution of the voucher privatization program and the controversial "loans for shares" scheme.
6. The Opposition: It examines the political resistance from parliamentary conservatives and regional powers, alongside the shifting public opinion toward privatization.
7. Impacts on the Democratization Process: The final chapter argues that privatization led to monopolies and state capture rather than democratization, ultimately fostering a corrupt capitalistic order.
Keywords
Privatization, Russia, Yeltsin, Soviet Legacy, Market Economy, Democratization, Nomenklatura, Voucher Scheme, Insider Control, Economic Reform, State Assets, Political Transition, Oligarchs, Corruption, Property Rights.
Frequently Asked Questions
What is the central focus of this research paper?
The paper focuses on the privatization processes conducted during the Yeltsin administration (1991–1997) and assesses their contribution to the development of Russian democracy.
What were the primary goals of privatization in Russia according to the government?
The government aimed to improve enterprise performance, create a broad base of support for economic reforms, and ensure the irreversibility of the transition to a market economy.
How is the "Soviet Legacy" related to the privatization process?
The Soviet system created a bureaucratic, inefficient hierarchy and a new elite class known as the "Nomenklatura," who possessed the power and influence to dominate the privatization process after the USSR collapsed.
What methodology does the author use to evaluate the reforms?
The author employs a political science approach, analyzing historical reform policies, economic theory, and the outcomes of privatization to measure their impact on democratic institutional building.
What does the author conclude about the impact of privatization?
The author concludes that privatization failed to achieve its goals and instead created a highly concentrated, corrupt capitalistic structure, which acted as an obstacle to true democratization.
Which key concept describes the dominant form of privatization in Russia?
"Insider privatization" is the key concept, as it describes how enterprise managers and local elites maintained control over property, often at the expense of outside investment or broader public benefit.
What was the "loans for shares" program and why is it considered controversial?
The "loans for shares" program allowed the state to auction off shares in selected firms in exchange for loans; it was highly controversial because it was rigged to favor specific banks and led to state assets being sold at bargain prices.
How did the perception of the Russian public toward privatization change over time?
Public support for privatization, initially high in 1992, plummeted significantly by 1995 and 1996 as citizens perceived the process as unfair and beneficial only to the old elite.
- Quote paper
- Dmitri Ouvarovskii (Author), 2007, Privatization in Russia , Munich, GRIN Verlag, https://www.grin.com/document/75863
