HOME

TheInfoList



OR:

Privatization in Russia describes the series of post-
Soviet The Union of Soviet Socialist Republics. (USSR), commonly known as the Soviet Union, was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 until Dissolution of the Soviet ...
reforms that resulted in large-scale
privatization Privatization (rendered privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation w ...
of
Russia Russia, or the Russian Federation, is a country spanning Eastern Europe and North Asia. It is the list of countries and dependencies by area, largest country in the world, and extends across Time in Russia, eleven time zones, sharing Borders ...
's state-owned assets, particularly in the industrial,
energy Energy () is the physical quantity, quantitative physical property, property that is transferred to a physical body, body or to a physical system, recognizable in the performance of Work (thermodynamics), work and in the form of heat and l ...
, and financial sectors. Most privatization took place in the early and mid-1990s under
Boris Yeltsin Boris Nikolayevich Yeltsin (1 February 1931 – 23 April 2007) was a Soviet and Russian politician and statesman who served as President of Russia from 1991 to 1999. He was a member of the Communist Party of the Soviet Union (CPSU) from 1961 to ...
, who assumed the
presidency A presidency is an administration or the executive, the collective administrative and governmental entity that exists around an office of president of a state or nation. Although often the executive branch of government, and often personified b ...
following the
dissolution of the Soviet Union The Soviet Union was formally dissolved as a sovereign state and subject of international law on 26 December 1991 by Declaration No. 142-N of the Soviet of the Republics of the Supreme Soviet of the Soviet Union. Declaration No. 142-Н of ...
. Private ownership of enterprises and property had essentially remained illegal throughout the Soviet era, with Soviet Communism emphasizing national control over all
means of production In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...
but human labor. Under the Soviet Union, the number of state enterprises was estimated at 45,000. Privatization facilitated the transfer of significant wealth to a relatively small group of business oligarchs and New Russians, particularly
natural gas Natural gas (also fossil gas, methane gas, and gas) is a naturally occurring compound of gaseous hydrocarbons, primarily methane (95%), small amounts of higher alkanes, and traces of carbon dioxide and nitrogen, hydrogen sulfide and helium ...
and oil executives. This economic transition has been described as ''katastroika'', which is a combination of ''catastrophe'' and the term ''
perestroika ''Perestroika'' ( ; rus, перестройка, r=perestrojka, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg, links=no) was a political reform movement within the Communist Party of the Soviet Union (CPSU) during the late 1980s, widely associ ...
'', and as "the most cataclysmic peacetime
economic collapse Economic collapse, also called economic meltdown, is any of a broad range of poor economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), t ...
of an industrial country in history". A few strategic assets, including much of the Russian defense industry, were not privatized during the 1990s. The mass privatization of this era remains a highly contentious issue in Russian society, with many Russians calling for revision or reversal of the reforms.


Privatization during the Soviet Union

In the late 1980s, as part of the
perestroika ''Perestroika'' ( ; rus, перестройка, r=perestrojka, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg, links=no) was a political reform movement within the Communist Party of the Soviet Union (CPSU) during the late 1980s, widely associ ...
reformation movement, legislation championed by
Mikhail Gorbachev Mikhail Sergeyevich Gorbachev (2 March 1931 – 30 August 2022) was a Soviet and Russian politician who served as the last leader of the Soviet Union from 1985 to dissolution of the Soviet Union, the country's dissolution in 1991. He served a ...
—who pledged to build a " mixed socialist economy"—effectively transferred some controlling rights over enterprises from the government to the employees and management. In 1987, over the opposition of some of his allies, Gorbachev succeeded in passing a "law on state enterprise" through the Supreme Soviet of the Soviet Union, which granted work collectives a greater role in running enterprises. In 1988, the
Law on Cooperatives The Law on Cooperatives was a major economic reform implemented in the Soviet Union during General Secretary Mikhail Gorbachev's perestroika and glasnost reforms. It was implemented in May 1988, allowed for independent worker cooperative, worker-ow ...
legitimized "socialist cooperatives," which functionally operated as private companies and were permitted to directly deal with foreign companies, and reduced reliance on central planning. Later that year, private Soviet farmers were permitted to rent land from the state, purchase equipment, and hire workers, a significant step away from mandated
collective farming Collective farming and communal farming are various types of "agricultural production in which multiple farmers run their holdings as a joint enterprise". There are two broad types of communal farms: agricultural cooperatives, in which member-o ...
following decades of dominance by state-owned agricultural concerns. The new regulations were seen as an effort to break state farms into smaller units and address critical food shortages in the Soviet Union, which failed to significantly increase food production. The legislation also enabled these enterprises to withdraw from associations on their own, which led to the process of so-called ''spontaneous privatization'' in which control over some industrial assets was acquired by their managers. However, this accounted for only several thousand enterprises, a small fraction of the Soviet industry. In September 1990, the Soviet parliament granted Gorbachev emergency privatization powers, including the authority to transform state enterprises into joint-stock companies with shares offered on
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...
s. One of the largest privatization efforts during the Soviet era was the transformation of the Ministry of Fuel and Energy into a joint stock company known as Rosneftgaz in September 1991. In the months before the
dissolution of the Soviet Union The Soviet Union was formally dissolved as a sovereign state and subject of international law on 26 December 1991 by Declaration No. 142-N of the Soviet of the Republics of the Supreme Soviet of the Soviet Union. Declaration No. 142-Н of ...
in December 1991, soon-to-be president
Boris Yeltsin Boris Nikolayevich Yeltsin (1 February 1931 – 23 April 2007) was a Soviet and Russian politician and statesman who served as President of Russia from 1991 to 1999. He was a member of the Communist Party of the Soviet Union (CPSU) from 1961 to ...
began assembling a team of economic reformers led by Yegor Gaidar, then a young reformist economist, and including Anatoly Chubais. The reform team initially considered Swedish
social democracy Social democracy is a Social philosophy, social, Economic ideology, economic, and political philosophy within socialism that supports Democracy, political and economic democracy and a gradualist, reformist, and democratic approach toward achi ...
as a model for Russia, but Gaidar opted instead to study
Hungary Hungary is a landlocked country in Central Europe. Spanning much of the Pannonian Basin, Carpathian Basin, it is bordered by Slovakia to the north, Ukraine to the northeast, Romania to the east and southeast, Serbia to the south, Croatia and ...
as a template and was influenced by
Poland Poland, officially the Republic of Poland, is a country in Central Europe. It extends from the Baltic Sea in the north to the Sudetes and Carpathian Mountains in the south, bordered by Lithuania and Russia to the northeast, Belarus and Ukrai ...
's use of shock therapy. Both Gaidar and Chubais were convinced that despite Russia's uniquely non-capitalist economic history, a market economy could successfully take hold in the country. Following the August 1991 coup d'état attempt, the economic situation in the country dramatically worsened and an acute food shortage emerged. In October, Yeltsin delivered a speech in which he declared that
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of go ...
would be lifted on January 1, 1992, over Gaidar's recommendation that no specific date for the freeing of prices be given.


Voucher privatization (1992–1994)

Privatization took place on a much wider scale in the early 1990s, when the
government of Russia The Russian Government () or fully titled the Government of the Russian Federation () is the highest federal executive governmental body of the Russian Federation. It is accountable to the president of the Russian Federation and controlled by ...
deliberately set a goal to sell its assets to the Russian public. Upon the Soviet Union's collapse, the new government was forced to manage the huge state enterprise sector inherited from the Soviet economy. Privatization was carried out by the State Committee for State Property Management of the Russian Federation under Chubais with the primary goal being to transform the formerly state-owned enterprises into profit-seeking businesses, which would not be dependent on government subsidies for their survival. To distribute property quickly and to win over popular support, the reformers decided to rely mostly on the mechanism of free
voucher privatization Voucher privatization (, ) is a privatization method where citizens are given or can inexpensively buy a book of vouchers that represent potential shares in any state-owned company. Voucher privatization has mainly been used in the early to mid-1 ...
, which was earlier implemented in
Czechoslovakia Czechoslovakia ( ; Czech language, Czech and , ''Česko-Slovensko'') was a landlocked country in Central Europe, created in 1918, when it declared its independence from Austria-Hungary. In 1938, after the Munich Agreement, the Sudetenland beca ...
. The Russian government believed that the open sale of state-owned assets, as opposed to the voucher program, would have likely resulted in the further concentration of ownership among the Russian mafia and the nomenklatura, which they sought to avoid. Nevertheless, contrary to the government's expectations, insiders managed to acquire control over most of the assets, which remained largely dependent on government support for years to come. From 1992 to 1994, ownership of 15,000 firms was transferred from state control via the voucher program. Thus, although several of the initial objectives had not been fully achieved by the end of the vouchers program, a great deal of assets did fall into private ownership remarkably quickly and worked to provide some basis for market competition. Voucher privatization took place between 1992 and 1994, and roughly 98 percent of the population participated. 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. Because most people were not well-informed about the nature of the program or were very poor, they were quick to sell their vouchers for money, unprepared or unwilling to invest. Most vouchers—and, hence, most shares—wound up being acquired by the management of the enterprises. Although Russia's initial privatization legislation attracted widespread popular support given its promise to distribute the national wealth among the general public and ordinary employees of the privatized enterprises, eventually the public felt deceived, with most people selling their vouchers to survive the economic collapse following the soviet dissolution.


Oil sector

Privatization of the oil sector was regulated by presidential decree No.1403 approved on November 17, 1992. Vertically integrated companies were created by joining some oil-producing enterprises and refineries into open-stock companies. Starting in 1994 many former state oil companies were privatized. This privatization had been partial because the federal government had obtained ownership positions in several companies and had also retained full control over the transport of oil to lucrative world markets.


Loans for shares (1995–1996)

In 1995, facing severe
fiscal deficit The government budget balance, also referred to as the general government balance, public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting ( ...
and in desperate need of funds for the 1996 presidential elections, the government of
Boris Yeltsin Boris Nikolayevich Yeltsin (1 February 1931 – 23 April 2007) was a Soviet and Russian politician and statesman who served as President of Russia from 1991 to 1999. He was a member of the Communist Party of the Soviet Union (CPSU) from 1961 to ...
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 (including state-owned shares in Norilsk Nickel, Yukos, Lukoil, Sibneft, Surgutneftegas, Novolipetsk Steel, and
Mechel Mechel () is one of Russia's mining and metals companies, comprising producers of coal, iron ore in concentrate, steel, rolled steel products. Headquartered in Moscow, it sells its products in Russia and overseas, and is formally known as ''Public ...
) were leased through auctions for money lent by commercial banks to the government. The auctions were rigged and lacked competition, being largely controlled by favored insiders with political connections or used for the benefit of the commercial banks themselves. As neither the loans nor the leased enterprises were returned in time, this effectively became a form of selling, or privatizing, state assets at very low prices.


The first decade of the 2000s

From 2004 to 2006, the government took control of formerly privatised companies in certain "strategic" sectors: oil, aviation, power generation equipment, machine-building and finance. For example, the state-owned defense equipment company Rosoboronexport took control of Avtovaz, the primary producer of Russian cars. In June 2006, it took 60% control of VSMPO-Avisma, a company that accounts for two-thirds of the world's titanium production. In 2007, United Aircraft Building Corporation, a company that is 51% government controlled, combined all of the Russian companies producing aircraft.


The 2010s

In December 2010, Russian President
Dmitry Medvedev Dmitry Anatolyevich Medvedev (born 14 September 1965) is a Russian politician and lawyer who has served as Deputy Chairman of the Security Council of Russia since 2020. Medvedev was also President of Russia between 2008 and 2012 and Prime Mini ...
had ordered regional governments to decide on privatization of non-core assets by July 2011. Arkady Dvorkovich, then a top Kremlin economic aide, said regional privatization proceeds could amount to several billion rubles in 2011, and regional authorities must prioritize the sale of utility companies, financial institutions, manufacturing and transportation assets and the media. In May 2012, after becoming prime minister, Medvedev said Russia should carry out its privatization program regardless of market volatility. After a session of the
World Economic Forum The World Economic Forum (WEF) is an international non-governmental organization, international advocacy non-governmental organization and think tank, based in Cologny, Canton of Geneva, Switzerland. It was founded on 24 January 1971 by German ...
in October 2012, Medvedev said "It is vital for our country to continue the course towards privatization". He stressed that had assured participants in the World Economic Forum session that "does not want to see an economy totally controlled by the state". In October 2017, Russian Minister for Economic Development Maxim Oreshkin told
Reuters Reuters ( ) is a news agency owned by Thomson Reuters. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide writing in 16 languages. Reuters is one of the largest news agencies in the world. The agency ...
that "there are almost no fiscal reasons left for privatization", following an improving economy due to increased oil prices.


The 2020s

The 2020s have seen a wave of nationalization, the reverse of the privatization that occurred after the fall of the Soviet Union. At least 200 businesses have been nationalized since the start of the
Russian invasion of Ukraine On 24 February 2022, , starting the largest and deadliest war in Europe since World War II, in a major escalation of the Russo-Ukrainian War, conflict between the two countries which began in 2014. The fighting has caused hundreds of thou ...
.


Analysis

The perceived failure of privatization in the 1990s resulted from a combination of factors:Lessons from history: Where did Russia’s post-communism economic reforms go wrong? - Economics Observatory
/ref> * Most vouchers were issued to managers and employees of companies. Managers were able to use their positions to acquire disproportionate control of their companies; for example by forcing employees to sell their shares cheaply, and by using intimidation to exclude other buyers from auctions of company shares. * The largest businesses were not part of the vouchers program at all, but rather were auctioned off at low prices to a handful of well-connected oligarchs. * The resulting wealthy business owners, feeling that their own property rights were insecure in Russia, engaged in asset stripping to move value from their companies to investments overseas. Overall, the effect was to concentrate ownership among a small number of private individuals, who in turn raided their companies for personal gain at the expense of their companies, the state, the general populace and the overall economy's success.


See also

* Business oligarch * Economic history of the Russian Federation * History of post-Soviet Russia * State-owned enterprises in Russia * Semibankirschina (rule of seven bankers)


Citations


General and cited references

* *


Further reading

* Hilary Appel
"Voucher Privatisation in Russia: Structural Consequences and Mass Response in the Second Period of Reform"
''
Europe-Asia Studies ''Europe-Asia Studies'' is an academic peer-reviewed journal published 10 times a year by Routledge on behalf of the Institute of Central and East European Studies, University of Glasgow, and continuing (since vol. 45, 1993) the journal ''Soviet S ...
'', Vol. 49, No. 8 (Dec. 1997), pp. 1433–1449. * Andrew Barnes
"What's the Difference? Industrial Privatisation and Agricultural Land Reform in Russia, 1990-1996"
''
Europe-Asia Studies ''Europe-Asia Studies'' is an academic peer-reviewed journal published 10 times a year by Routledge on behalf of the Institute of Central and East European Studies, University of Glasgow, and continuing (since vol. 45, 1993) the journal ''Soviet S ...
'', Vol. 50, No. 5 (Jul. 1998), pp. 843–857. * * Joseph R. Blasi, Maya Kroumova & Douglas Kruse, ''Kremlin Capitalism: Privatizing the Russian Economy'' (Ithaca, NY: ILR Press, 1997). * Maxim Boycko,
Andrei Shleifer Andrei Shleifer ( ; born February 20, 1961) is a Russian-American economist and Professor of Economics at Harvard University, where he has taught since 1991. Shleifer was awarded the biennial John Bates Clark Medal in 1999 for his seminal works ...
& Robert Vishny, ''Privatizing Russia'' (Cambridge, MA – London: MIT Press, 1995). * Roman Frydman, Andrzej Rapaczynski & John S. Earle, ''The Privatization Process in Russia, Ukraine and the Baltic States'' (Budapest: Central European University Press, 1993). * Simon Johnson & Heidi Kroll, "Managerial Strategies for Spontaneous Privatization", ''Soviet Economy'', Vol. 7, No. 4 (1991), pp. 281–316. * Paul L. Joskow, Richard Schmalensee, Natalia Tsukanova & Andrei Shleifer
"Competition Policy in Russia during and after Privatization"
''Brookings Papers on Economic Activity. Microeconomics'', Vol. 1994, (1994), pp. 301–381. * Carol S. Leonard and David Pitt-Watson, "Privatization and Transition in Russia in the Early 1990s". (Oxford, UK: Routledge, 2013). . * Michael McFaul & Tova Perlmutter (eds.), ''Privatization, Conversion, and Enterprise Reform in Russia'' (Boulder, CO: Westview Press, 1995). *
Andrei Shleifer Andrei Shleifer ( ; born February 20, 1961) is a Russian-American economist and Professor of Economics at Harvard University, where he has taught since 1991. Shleifer was awarded the biennial John Bates Clark Medal in 1999 for his seminal works ...
& Daniel Treisman, ''Without a Map: Political Tactics and Economic Reform in Russia''. (Cambridge, MA: MIT Press, 2000). *
Insider Privatisation in Russia: Speculations on Systemic Change
''
Europe-Asia Studies ''Europe-Asia Studies'' is an academic peer-reviewed journal published 10 times a year by Routledge on behalf of the Institute of Central and East European Studies, University of Glasgow, and continuing (since vol. 45, 1993) the journal ''Soviet S ...
'', Vol. 46, No. 3 (1994), pp. 417–435. * Růžena Vintrová, "The general recession and the structural adaptation crisis", ''Eastern European Economics'', Vol. 31, No. 3 (1993).


External links


The Privatization Programs in Russia in the 1990s

''Catastroika'', a crowd-funded documentary on the privatization in Russia and in other countries
{{DEFAULTSORT:Privatization In Russia Economy of Russia Government of Russia History of Russia (1991–present)