Reserves in Russian Federation
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“Capital comes dripping from head to foot, from every pore, with blood and dirt”
Karl Marx
At the end of XX century the world observed unprecedented event – the end of the whole époque in economic history, collapse of the Soviet system. Adherents of different economic schools were eager to propose their ways of transition to market. Harvard team of economists, headed by A. Shleifer, became foreign advisors to Russian reformers.
The Soviet Union left a hard legacy of economic distortions, bureaucracy, corruption, criminal practices, intrusive tax and administrative regulation, complete absence of financial discipline within enterprises. All these led to dreadful political and social strain. Radical reforms were vitally needed.
Liberal – democratic government chaired by E. Gaidar worked out a three-stage set of reforms: shock therapy (prices liberalization), gradual financial stabilization and the concluding facet of transformation to market – privatization of property. Reformation took course in a very hostile political environment of confrontation between conservative communist and new liberal forces. Restructuring had “socio-political, rather than an economic character, it was a fundamental means to create the socio-political preconditions for solving economic problems.” (A. Chubais, 1994).
Driven by the main goal of making conversion to democracy irreversible, reforms were carried out in a fast and clumsy way. As a result, by the mid-1992 Russia faced all the variety of micro- and macro-economic problems (such as capital flights, galloping inflation, unbalanced budget) together with an increasing public uproar against reformation. The year of “preliminary stabilization” destroyed the remnants of the countrys financial system and let inflation loose (Piyasheva, 1994, p.78). Legal and institutional systems were in a state of flux. In addition, spontaneous “nomenklatura” privatization started, forming quasi-private associations, concerns, closed joint-stock companies.
In such a context the Government hastened to push forward official mass privatization without achieving stabilization in the hope, that privatization will sort the things out and build constituencies to future reforms.
Privatization started from small scale enterprises. The aim was to establish the foundation of market economy (Chubais, Vishnevskaya, 1993, p. 92). In fact, retail and service industry was underdeveloped and could not create the market environment. The main stage of privatization considered, firstly, corporatization of large enterprises and, secondly, distributing part of the shares to employees and managers and organizing individual voucher auctions for each enterprise to allocate the rest of the shares. Tradable vouchers were given away to everybody for a symbolic fee.
Voucher privatization was backed by purely political, not economic methods. By mass give-away of vouchers to the population, designing the privatization program that favors managers and employees and provides local governments with revenues reformers tried to gain support for their actions.
At the same time reformers realized, that privatization entailed political risks. Firstly, it leads to unequal income distribution. Creators of Russian privatization program supposed, that “resentment over the “fat cats” who bought up property at auctions should begin to decline, when the real mass sell-out of shops starts, leading to substantial price decreases for trade and service properties, and after distribution of vouchers among the population” (Chubais, Vishnevskaya, 1993, p. 98).
In fact, up to now the absolute majority of the population has considered privatization unfair, blaming politicians for favoring prominent businessmen in acquiring government