Introduction
1 Among numerous surveys of the Soviet economy on the eve of privatization, see Åslund (1994); Gaddy and Ickes (2002); Hanson (1993; 2003); and the collection of articles in Hewett (1991).
2 Or “orgy of plunder”, see Hedlund (2008: 191).
3 For a recent review of the economic theory associated with transition policies in Central Europe and the CIS, see Mickiewicz (2005: 26) and Chapters 2–4. See also Åslund (2008); Åslund et al. (1993); Shleifer and Treisman (2000); Granville (1995); Gustafson (1999).
4 An extended discussion of the groups forming around “models” is in Mau (2010: III, 364–8).
5 “On Implementation of the USSR Law: On Individual Labour Activity.” Ved SSSR (Supreme Soviet USSR), 19 November 1986, No. 47, Item 965, sec. 1.
6 On the Establishment in the Territory of the USSR and Operation of Joint Ventures with the Participation of Soviet Organizations and Firms from Capitalist and Developing Countries, No. 49, Sobrfanie Postanovlenii [SP] SSSR, No. 9, Item 40.
7 On State Enterprise, Ved. SSSR, 30 June 1987, No. 26, Item 385.
8 On Cooperatives, Ved. SSSR, 26 May 1988, No. 22, Item 355.
9 See Feldbrugge (1922).
10 Principles of Legislation of the USSR and of the Union Republics on Lease. Ved. S’’ezdov Narodnykh Deputatov i Verkhovnogo Soveta 1989, 23 November 1989, No. 25, Item 481.
11 On Approving Regulations on Joint Stock Companies and Companies with Limited Liability and Regulations on Securities, Decree No. 590 of the USSR Council of Ministers, 19 June 1990.
12 Such as Gazprom, Rosugol’, Rosneft and Mosfil’m (see Ustiuzhanina 2001: 83).
13 Russian Law On Property, 24 December 1990, Ved. S’’ezdov Narodnykh Deputatov RSFSR i Verkhovnogo Soveta, No. 30, Item 416; law On Enterprises and Entrepreneurial Activity, 25 December 1990, ibid., Item 418.
14 On the Privatization of State and Municipal Enterprises in the RSFSR, Ved. RSFSR, 3 July 1991, No. 29, Item 927; On Fundamental Basis of De-statization and Privatization of Firms, Regulation of Supreme Soviet USSR, 1 July 1991, No. 2279-1.
15 Before then, numerous forms of privatization, called “spontaneous” privatization by the popular press, were evident: “imprecise legislation, policy paralysis at all levels of government, the breakdown of the state supply system, and continued excess demand, have allowed managers of state firms to initiate ‘spontaneous privatization’ – through which managers and other individuals are effectively obtaining property rights which previously belonged to ministries, planners and the Communist Party” (Johnson 1992: 1).
1 Privatization and the Russian transition: perspectives
1 Also known as “voucher privatization”.
2 Mikhail Gorbachev (1931–), President and General Secretary of the Communist Party of the Soviet Union (1985–91).
3 See also Åslund (1994) for an analysis of economic reforms in the late Soviet era, and Appel (2004: 71–6) for a survey of works on early reform efforts.
4 For instance, the 1987 Soviet Law on State Enterprises broadened the parameters for private ownership without delineating the relationship between the central government and firms. Similarly, the Law on Privatization of State and Municipal Enterprises, ratified by the Russian parliament in 1991, was so general in its formulation that most of its contents were later superseded by presidential decrees.
5 “CPSU Panel Views Destatization, Privatization”, Pravda, 20 May 1991, p. 2 (FBIS-SOV-91–099, 22 May 1991).
6 Interview with Mikhail Gorbachev, 17 June 1991 (FBIS-SOV-91–116, 17 June 1991).
7 Boris Yeltsin (1931–2007), first president of Russia (1991–99).
8 The Supreme Soviet of the RSFSR (Verkhovniy Sovet RSFSR), later Supreme Soviet of the Russian Federation, was the supreme government institution of the Russian SFSR in 1938–90. Between 1990 and 1993, it was a permanent parliament, elected by the Congress of People’s Deputies of the Russian Federation.
9 The supreme legislative body in the Soviet Union (1989–91), created by Gorbachev.
10 For a study of the politics of this period, see Mau (1996); Gustafson (1999); McFaul (2004: 58), among others.
11 Ruslan Khasbulatov (1942–) left the Communist Party in August 1991; he became speaker of the Supreme Soviet in 1991, and in 1993 led the Supreme Soviet in its power struggle against Boris Yeltsin.
12 Anatoly Chubais reported:
As soon as the decision on commencing privatization was approved by the Russian government (this happened at its last session in 1991) Boris Yeltsin interrupted the session and got in touch with Ruslan Khasbulatov, the speaker of the Russian parliament. Originally, the program was expected to be put through parliament, implying its adoption no earlier than February, and hence a halt in the course of the entire reform. Khasbulatov seemed to appreciate Yeltsin’s arguments, convened the Supreme Soviet’s Presidium and the same night the program received unanimous support at a joint meeting of the government and parliament’s leadership.
See interview with Anatoly Chubais, Chairman of the Russian Federation State Committee for Control and Management of Property, Moscow News, 19–26 January 1992, p. 10 (FIBIS-SOV-92–026, 7 February 1992).
13 The point regarding incentives is made in Stavrakis (1993), cited in Huskey (1996: 365). See also Vasiliev et al. (1999).
14 The leadership of the Supreme Soviet passed to its chief executive in 1990 (Boris Yeltsin to 10 July, Ruslan Khasbulatov as acting chairman after 10 July and then chairman from 29 October 1991 to 4 October 1992).
15 On 12 June 1991, he became the first popularly elected chief executive in Russia, as president of the Russian Soviet Federative Socialist Republic, with 57 per cent of the vote.
16 “Khazbulatov Warns against ‘Dictatorship’”, TASS International Service, 16 January 1992 (FBIS-SOV-92–013, 21 January 1992); “Critical of Privatization Strategy”, INTERFAX, 20 January 1992 (FBIS-SOV-92–014, 22 January 1991).
17 Cited in Colton (2008, ebook location 3504, 3513).
18 Yegor Gaidar (1956–2009) was a Soviet and Russian economist, politician and author, and acting prime minister of Russia from 15 June 1992 to 14 December 1992 and, as such, the key author of the radical reforms.
19 Interview on PBS programme “The Commanding Heights”, transcript at: www.pbs.org/wgbh/commandingheights/shared/minitext/int_yegorgaidar.html#5, accessed on 13 October 2012. Also see McFaul (2004: 140).
20 “Economic Official Discusses Privatisation”, Moscow Russian Television Network, 18 February 1992 (FBIS-SOV-92–035, 21 February 1992).
21 “Psychological Barriers to Market Economy Persist”, Izvestiia, 26 March 1991 (FBISSOV-91–063, 2 April 1992).
22 Ibid.: 44.
23 See Bruno (1992) for a consideration of the few alternatives available to Central and Eastern European states at that time, with each scenario likely to result in output collapse.
24 In Soviet times, inter-company trades were not conducted in roubles, which could be monetized for purchases other than those from other enterprises that had been agreed in the plan. They might be thought of as “accounting entries” rather than “money”.
25 Viktor Gerashchenko (1937–), president of Gosbank of the USSR 1989–91, and, from 17 June 1992 to 14 October 1994, head of the Central Bank of the Russian Federation.
26 Private interview with Viktor Gerashchenko, 18 October 2010.
27 Inflation not only made trading difficult, it also made it very difficult, for example, to decide upon any rouble valuation of an enterprise that was to be sold, or to interpret its “book value” from historical records.
28 By comparison, for example, with Poland, where the initial rise in the price level was only 80 per cent; see Gros and Steinherr (1995: 410).
29 Gaidar’s prognosis was that in January and February of 1992, prices would rise by about 100 per cent a month, thus tripling in three months, with stabilization beginning in February on the consumer market. By March and April, “inflation will have fallen to about 10–12% a month”, at which time more prices would be liberalized. By the end of the year, he wrote, “the price rise will be limited to a few percentage points, the exchange rate will be stabilized, and objective conditions for an inflow of foreign investment will appear” (E. Gaidar, “Budushchee prineset nam novye tseny i zabytye tovary”, Izvestiia, 2 January 1992, cited in Krotov 2010: 422). The actual monthly rate was over 1,000 per cent by the end of March 1992.
30 Yeltsin, television address 30 December 1991, quoted in McFaul (2001: 144).
31 Gosudarstvennaia Programma Privatizatsii gosudarstvennykh i municipal’nykh predpriatii v Rossiiskoi Federatsii na 1992 god, 11 June 1992.
32 Two options were originally proposed. A third option, which was not widely used, was introduced during the bill’s passage through parliament.
33 Government Decree No. 490, 15 July 1992, and Edict of the President, No. 914, On the Introduction of a System of Privatization Checks in the Russian Federation, Vedomosti RSFSR, 1992, No. 35, 14 August 1992, Item 2001; see “Legislative Survey of the Russian Federation, May–August 1992”, Review of Central and East European Law, 1993, 19: 585.
34 For surveys of this literature, see Megginson and Netter (2001), Estrin (2002a); Estin et al. (2009).
35 “Chubays Gives Briefing on Privatization Program”, Nezavisimaya Gazeta, 24 September 1992, p. 1 (FBIS-SOV-92–186, 24 September 1992).
36 The Washington Consensus formed a general guide for international assistance (IMF, World Bank, USAID, US Treasury and the EU).
37 Although missions were sent to Russia, and advisers from Harvard and elsewhere advised policy makers, large-scale assistance to privatization from the international financial institutions did not begin until the passage of the June 1992 programme.
38 World Bank and the EBRD, “Mass Privatisation in Russia”, 25 March 1992.
39 GAO/NSIAD-95–156, USAID Projects in Russia (Washington, DC: GAO, 1995), p. 27.
40 GAO/NSIAD-95–156, p. 29.
41 As well as the critique given in the text, others noted the partial nature of the price and trade liberalization as a policy flaw.
42 See Chapter 5 of this book. Accepting, after modification, a proposal by Vladimir Potanin, the government adopted a loans-for-shares scheme to lease some of the largest state industrial assets (including state-owned shares in Norilsk Nickel, Yukos, Lukoil, Sibneft, Surgutneftegas, Novolipetsk Steel and Mechel) through auctions in return for loans to the government. The loans were not returned as contracted, and thus these assets were sold at the very low market price available at the time.
43 A critical study of the results of the IMF and World Bank missions to Russia can be found in Woods (2006). However, there is no evidence that advice from these institutions was the cause of state capture and corruption or resulted in damaging effects.
44 See also Boone (1996).
45 Wedel’s book cannot be taken as a comprehensive history of US aid to those countries – it is focused on a few top-level projects, and it does not follow aid through its monitoring procedures or local administration. There was considerable donor credibility in central and regional government agencies and non-governmental organizations in Russia. It can be noted, too, that the USA was not the most important source of bilateral assistance to Russia. Germany, the most significant donor, gave almost twice the amount given by the USA, and its contribution has not been negatively reviewed. Bilateral aid from Development Assistance Committee (DAC) donors was provided by advisers representing departments of agriculture, ministries of finance, European banks, law firms and other groups, which assisted a variety of Russian agencies by providing information about international standards in areas as important as contracting, property rights, budgeting, statistical services, poverty targeting, income determination, programme development and monitoring, and regulating conflicts of interest. Any scholarly review of aid to Russia must begin elsewhere than the USA and must embrace a larger mission.
46 Joseph Stiglitz (1943–), who received the Nobel Prize in economics in 2001, was prominent in the Clinton administration as the chair of the President’s Council of Economic Advisors from 1995 to 1997, and at the World Bank, where he served as senior vice-president and chief economist from 1997 to 2000.
47 See a recent review of this literature in Hamm et al. (2012).
48 A. Åslund, paper presented at CEELBAS Conference “Privatization in Russia: Decisions and Outcomes, 1991–1997”, St Antony’s College, Oxford, 12–13 November 2010.
2 The Mass Privatization Programme: the ideas, their evolution and their embodiment in law
1 Conflicts over sovereignty between the Union government and those of the subnational governments in the last years of the Soviet Union.
2 http://en.wikipedia.org/wiki/War_of_Laws.
3 Private interview with Maxim Boycko, 18 October 2010.
4 Despite the relatively peaceful dissolution of the Soviet Union, the Caucasus proved the exception, with the 1988–94 dispute between Armenia and Azerbaijan over Nagorny-Karabakh, internal conflicts in Georgia between 1989 and 1993, and the Chechen wars. See Zürcher (2007).
5 O predpriatiiakh i predprinimatel’skoi deiatel’nosti, Zakon RSFSR, 25 December 1990, No. 445–1.
6 To last until 1 December 1992, presidential decrees and other acts guaranteeing economic reform have priority in legislation, and they are to go into effect if the Supreme Soviet – or its Presidium, during its recess – does not overturn them within seven days (Postanovlenie SND RSFSR, 1 November 1991, No. 1831–1, O pravovom obespechenii ekonomicheskoi reformy); other measures were passed allowing the president to make all appointments in and restructure the executive (Postanovlenie SND RSFSR, 1 November 1991, No. 1830-I, Ob organizatsii ispolnitel’noi vlasti v period radikal’noi ekonomicheskoi reform (in effect until 1 December 1992)), to approve all of the economic reform plans announced in the President’s address (SND RSFSR, 1 November 1991, No. 1829-I).
7 Letter from Ira Lieberman to Anatoly Chubais, from Private papers, World Bank, 25 March 1992.
8 This is illustrated in a number of papers of the Consortium, in particular Braxton Associates/Deloitte, “Strategic Issues Raised by the MPP”, 15 August 1992.
9 Private interview with Petr Mostovoi, 19 October 2010.
10 Private interview with Patrick Naegeli, 13 November 2010.
11 Private interview with Maxim Boycko, 18 October 2010.
12 Postanovlenie Verkhovnogo Soveta RSFSR, December 1990, No. 446–1; Zakon RSFSR, 25 December 1990, No. 445–1.
13 Zakon RSFSR, No. 445-1, Article 6.
14 Ibid.
15 World Bank private paper addressed to Anatoly Chubais, “An Approach to Rapid Privatisation”, 25 March 1992.
16 Yegor Gaidar, first vice-premier of the Russian government and economic minister, appointed acting premier in 1992 from 15 June until 14 December, and again first vice-premier in September 1993; resigned in January 1994.
17 Gaidar was the leader in the late 1980s of a group of economic reformers who met regularly in Moscow and St Petersburg, and, in June 1990 with Anatoly Chubais, Petr Aven and others in Hungary, with economists Nordhaus, Dornbush and others to discuss reform. See Iasin (2002). Rossiiskaia ekonomika: istoki i panorama rynochnykh reform, kurs lektsii, Chapter 6, Moscow: Higher School of Economics, 2002, cited in http://ru.wikipedia.org/.
18 Both had some experience in government, but they were better known in party and intellectual circles. Yegor Gaidar, the editor of a major journal and member of a Politburo Commission on Economic Reform in the 1980s – “one of these rare Soviet economists able to discuss economics in modern micro and macro economic terms with his Western professional counterparts” (LePage 1990) – was chosen by Mikhail Gorbachev as part of a team of economists to present new economic thinking to western economists and government leaders. Anatoly Chubais, also an economist, served first as deputy mayor and then economic adviser to the mayor of St Petersburg, and, in 1991, was appointed by the mayor and by the Nobel Prize Winner Vasilii Leontieff as the president of the new Leontieff Research Center in St Petersburg.
19 OA uses a network of academic contributors to comment on world events. Its publications are peer-reviewed with the aim of being politically neutral.
20 David Pitt-Watson, co-author of this book, currently serves as a non-executive director of OA.
21 Oxford Analytica, “Political Obstacles to Privatisation in Russia”, 1992.
22 Ibid.
23 Ruslan Khasbulatov supported Yeltsin in his successful resistance to the coup attempt in August 1991. He became chairman of the Supreme Soviet of the RSFSR in 1991.
24 Private interview with Ruslan Khasbulatov, 16 October 2010. Among the laws that were inspired by parliament, he cited the privatization of housing from July 1991. This law, however, predated Gaidar’s appointment to the government.
Privatizatsiia v Rossii do 97 goda voobshche ne byla ekonomicheskom protsessom. Ona reshala sovershenno drugogo masshtaba zadachi, chto malo kto ponimal togda, a yzh tem bole na Zapade. Ona reshala glavnyiu zadachu – ostanovit’ kommunizm. Etu zadachu my reshili. My reshili ee polnost’iu. My reshili ee s togo momenta, kogda na vyporakh v 96-om godu Ziuganov otkazalsia ot lozunga “natsionalizatsiia chastnoi sobstvennosti”.
[Up to 1997, privatization in Russia was not an economic process. It decided a completely different and enormous task, which few at the time understood, not to mention in the West. It was decisive in resolving the main problem of ending communism. This we did, we did entirely. We decisively achieved it at the moment when Ziuganov, in the election year of 1996, rejected the platform, “Nationalization of Private Property”.]
(A. Chubais, “Privatizatsiia voobshche ne byla ekonomicheskim protsessom. Ona reshala glavnuiu zadachu – ostanovit’ communism”, Interview, Aleksandr Gentelev, 2001, http://forum-msk.org/material/video/2493684.html)
26 Little provision was made for the systemic effect of price liberalization. In particular, no reform was undertaken to the inter-enterprise payments system, which hitherto had assumed that the buyer was willing and able to pay at regulated prices.
27 Similar anecdotes can be found in Gaidar (2003).
28 Private interview with Ruslan Khasbulatov, 16 October 2010.
29 Ob uskorenii realizatsii programmy privatizatsii na 1992 god, Postanovlenie Pravitel’stva RF, 29 1992, No. 52; O vvedenii v deistvie Gosudarstvennoi programmy privatizatsii gosudarstvennykh i munitsipal’nykh predpriatii v Rossiiskoi Federatsii na 1992 god, Postanovlenie Verkhovnogo Soveta RF, 11 June 1992, No. 2980–1. For the text of the programme, see Appendix 1.
30 Postanovlenie Verkhovnogo Soveta RSFSR, 3 July 1991, No. 1532–1, Zakon RSFSR, 3 July 1991, No. 1531–1. See Boycko et al. (1995).
31 Medium-sized enterprises of between 200 and 1,000 employees were to be sold by a combination of the methods available to large and small companies.
32 World Bank private paper addressed to Anatoly Chubais, “An Approach to Rapid Privatisation”, 25 March 1992.
33 O vvedenii v deistvie sistemy privatizatsionnykh chekov v Rossiiskoi Federatsii, ukaz Prezidenta RF, 14 August 1992, No. 914.
34 Private interview with Ruslan Khasbulatov, 16 October 2010.
35 See, for example, World Bank, “Strategic Issues Raised by the Mass Privatisation Process”, August 1992. This document outlines the key challenges facing the programme.
3 Reforming the communist inheritance: the goals and limits of privatization
1 The EBRD cites the IMF et al. (1991) and the CSFB publication Historical Precedents for Economic Change in Central Europe and the USSR. Quoting from the former, the EBRD goes on to note the limits of private enterprise:
Households were allowed to hold some “personal” property with income generating potential – such as private plots, livestock, automobiles and housing – but resale was prohibited… . Other capital was banned, as was employment of hired labour, and supplies were often difficult to obtain through legal channels. The main legally sanctioned private activity was crop production on the household plots of collective farm members.
(EBRD, “Privatisation in Russia”, 8 June 1993, p. 8)
2 For those interested in the topic, there are contemporary textbooks, such as Gregory and Stuart (1994), which trace the development of the Soviet economy in its later years.
3 Separate savings banks existed until 1963, when they were incorporated into Gosbank, which constituted an extension of the government’s monetary and economic policy, carrying out central bank and commercial functions. In 1988, in a major banking reform, Gorbachev separated out functions, bringing back Sberbank, among others, to serve as a savings and loan bank for workers and other citizens.
4 One might note the difference in the relative price of oil which had arisen between the Soviet estimate in 1988 and the IEA three years later, an illustration of the inflexibility of prices or the reliability of statistics, or perhaps both.
5 See World Bank (1992: 182).
6 The Central Bank of the Soviet Union, and the only bank on the territory of the Soviet Union from the 1930s until 1987.
7 See also Pistor (2006); Andreev (1992); Sachs and Pistor (1997).
8 See background in EBRD, “Privatisation in Russia”, 8 June 1993.
9 Ibid., p. 27. See also Black and Kraakman (1996).
10 See Humphrey (1999); Shleifer (1997); Volkov (1999); Varese (2001, 2005).
11 EBRD, “Privatisation in Russia”, 8 June 1993, p. 28.
12 Ibid.
13 EBRD, “Privatisation in Russia”, 8 June 1993, p. 31.
14 On unemployment in the Soviet economy, see Gregory and Collier (1988); Bergson (1964); Granick (1987); Ofer and Vinokur (1980); Roxburgh and Shapiro (1996).
15 A residence registration system that was replaced in 1993 by the statute On the Right of Russian Citizens to Liberty of Movement and Choice of Temporary or Permanent Residence within the Russian Federation (Council of Europe, 13 November 2001, 25). The change allowed simple notification of local authorities to replace official permission to register one’s residence (see www.unhcr.org/refworld/country,,IRBC,,RUS,,3f7d4e0f38,0.html, accessed 23 October 2012).
16 See also Rubins (1998).
17 D. Pitt-Watson et al.; EBRD, “Privatisation in Russia”, 8 June 1993.
18 World Bank March 1992.
19 World Bank, “An Approach to Rapid Privatisation”, c. March 1992.
20 Quoted Goldman (2004: 81–2).
21 Braxton Associates/Deloitte.
22 World Bank, Staff Appraisal,
23 November 1992. 23 Ibid.: 96.
24 Cited in ibid.: 96.
25 Staff Appraisal, World Bank, c. March 1992.
26 Braxton, 12 August 1992, p. 5.
27 As illustrated in Appel (2004: 82).
28 Braxton Associates/Deloitte 8/92 (Most of this is in presentation form and unpaginated).
29 Ibid.
30 Ibid.
31 Ibid.
32 World Bank, “An Approach to Rapid Privatisation”, c. March 1992.
33 Braxton Associates/Deloitte, “Final Presentation and Report”, 22 December 1992.
34 Ibid.
35 Ibid.
36 Ibid.
4 Implementation of privatization, 1992–1994
1 Presidential Edict No. 914 (14 August 1992), On the Introduction of a System of Privatization Checks in the Russian Federation, with the statute of checks annexed; Presidential Edict No. 1228 (14 August 1992), On the Sale of the Housing Fund, Land Plots and Municipal Property by Privatization Checks (Vouchers); Presidential Edict No. 1229 (14 August 1992), On Developing the System of Privatization Checks; Presidential Edict No. 1391 (16 November 1992), On Selling Objects of Privatization for Vouchers; Presidential Edict No. 1705 (31 December 1992), On Expanding the Opportunity for the Population to Participate in Specialized Check Auctions.
2 EBRD, “Privatisation in Russia”, 8 June 1993, p. 8.
3 Ibid.: 14.
4 Ibid.: 15.
5 Braguinsky and Yavlinsky (2000: 5) write that “anyone who starts a small business in Russia will encounter extortion demands from the mafia, so there is no incentive for entrepreneurship”.
6 Private interview with Khasbulatov, 16 October 2010. Note that different versions of non-tradable privatization vouchers were introduced in Ukraine and in Kazakhstan.
7 Private note from Andrei Shleifer, undated, summer 1992.
8 Later notes suggest decree 160 was not approved.
9 “Meeting with Machine Tool Manufacturing Association”, Memo from Bob Anderson to Maxim Boycko and Jonathan Hay, 3 June 1992.
10 Machine tools (500,000 employees); transport construction (400,000 employees); general purpose machinery construction (500,000 employees); electrical technology (400,000 employees).
11 Braxton Associates/Deloitte, “Strategic Issues Raised by the MPP”, 15 August 1992.
12 Ibid.
13 The notion that managers were “bribed” occurs openly in the writings of many of the advisers and reformers, including Shleifer, Boycko and Hay. Readers can also note its use in the memo on associations (Appendix 2).
14 Scott Griffith, “Summary of Interview Results”, 24 August 1992.
15 15 Ibid.
16 16 Braxton Associates/Deloitte, “Strategic Issues Raised by the MPP”, August 1992.
17 Private conversation with Ruslan Khasbulatov, 2010, Moscow.
18 “Implementation of the Voucher Scheme”, Memo from David Pitt-Watson to Chubais, Vasiliev, Boycko and Hay.
19 This figure is obtained by subtracting the number of vouchers received at voucher auctions from the total issues.
20 FMSU Statistics on Voucher Investment Funds in Russia, presented to OECD conference, Paris, 2–4 March 1994. The largest voucher funds were Pervii Vouchernii Fond (2,100,000 shareholders); Alpha Capital (1,012,000 shareholders); MN-Fond (900,000 shareholders).
21 See press conference by Anatoly Chubais, official Kremlin International News Broadcast, 21 August 1992, and discussion in Appel (2004: 91).
22 Around 149 million vouchers were issued. Of these, 116,395,000 were returned at voucher auctions, leaving 33,000,000, or 22 per cent, that were used in other ways, presumably by the workforce (Blasi et al., 1997: 192).
23 See Blasi et al., (1997: 192–3), using Russian National Survey and other sources. Note the inequity in value between insider subscription and outsider ownerships may not be as great as the figures initially suggest, since companies which had a higher value would tend to have a greater proportion of outside shareowners.
24 At CEELBAS Conference, Oxford, 10–11 November 2010.
25 See Appendix 4.
26 It might be noted that in the UK insider trading was not made illegal until the 1980s.
27 In order to make values comparable, in accounting for rouble inflation, these values are expressed in dollars.
28 In Appendix 3, we outline the Consortium’s observations on this topic in the spring of 1993.
29 The rise of the oligarchs is discussed in more detail in Chapter 5.
5 Implementation of privatization after 1994
1 “Fewer Deputies Support Privatization Bill”, Reuters, 21 July 1994, accessed on 6 October 2012 from Factiva Database, access by University of Oxford.
2 Ob osnovnykh polozheniiakh Gosudarstvennoi programmy privatizatsii gosudarstvennykh i munitsipal’nykh predpriiatii v Rossiiskoi Federatsii posle 1 iulia 1994 goda. Ukaz Prezidenta RF, 22 July 1994, No. 1535.
3 See Timothy Frye (2000: 190–1).
4 “Reducing the numbers of prohibited companies – those enterprises still treated as ‘untouchable’ with regard to privatization”: see Kokh (1998: 84).
5 Barnes (2006: 127) describes the distribution to members of his family of valuable assets by Alexander Rutskoi, former vice-president and a leader of the parliamentary revolt against Yeltsin, who was elected governor of Kursk region in 1996.
6 “The deals themselves neither created the oligarchs nor bought their support for the reelection run” (Barnes 2006: 114). The conventional loans-for-shares story fits the cases of Abramovich (in 1995–97 a junior partner of Berezovsky), Khodorkovsky and, especially, Potanin. The other two winners were the oil sector insiders Vagit Alekperov and Vladimir Bogdanov, who obtained stakes in firms they already controlled. However, most of those listed in Table 5.1 did not become oligarchs through the loans-for-shares programme. Some of the 22 largest owners tried to participate in the loans-for-shares and even offered more competitive bids, but were excluded by those in charge of auctions; some even raised their concerns in public (Guriev and Rachinsky 2005: 139; Treisman 2010).
7 See Treisman (2010: 218–20) on asset stripping.
8 Note that targets for government revenue are difficult to compare with actual revenues because of hyperinflation. Budgets usually underestimated inflation and, of course, sales at year end would be expected to raise more than those earlier in the year. Nevertheless, the points made in the text remain valid (OA Daily Brief, 9 October 1995).
9 Vladimir Potanin (1961–), an engineer and senior official in Soyuzpromexport (1983–90), was president of the Interros Foreign Trade Association, which he co-founded with Mikhail Prokhorov, vice-president and then president of the International Company for Finance and Investments (MFK) (1992–93). President of the United Export–Import Bank (Oneximbank) from 1993, he was the principal author of the loans-for-shares programme. He supported Yeltsin’s re-election and, in 1996–97, served as first deputy prime minister in charge of the economy; in 2005 he became a member of the Public Chamber. See www.themoscowtimes.com/mt_profile/vladimir_potanin/433790.html.
10 “‘Of course these banks are not offering any favors,’ he said, ‘they want to make money. But if this will be profitable for Russia’s banks, it should be profitable for Russia’s government as well’” (Elif Kaban, “Banks’ Loan-for-Shares Offer”, Moscow Times, 31 March 1995). The financial crisis in 1998 showed the vulnerabilities of the banking sector, which was weakened by non-performing loans and limited investment in the real economy.
11 On 24 August interbank trading in Moscow actually collapsed.
12 Sergei Aleksashenko was; he told reporters that he supported the measure as a means to reduce the role of the state in the economy (Natasha Mileusnic, “Alexashenko Supports Banks’ Plan”, Moscow Times, 26 April 1995).
13 Fuel and Energy, Communications and the State Precious Metals Committee (Kaban 1996).
14 “Is Russia Less Attractive?”, Moscow Times, 9 February 1995, www.themoscowtimes.com/news/article/is-russia-less-attractive/342954.html#ixzz1wuZgaoce, accessed 5 June 2012.
15 www.pjsymes.com.au/articles/MMM.htm, accessed 30 October 2012.
16 www.themoscowtimes.com/news/article/officials-take-steps-to-control-securities/349980.html#ixzz1wjz2YDTt, accessed 3 June 2012.
17 According to the BBC: see http://investorswatchdog.com/blog/investorswatchblog/?p=7459; www.themoscowtimes.com/news/article/mmms-mavrodi-voted-into-duma/346594.html#ixzz1wk2GZmRm, accessed 3 June 2012.
18 “Yeltsin Appoints Privatization Minister”, Moscow Times, 16 November 1994, www.themoscowtimes.com/news/article/yeltsin-appoints-privatization-minister/346068.html#ixzz1wtsKOXtC, accessed 12 June 2012.
19 Dmitry Vasiliev, head of Federal Securities and former deputy head of the GKI, told a press conference: “Because of Polevanov, we lost several hundred million dollars in funds not invested in Russia”, Moscow Times, 26 January 1995, www.themoscowtimes.com/news/article/polevanov-out-sell-offs-up-in-the-air/343607.html#ixzz1wuWMi6rs, accessed 30 October 2012.
20 Russian newspapers quoted Vladimir Polevanov, deputy premier and head of the State Property Committee, as saying he would insist on the nationalization of “wrongly privatized” industry, especially in the aluminium, energy and military-industrial sectors. See Moscow Times, 31 December 1994, www.themoscowtimes.com/news/article/privatization-chief-says-sell-off-drive-is-threat/344452.html#ixzz1wuUefDtK, accessed 5 June 2012.
21 News Brief, 11 April 1995, www.imf.org/external/np/sec/nb/1995/nb9511.htm, accessed 3 June 2012.
22 Arrears in company tax payments rose from 2.3 per cent to 8.2 per cent of GDP from 1994 to 1998 (Russian Economic Trends, 1 December 1999: 124; see Table 58, “Sources of Company Financing”). A tax collection “emergency” was declared in 1996, when the government realized only 56 per cent of taxes had been levied. The tax system in 1995–96 taxed the profits of enterprises heavily, especially in comparison with the tax burden of personal income, and many non-wage sources of income were not captured: Russians kept $30 billion to $60 billion in foreign banks to avoid taxation. VAT, experiencing uneven compliance, was set at 21.5 per cent. Export taxes became more important in the 1990s. Tax on the extraction and sale of natural resources yielded an important source of revenues, but the ad hoc granting of tax exemptions, which distorts the overall revenue system, undermined the authority of administrators especially in the natural gas industry. See information provided for the 1990s by the US Congress’s research service: www.country-data.com/cgi-bin/query/r-11459.html.
23 “Russia Threatens Stet”, New York Times, International Briefs, 30 December 1995, www.nytimes.com/svyazinvest, accessed 12 June 2012.
24 Federal budget revenues due to privatization in 1995 emerged from: (1) pledge auctions of the stocks of 12 enterprises for 5.1 trillion roubles (by contrast with expected 2–3 trillion roubles from auctions of 29 enterprises); (2) blocks of stock sold for 1.5 trillion roubles instead of 4–5 trillion expected from the sales of 136 enterprises; (3) the floating of a one trillion rouble convertible bond issue of the Lukoil Company (the sale of 25 per cent of the stocks of Svyazinvest for 1.9 trillion roubles did not materialize: see Radygin (1996: 5–19).
25 “After Ruble? Some Legal Stabilization”, Moscow Times, 7 August 1995, www.themoscowtimes.com/news/article/after-ruble-some-legal-stabilization/336249.html#ixzz20J6xvr1x, accessed 11 July 2012.
26 OA Daily Brief, 5 February 1996.
27 Note that Kokh believed that such purchasers were fully legal (see Kokh 1998: 214).
28 Boycko was removed from office days before the privatization of VNK (the Eastern Oil Company), which he had overseen. That auction far exceeded expectations for the amount of money to be raised, and was perhaps one of the few examples of good practice during the period.
29 As Kokh (1998: 152) notes, “the budget projection of receipts from privatization in 1996 was set purely arbitrarily, i.e. as the difference between the actual receipts and the budget deficit set by the IMF”.
30 The results were formulated by a critical regulation, Postanovlenie Gosudarstvennoi Dumy Federal’nogo Sobraniia Rossiiskoi Federatsii ot 11 iunia 1997 goda, No. 1517-II GD: “O khode privatizatsii v Rossiiskoi Federatsii i dopushennykh narusheniiakh zakonodatel’stva Rossiiskoi Federatsii pri ee osushestvlenii”.
31 O privatizatsii gosudarstvennogo imushchestva i ob osnovakh privatizatsii munitsipal’nogo imushchestva v Rossiiakoi Federatsii, 21 iulia 1997, No. 123-FZ.
32 “Interview with Mikhail Khodorkovsky: Money, Power and Politics”, Frontline/World, 31 October 2003, http://419.bittenus.com/serguizakhagcv/pbs.htm, accessed 16 October 2012.
33 Tax revenues in 1994 were 60 per cent of the amount expected: “Soaring Tax Evasion ‘Threatens’ State”, Moscow Times, 24 March 1994, www.themoscowtimes.com/news/article/soaring-tax-evasion-threatens-state/341285.html, accessed 5 June 2012.
Conclusion
1 Centre for East European Language Based Studies Conference, “Privatization in Russia: Decisions and Outcomes, 1991–1997”, St Antony’s College, Oxford, 12–13 November 2010.
2 Petr Petrovich Mostovoi (1949–), lawyer and statesman, one of the early authors of Russian privatization, was in the Leningrad kruzhok of economists with Anatoly Chubais in the late 1980s. He became the deputy head of the State Property Committee of the Russian Federation in early 1992. See his detailed history of his own participation, “V poiskakh pravovogo polia”, on the website of the Soiuz Pravykh Sil: Nashe delo pravoe www.sps.ru/?id=206210, and this and other articles in A. Chubais, Privatizatsiia po Rossiiskii (1999), www.ru-90.ru/content/приватизация-по-российски-под-ред-анатолия-чубайса, accessed 29 October 2012.
3 Maksim Vladimirovich Boycko (1959–), economist, associate of the National Bureau for Economic Research, sector head at the Institute of the World Economy and International Relations RAN (IMEMO) (1985–92), lead economic adviser for consultancy to the State Property Committee of the Russian Federation, 1992–95, deputy head of the Russian Federation Government Committee for Economic Reform (1995), general director of the Russian Privatization Center (1993–96), privatization minister August–November 1997.
4 See a recent review in Hamm et al. (2012).
5 See Mostovoi, “V poiskakh pravovago polia”.
6 S. Medema in “Ronald Coase on Economics and Economic Method”, History of Economics Review, 24 (Summer 1996): 1, thus quotes Coase and, more precisely, states that economics is the study of “the social institutions which bind the economic system together, markets for goods and services, labour markets, capital markets, the banking system, international trade, and so on”.
7 To review, the Law on the Privatization of State and Municipal Enterprises in the RSFSR, Vedomosti RSFSR 1991, No. 27, Item 927, assigns to the RF State Property Committee (Goskomimushchestvo) responsibility for drafting the programme and to the Russian Fund for Federal Property and subsidiary funds the administrative responsibilities. It establishes four means: buy-out of leased enterprises, distribution of shares, auction (encumbered), unencumbered sale. See “Legislative Survey of the Russian Federation: July–December 1991”, Review of Central and East European Law (1993), 19: 336–7.
8 This criticism also applies to the post-reform economic arrangements: see Filatotchev et al. (1999: 481): “The authorities were less concerned about the structure of share ownership that would initially result from privatization, believing that the tradability of shares would ensure a rapid evolution of ownership structure, whatever the initial allocation.”
9 Marek Paweł Dąbrowski (1951–), the chairman of the Supervisory Council of the Center for Social and Economic Research (CASE) in Warsaw and chairman of the Supervisory Board of CASE-Ukraine in Kyiv, was first deputy minister of finance of Poland (1989–90), member of Poland’s parliament (1991–93), and member of the Monetary Policy Council of the National Bank of Poland (1998–2004).
10 See Blasi et al. (1997); Shleifer and Treisman (2001: 2–3); “Analiz” (2004), and others.
11 In the sense that the compromises made by reformers to include a large role for insiders in privatization were blamed as a Russian policy failure, rather than seen as part of a successful political strategy (Dewatripont and Roland 1995; Filatotchev et al. 1999; Black et al. 2000). But see Popov (1998: 123): “Massive and quick privatization became socially acceptable and politically feasible at the cost of establishing the control of insiders over most privatized enterprises.”
12 Private interview with Maxim Boycko, 16 October 2010.
13 See, for example, an interview from 2001 on board a plane by documentary film maker, Aleksandr Gentelev in which A. Chubais said “Privatizatsiia voobshche ne byla ekonomicheskim protsessom. Ona reshala glavnuiu zadachu – ostanovit’ kommunizm” [Privatization was generally not an economic process. It addressed the main task – to end communism], http://forum-msk.org/material/video/2493684.html, made available on YouTube 18 February 2010, accessed 21 October 2012.
14 Vice-President Alexander Rutskoi, who complained to a Portuguese newspaper in December 1991 that he was practically excluded from the mechanisms of decision making, with reportedly only three personal staff members compared with the ten allotted to other high-ranking leaders, was referring to Yeltsin’s key advisers when he spoke at a stop in the Siberian city of Barnaul, of “little boys in pink pants”: Irina Gushchenko and Renfrey Clarie, “A Good Season for demagogues”, GreenLeft, 22 January 1992.
15 Gaidar, who advised Gorbachev and served as his emissary to the World Bank, and Chubais, who had served briefly as deputy mayor of St Petersburg and was at the time of his appointment the president of the Leontieff Centre, were the leading economists in Russia, widely recognized in the United States, the European Commission and Central European economists in the late 1980s.
16 Vladimir Alexandrovich Mau (1959–), economist, a politician close to Yegor Gaidar and Anatoly Chubais, rector of the Presidential Academy of the National Economy and Public Administration (2002–).
17 A. Ilarianov quotes V. Mau from the Round Table, “Twenty Years of Market Reforms”, Plenary Session, 3 April 2012, “The Strategy for the Development of Russia” in his blog “No One Wanted Power?”, Ekho Moskvy, 4 May 2012.
18 Yeltsin’s appeal to the voters and, indeed, his mandate, were personal, emotional. Tim Colton (2008: 213) cites Burbulis on pro-Yeltsin voters, who bore “a purely religious form of protest and hope”. They “threw in with ‘a savior’ and not a reform plan”.
19 A plan that raised expectations that Russia could overcome in a few years the economic crisis at the end of the 1980s by means of forging a market economy. Proposed by Grigory Yavlinsky, it was further developed by a work group under the direction of Stanislav Shatalin (an economic adviser to Mikhail Gorbachev). See Desai (2006).
20 Private interview with Ruslan Khasbulatov, 16 October 2010, Moscow.
21 Ibid.
22 Braxton Associates/Deloitte, 1992.
23 For a review of the literature about its results and an updated summary, see Estrin et al. (2009).
24 In one Consortium document (MPP, Technical Assistance Programme, Board Meeting, 7 August 1992), there is a discussion of the value of advice: that given on “policy” was deemed to have a perspective of two months, on operations two weeks, on immediate response, two hours. It was the latter two that were demanded by the GKI.
25 For reviews of the literature, see Hansmann (2000); Learmount and Roberts (2006).
26 The issue of how contracting and principal-agent issues can be resolved is one that has engaged economists for some time. Adam Smith (1937), for example, would have advised against “a separation of management from ownership”. Smith believed that managers, rather than owners, lacked the “anxious vigilance” necessary to look after someone else’s investment and, therefore, “negligence and profusion” would prevail in such enterprises (Smith [1776] 1909–14) Book V, Ch. 1, 311). Alfred Marshall (1946: 596ff.) noted the increasing delegation of management, and that it depended on “a spirit of honesty and uprightness in commercial affairs” to make it a success. Berle and Means (1932) argue the need for broader social obligations by those who control large corporations.
27 Ross Johnson, the CEO of RJR Nabisco, famously provided private jets for his entire board on the grounds that “I know that if I’m there for them, they’ll be there for me”: see Davis et al. (2006: 103).
28 28 For further discussion, see ibid., 100.
29 29 Boycko et al. (1995: 25), to be sure, understand that “the Coase theorem shows how efficiency can be restored but only if property is protected and contracts enforced”.
30 30 For example, the Philosophy, Politics and Economics degree at Oxford was developed with the training of civil servants in mind (http://en.wikipedia.org/wiki/Philosophy,_Politics_and_Economics). It has been criticized for being an overly generalist degree for modern times. “Why does PPE rule Britain?”, www.bbc.co.uk/news/magazine-11136511). However, we would argue that an interdisciplinary approach, including history as well, is important for effective economic policy making.
Appendices
1 Russian Mass Privatization Programme, Final Extension Phase Report, Components 1, 2, 3, Braxton Associates, Deloitte and Touche, Touche Ross, March 1993.