The purpose of the course is to bring the basic knowledge on the specific aspects of Russian economy that had significant impact on the latest development trends in Russia. This course will provide you with knowledge on: 1) the basics of economy; 2) understanding the role of market reforms in developing the key features of modern Russian economy; 3) understanding specific aspects of Russian economy; 4) cause-effect relationship of the most significant trends in Russia’s economic development; 5) instruments for analysis of Russian economy; 6) business climate in Russia and skills required for doing business in Russia. Currently, different aspects of economy have some influence on us and our behavior - e.g. currency exchange rates, inflation and other things define the way in which we distribute our income between savings and investments. In order to understand these principles it is required to have the basic knowledge on economics. So it is not only a lecture on Russian economy. Another main objective of the course is to develop knowledge on the basics of economy as such. So the course will disclose universal patterns by analyzing trends in Russian economy. FAQ: Q: What is targeted audience for this course? What are the course prerequisites? A: The course is mainly developed for students pursuing their master’s degree in the field of international economy and for those who have professional interest in Russian economy. It requires basic knowledge of economic terms. Q: What are the minimum requirements to pass the course? A: In order to pass the course and receive a Course Certificate you will need to have at least 80% of correct answers in each quiz. Welcome to the course “Understanding Russian Economy. Problems of Transition”!
Another side of privatization.Buy-outs 1
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En provenance du cours de National Research University Higher School of Economics
Understanding Russian Economy. Problems of Transition
138 notes
National Research University Higher School of Economics
138 notes
À partir de la leçon
Brief Russian economic history
Welcome to the Week 2! On this week you’ll learn how the transition was set up and organized. In this module we begin the analysis of the Russian economic policy. Understanding the specifics of transition process is crucial for understanding the roots and reasons of modern domestic issues of Russian Federation. That’s why we will make a thorough analysis of it.
Rencontrer les enseignants
Vladimir ZuevProfessor
Department of Trade Policy
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Now, we'll pass on to another
pillar of market reforms.
Another side of privatization,
which is noncommercial buy outs and
that was another major way apart from
voucher privatization there was another
major way to privatize state assets.
So, let's follow the logic of the course and
let's make a preliminary thinking about the ideas
of how privatization could have achieved better results.
So if vouchers could not assure full privatization, then what?
How could reformers act in a different way to assure better results of privatization?
Some of them problems, some of the issues
should be added up to fully understand why
voucher privatization didn't work or
at least it didn't reach results reformers expected to be achieved.
One of the important points to remember was absence of information,
of adequate information, of sufficient information
about enterprises submitted for privatization.
Nowadays, we are all familiar with internet techniques, with one click.
We can have a full access to information about each and
every enterprise all over the world.
And that time, remember,
we talk about years 1991, 1992.
In that time, in the Soviet Union,
we had no internet, no computers.
We had no access to information about enterprises.
That meant that a lot of potential buyers of shares could not
make their right decision about an enterprise,
whether is was worth to invest their vouches in those enterprises.
They could not make proper judgement, just for
the simple reason of not having access to adequate information.
So the difficulty was all the more evident,
as the vast majority of enterprises allocated
outside of the most populated regions.
You know that in Russia, we always have that structure where most of
inhabitants live in big cities like in Moscow and St. Petersburg.
And most of the industries and industrial potential of the countries
is located in Urals, in the Urals, in Siberia and in the Far East.
So outside of the most populated regions does
the people could not feel those enterprises,
could not have access to that accurate information,
then they fear that they would not have any control.
Had they come into possession of shares of a certain enterprise distantly located.
So that was an additional very important reason why people
didn't want to buy shares of the vast majority of enterprises
located throughout the vast territory of the Russian Federation.
We have studied our discussion from the starting point
that Russia is the biggest country in the world by territory,
so you can imagine how many enterprises have been spread around
this vast territory and the access to physical access and
access to information about those enterprises
really was not sufficient for new owners.
So new owners seem to be not interested in buying the shares
of those far away distantly allocated enterprises,
so that was one more reason.
One more important reason why there was a lack of massive interest,
we talk about massive interest.
If we talk about massive privatization, massive honors,
there should have been massive interest, but there was not.
So if this method vouch a privatization
did not achieve the prescribed goals, then what?
Something else was necessary to be suggested to privatize enterprise.
So here, you can see the designer.
The great man who has provided a lot of ideas
about how privatization should be dressed up.
Tubisis is well-known as one of the reformer who designed it all.
So, I hear you can see the fragment from
a TV show when he described the way privatization should work.
So, just for you to have an idea how a lot of people have thought about ways and
means to privatize state owned enterprises.
So, what other idea came to
the reformer's brains?
And what other idea has been suggested to privatize the national economy?
That was an idea of selling shares.
First, issuing shares of an enterprises.
We choose to belong to the state in which had no shares at all and
then selling them to those who would wish to buy them.
Not against vouchers, but as such.
So you can see here, one of the orders that will several orders.
I will not call them all, you can easily have an access to all the orders of
the president about privatization.
They are all well-known, but here I make the reference to one
of the president's in July 92 order on transformation
of the state owned enterprises and to limited liability companies,
which permitted to sell, to issue and to sell shares.
And after that order, that other method
of privatization became very popular and
start to be massively used as a method
of state SS privatization.
According to the new Russian registration, all big enterprises
with asset failure of more 50 million rubles personal of more than 1,
000 people, which meant big relatively big enterprises
with big turnover and with relatively big personnel.
They were submitted under this method of privatization,
you can see the number of state owned enterprises
submitted to this form of privatization.
Roughly, slightly more than 30,000 such
big enterprises existed at that time within the national economy and
this method turned out to be quite popular and
had relatively success.
Because as you can see through the figures,
more than 70% of those enterprises
have been privatized til mid of the year 1994.
How was that done?
What were the particularities of this
methodology, because details matter.
A lot of important details I will put a special stress
on the analysis of some of the minor details,
which seem to be minor details.
But in fact, they do matter to explain a lot of major problems,
which arose eventually.
So, the method consisted in the non-market prices buy-outs.
Preference for those buy-outs was given to personnel
of those enterprises and they were lead to buy shares
of their appropriate units, units where they worked.
There were three options to privatize such enterprises.
But one of the most popular oceans
consisted in permission of buying
more than half, 51% of shares.
Exactly 51% of shares of a stake in an enterprise.
The price would be slightly different.
Because when a person opted for
to buy 25% of shares, for
example, the price was less.
It was really nominal.
It was really symbolic.
Well, 70% more from symbolic price was not agreed thing.
So a lot of personally, a lot of enterprises opted for this second method,
which lead them buying the controlling stake in the enterprise.
As you can see here, the figure as much as 80% for
all of the enterprises have selected that method of privatization.
If the person know will let to buy-out
shares of an enterprise where they work,
on which principle should they be authorized to do that?
That's a game, a question.
Well, if we are guided by the idea of the quality,
amount of people, amount of personnel,
then probably the logical thing would be to distribute
all the shares of an enterprise evenly among all
the personnel working for a certain enterprise.
Would it be just?
Probably not and the other logic was
chosen within this legislation.
Because the higher the standing of the management
within an enterprise, the more shares this management
were entitled to buy-out and that was the logic.
Well, it was not probably fair from an absolute
equality point of view, but there was a logic in that.
The more experienced you are,
the higher your position with an enterprise is.
The more knowledgeable you are in the business of a certain
enterprise, you should be entitled to more shares,
to buy more shares, to buy out more shares.
So, there was a certain logic to grant the top management
of an enterprise that privilege to buy the biggest share or shares of an enterprise.
So, that was it.
That was done in that way.
Again, same question, was it a good idea or not a good idea?
That's kind of a rhetoric question.
That's the way it was done.
I have explained already both ways of thinking why to a certain way,
the idea of granting directors and top management.
The privilege position to buy out more shares was justified.
There was a reason, because they could In theory by more useful to an enterprise and
more interested to have more shares, to better manage those enterprises.
So, that was done and there was a certain logic.
I always try to understand the logic of performers, logical reforms,
the logic of transition.
Because sometimes, it's easier to criticize something.
If you see that something was wrong,
if something went wrong its easier to say,
those reformers did not follow the rules in a proper way.
They have bad ideas, they have done other thing in the wrong way,
that's an easy way to criticize.
First, it's not my way of doing things.
First, you have to understand the logic of those who design reforms and
there was a logic as I explained it to you.
But on the other hand, there were a lot of problems links to that kind of logic and
we shall see what kind of problems eventually arose
after that kind of a concept or privatization has been accept it.
So, null market prices buyouts.
The idea of null markets prices buy-outs was
not a new one at that period of time.
Even at the time of the Soviet Union,
some of the personnel had already some rights to a certain extend,
control over the enterprises they worked at.
You can see how analysts describe the process,
they described it as a spontaneous privatization.
Meaning, the right to given to personal to purchase,
rented from the state enterprises and
that has been prescribed that has been provided for.
Or even at the time of the Soviet Union since the Law on
State Enterprises has been adopted in June of the year 1987.
So, three or four years before Russian privatization schemes were applied.
So, personal with privilege given to directors and
to managers obtained the rights of owners of the rented enterprises.
You can see more information on the particularities of that
process in Radygin paper, I give you the reference here.
It is called Privatisation in Russia, Hard Choices.
You can see here the reference.
If you are interested have a look into this paper,
which is quite an interesting one.
I would not spend too much time on this historic fact, I just mentioned
that it was a matter of fact even before Russian privatization started.
So, coming back to the issue of loan market prices buyouts.
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