PaytonRusPrivat

PaytonRusPrivat - field 50% We}? BEL‘rau "4-...

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Unformatted text preview: field 50% We}? BEL‘rau "4- Fl'ESHEIZ 3-10'05‘ Russia: Privatization By: Robert T Payton Shortly after the fall of the Soviet Union’s program of shock therapy was the idea of privatization. For Russia, privatization was supposed to bring economic change through its three stages. Privatization meant the exchange of state rights to those that would be privately owned. This process was an idea that was thought to fix the problems that were caused by the previous program of shock therapy. Lawm“ “9 TM""‘°"\ Parliament finally gave Yeltsin's government the authority to run the program of privatization in 1991 in order to fix the hyperinflation prololems. The programs first phase was to be fair in a way that all were able to buy back property from the state. People were able to buy small businesses or property back from the state with vouchers that were to be used during auctions. This was supposed to be fair in the sense that the entire population was to be able to purchase property, however this did not mean that those who were buying were able to produce efficiently so that the economy would turn around. This phase lasts around until July 1994 which then marked the beginning of the second phase of Russia’s privatization: The replacement phase. (Pr-‘M-‘utm M Eng-‘0 3(E‘°"°M“”£7~"”p" The replacement phase was a shortly lived phase of privatization. In this phase the vouchers that were used in phase one are to be replaced with actually money. During this phase is when they first realized that the privatization method in which they have chosen was not working. Instead of making the entire Payton 2 population property holders, privatization was creating opportunities for the upper class to buy up more property creating controversy in the Yeltsin government. (“Pcructi‘u’d‘n m 7%» Yeltsin’s next term in presidency in the 1996 elections came with controversy. This controversy started with the third phase in Russia’s privatization: Yeltsin’s “loans-for—shares” phase. This phase gave the government opportunity to trade shares for a loan while the creditor took partial control for three years. This phase allowed powerful banks to become more in control of the business economy which in turn helped the oligarchs purchase state enterprises. The controversy was the fact that Yeltsin need the support of those people in order to win the election of 1996. (?rw«*-7-‘~*~‘°n1‘« 2MP.) “(EMMA 2M") Privatization in Russia however was not the best thing that could have happened. Privatization was a program that brought up a lot of questions both economically and politically. Politically speaking, privatization brought up questions of who was supposed to get the state owned enterprises, and how were they to be given out. Along with those questions came the fact that a lot of the buyers of the enterprises were the managers and former employees that had once worked for those enterprises. Economically speaking this meant that instead of those now property owners (who used to be employees) looking out for Russia in the long run they tired to fix everything in the short run. They started to change wages in favor of the employee. Knowing how it used to be to be an employee the new owners felt for the feelings of those employed. They even went so far as to slow down firing people. This hurt Russia tremendously Payton 3 economically. Instead of letting the market economy grow Russians are now hurting any growing process that they might have even started to create. (RMWM i“ 2‘65“) One side of the population did dominate the buying of the enterprises. The insider’s had bought more than the outsiders had. This was due to the fact that the market was not made friendly towards outsiders. When an outsider bought an enterprise they would feel free with making the necessary changes in the system to be able to be more productive and bring competition to the table. The term “insider privatization” was used for those who were employees that would buy their firms or enterprises. The more they bought of firms the worse competition and Russia’s economy got. By keeping the firm run by an employee. then that employee felt they had the power to make the difference for those fellow employees still out there. This would create higher prices and wages and eventually all of the firms’ assets would be stripped. This is due mainly to the fact that those employees who bought up the firms lacked the experience they needed in order to turn the economy around. (RNA-1a PM m @555“) Outsider privatization was more important than that of the insider privatization. Outsiders who were able to buy a firm were unbiased in a sense that they had the ability or human capital to change a firm into a more productive firm without feeling remorse for their changes. Since an outsider has no linkage to the company before he/she is able to do what is strictly best for the company. However, as l have said earlier that Russia was not as friendly to outside buying . . . . ’ K 5. , g \ a _ as they were With Insuders helping everyone else out. (‘7‘ - J “‘0'” h“ *5“) Payton 4 This leads to the next topic of competition. Competition was what most believed would have helped privatization work in Russia’s economy causing a growth in the market. With competition prices would have inflated but then would have had the opportunity to equilibrate back to where they needed to be. The Russian’s would then have been more economically stable, but instead the insider privatizations lead to higher wages which meant prices of the products produced rose as well. Incomes were not paid and revenues were not coming in. The firms were lacking any asset they had and still could not begin to pay for all the employees’ salaries and taxes to keep the firm open. Thus, barter trading begins to happen between firms. (Eamon of Erbicx Barter trading, or selling of their output was a way the economy blindfolded itself again. Bartering was a way out of the money troubles that was caused by the insider privatization. What they did was work out a way to keep their major customers, such as the military bases, and in return the federal government allowed them to get away without paying for some of their taxes. With all these easy exits and ways out of their problems, Russia forgot to think about the long-term effects of their decisions. Russia was now in a debt crisis by the in of 1998. The government was unable to pay off the money the owed on interest of loans that were used during the privatization process. The prices for their goods then increased and the value of the monetary system dropped its legitimate value as well. (Emmy op 2”“) With the start of the privatization program Russia’s economy was supposed to begin to change and flourish. Instead, the privatization process hurt Payton 5 Russia and put them into debt beyond their control. Whether it was due to the lack of competition or because that they did not expect the dominance of insider privatization Russia’s economy went into a debt that they are still digging themselves out of. Yeltsin’s government although stages were filled with controversy had tried to help the economy. Perhaps if Russia was more prepared then Yeltsin could have been able to fix the problems of privatization. Whether or not those problems could have been fixed is not the question, the new question was how to fix Russia's economy without the same thing happening again. Payton 6 Reference Page The Economics of Transition, from the socialist economy to the market economy 2""l ed. Lavigne, Marie. Copyright 1999 Economy of Russia Articles and Information. Copyright 2004. HttQ://www.neohumanism.org/e/ec/economy of russia.htm| Privatization in Russia Offers Lessons for Others. Earle, John S. Economic Reform Today. Copyright Nov. 2, 2004. httgzllwww.cipe.org/Qubiications/fs/ert/e32/e32 08.htm ...
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