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Hard Choice, First Results, New Targets


Alexander Radygin

Preface by EgorGaidar

London: Centre for Research into CommunistEconomies (CRCE),

New Series 12, June 1995

All rights reserved

ISBN 0 948027 24 X

For references: CRCE, 2Lord Nord Street, London SW1P 3LB

Or British Librarycatalogues





Chapter 1. Purposes, Limitations and SpecialFeatures of Privatisation

Chapter 2. First Approaches to a Reform ofOwnership Relations

Chapter 3. The 1990-1991 Debate onPrivatisation

Chapter 4. Spontaneous Privatisation in1987-1992: Forms and Stages

Chapter 5. `Programming' the PrivatisationProcess

Chapter 6. Basic Features of Development ofthe Process of Privatisation in 1992-1994

Chapter 7. Mass Privatisation Model inRussia (October 1992 - June 1994)

Chapter 8. A New Ownership Structure and aSecondary Market in Shares

Chapter 9. Reform in the `Post-VoucherEpoch'






Alexander Radygin was born on 17 September1962 in Moscow. Having graduated (1984) from the Department of Economicsof Moscow Lomonosov State University, he pursued his interest in issues of WestEuropean integration, structural and industrial policies, the public sector andprivatisation in the countries of the West, and also taught politicaleconomy. He received his PhD in 1987 from LomonosovUniversity.

Since the foundation of the Institute for theEconomy in Transition (IET) by Egor Gaider in Moscow in January 1991, AlexanderRadygin has been working for the IET, where he is in charge of research on theproblems of reforms in the field of ownership relations. He runs theLaboratory of Privatisation and Ownership Structure.

He was a member of the Working Group ondrawing up a Russian Law on privatisation (1991), a member of the Working Groupunder the Government of the Russian Federation on Economic Reform (November1991-December 1992) and an adviser to the First Deputy Chairman of theGovernment of the Russian Federation (September 1993-January 1994), as well asco-author of some government programmes on economic reforms, and a member ofthe Government Commission on working out a post-voucher privatisationmodel. From 1991 to the present he has been an adviser to the StateCommittee of the Russian Federation for the Management of State Property(GKI). In 1993 he worked as an independent expert for Russia on theUNCTAD Working Group on Privatisation.

He is the author of over 100 articlespublished in Russia and abroad.


Privatisation is a great historicaldevelopment; it is a peaceful and civilised equivalent of a revolution.Previously in the history of Russia, as we know, it was not vouchers butBrownings that were used to bring about change.

The split that occurred in the state andcorporate property and the destruction of the structure power within which thenomenklatura existed inprinciple implies an end to the nomenklatura itself as a stable andviable (and sometimes even hereditary) political and economicelite.

For bureaucracy the ideal formula is to addproperty to power! The idea is to achieve a restoration of property toprivate ownership in such a way that ultimately the production (productioncosts and risks) remains social but the appropriation private; to conductprivatisation - as was the case with Eastern despotic regimes - withoutcreating a full-fledged market, so that power would be free, independent of theadministrative machinery, and in effect private property.

It was not done immediately, but gradually;we reached that kind of situation somewhere in 1990. But the path thustravelled was a sweet one for bureaucrats. The landmarks are probably thelaw on cooperation and the election of directors and reduction of theirresponsibility to ministries (and the parallel total reduction of the so-called`party discipline' which was the backbone of everything the state had), and thechange in rules which made it possible for enterprises to `whip up' thesalaries as much as they wished and secretly jack up the prices of theirproducts though on the official level prices were not `freed'. In myview, the period of the last days of Ryzhkov and Pavlov in 1989-1991 may becalled the `golden' period for the nomenklatura, when they knew nolimits. The 1990-1991, system with no set rules and procedures onproperty rights, no responsibility for whatever one did, could be seen as ifcreated (was it, indeed, so created) specifically to make it possible to getrich, fearing nothing, ashamed of nothing. The nomenklatura found a `neutral zone', `noman's land'. One could do anything one wished in that land and only dreamof staying there as long as possible.

It may be described as a certain `irony ofhistory'. If the way leading to the market had not been paved with honey,with dollars for the nomenklatura to grab (and there is no element of surprise there, theythemselves `controlled' the process), they would not have followed that pathvoluntarily and the nation would hardly have travelled the path peaceably,without blood shed. It was exactly the fact that capitalism was beingbuilt by the nomenklatura`for themselves' that made it possible for the country to reach capitalismpeacefully. But one has to pay for everything.

Well, the path travelled was without bloodshed, but it was extremely ugly nevertheless. What we had by the end of1991 was a hybrid of bureaucratic and economic market (the former prevailing)and an almost finished (`almost' because of a certain legal vagueness withregard to the formal property rights) structure of nomenklatura capitalism. Thesame hybrid of Soviet and presidential forms of government, a republic that wasboth post-communist and pre-democratic.

And while the ruling>

That was the situation when `fire-fightingreforms' started and a `suicide team' of leaders was formed. We werecalled when a choice was made.

Prior to our coming to office, the so-callednomenklaturaprivatisation that had been in progress for as long as three years wasfollowing a >

Being aware of the acute and tense nature ofthat situation, we also realised that we could change track and go in adifferent direction. From the nomenklatura deadlock, where we were,there are two ways out : an explosion (a new dictatorship) and the`unstitching' of the social space, i.e. going to an open market, absorbing itsmechanisms, moving away from the nomenklatura-type privatisation towarda democratic privatisation. And these were the things that were done atthat time.

Without resorting to violent measures,without putting the economy into `extreme circumstances', it became possible tochange the catastrophic system of property relations that existed at the end of1991. On the whole the course that was started at that time (and it wasnot possible to lead the government of the country astray, though there werequite a number of attempts of that kind), it seems to me, brought about vastchanges and not only market-oriented changes, or changes toward capitalism butalso changes toward a non-nomenklatura market, non-nomenklatura capitalism. Naturally, what we have today is anintermediate version that can develop in different directions but the generaltrend remains with all its inconsistencies, it is a non-nomenklatura trend. Today anon-bureaucratic market predominates. That kind of approach was maderealistic (though not everything is done yet) in 1992-1993.

How did it become possible

The main reason it became possible is thatthe political power of the nomenklatura was destroyed. Trying to achieve the privatisation theyneeded, the representatives of the party oligarchy went too far in the processof `democratisation', that process became unruly, and democracy was already inplace. And having lost their monopoly on power, the nomenklatura was no longer capable ofkeeping the process of privatisation under their complete control. Thenomenklatura-typeprivatisation was being replaced with a democratic, marketprivatisation.

Nomenklaturaprivatisation is not determined by questioning a new owner (for instance, byasking `what were you doing prior to 19 August 1991). For what it needsis not people but the system. If the system of state (semi-state) controlis retained, i.e. bureaucratic-nomenklatura control over the economy,state capitalism, nomenklatura privatisation, is there to stay whoever is theowner.

Once the system is destroyed, the ownerswill bear financial responsibility on the market, which may spell bankruptcy,and that means that objectively it is an `anti-nomenklatura' privatisation that hasbeen implemented.

And it is precisely for the destruction ofthe old system of government, the old property relations, that privatisation -with all its faults - have done an irreversible thing. It may not havecreated a middle >

So if the insolvency (bankruptcy) orders atthe second stage of privatisation (when a considerable portion of state sharesin enterprises are sold for money) are effective, then the market mechanism tochange the owners (at least in general) may be thought to have beenprepared. And only then one can evaluate the essence ofprivatisation.

Change in the forms of property, change inthe roles and not just the performers acting on the stage - this is a realeconomic revolution, a social and economic revolution which has occurred (whichhas been effected!) by means of evolution, but quite rapidly!

And now a few words about the author of thebook. Alexander Radygin is my close colleague and collaborator who cameto the Institute at the time of its creation. As is well known, theNovember 1991 government was formed to a certain extent on the basis of theInstitute. It was my wish to have Alexander Radygin in the government buthe was resolute in rejecting all kinds of administrative posts. The onlypost that he would agree on, by mutual consent, was that of adviser. And,maybe, it was all to the best for this way he could maintain an unbiased viewon what was happening, and yet participate in the preparation of all decisionson privatisation. Without doubt he played a serious role in drawing uppractical measures in the field of privatisation.

As to the book itself, in my view, it is thebest we have today. It is practically the first systematic monographdevoted entirely to privatisation and reform of ownership relations inRussia.

Egor Gaidar

Director, Institute for the Economy in Transition

September 1994


The privatisation wave that spread all overthe world in the 1980s at last reached the shores of Russia in the 1990s /1/and near the bastions of the administrative system it came to rest in a ratherindecisive way. If in the 1980s the issue of privatisation was of realinterest only for a narrow circle of academics, and again only as it wasapplicable to the nations of the West and the developing nations, the autumn of1990 in Russia was a starting point for extremely vigorous deliberations overan acceptable model of privatisation for domestic needs.

The term privatisation itself becomes one ofthe most popular and necessary features of most economic programmes anddiscussions. Practically every economist, however little known, thoughtit was his duty to present his personal conception of privatisation or at leastshow his attitude towards the subject. Not only economists but alsoexperts in some other fields, not always closely related, hastened to advancetheir own views and boasted of foreign experience.

If one can portray 1985-1989 as a period ofcosmetic changes in the economic system when any alternative forms of propertywere considered only in the context of a `diversified socialist economy', withthe state sector remaining dominant, 1990-1991 already represents a period ofmore systematic reforms or, more accurately, a period of more systematicconceptions of pro-market transformation. A marked change can be observedin the ideological approach towards property as such and towards reforms of thecorresponding relations in particular. The element of reforms could alsobe observed in the contents of the programmes considered, and in the laws thatwere passed during that period. At the same time - against the backgroundof continued debates on the possibility of alternative forms of ownership andmethods of privatisation - one could clearly observe the development of aspontaneous privatisation process.

If 1992 enters the history of Russia as ayear when a large-scale reform in the sphere of property relations on the basisof the privatisation legislation just developed began, 1993 was first of all ayear of intensive build-up of `critical mass' of the corresponding quantitativetransformations, while 1994 must become a year of change-over towards a newprivatisation model designed primarily to stimulate structural change and theinvestment component of the privatisation and post-privatisation process.It is clear that any drastic changes in the privatisation patterns andorientations must rest on the results of the path travelled, especially if sucha highly politicised and populist path as that of voucher privatisation hasbeen taken.

It is sufficient to imagine all the varietyand the specific nature of the economic, legal, political, social, historicaland national conditions in which reforms develop in Russia to lose anyillusions about the degree of complexity of the issue. At the same timeit should be stated that such illusions existed and still exist both ingovernment circles and among MPs, as well as among various intellectualeconomists. The spread of positions on this issue is quite broad,reflecting practically the entire political range of Russian life.

It is absolutely clear that in this range ofpositions and opinions, hidden interests and open political ambitions, there ispractically no room for any unanimous interpretations (definitions) of theconcept and the processes of privatisation in Russia /2/. The purpose ofthis book is to present, as far as possible, an integral picture ofprivatisation issues and processes in Russia by September 1994, both on theconceptual and legislative levels as well as reflecting the real economicprogress, and to attempt to evaluate the results of the voucher model ofprivatisation and the prospects of reforms in the area ofownership.

I am grateful to Viktor Krupnov for hisassistance in translation of this book into English.

Chapter 1.Purposes, Limitations andSpecial Features of Privatisation

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