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As a fundamental element in the systemicreforms in the transition period the purpose of privatisation is to ensure thebasic conditions for normal operation of a future market economy. It isthe process of transformation of ownership relations on a nation-wide scalethat brings the appearance of new motivations of economic subjects and theprerequisites for rational change in the structure of production as key factorsto enhance the efficiency of production and increase the rate of growth ofnational income. Nor is there any doubt that privatisation is necessaryto promote democracy within the political system, to form new social strata ofpeople who have no interest in a communist return /3/. A very telling, iflaconic, characterisation of the key goal of privatisation in transitioneconomies is given by Shleifer: `privatisation amounts to permanentreallocation of control from bureaucrats to firms' insiders and outsideshareholders. Privatisation has very clear benefits for economicefficiency because it establishes genuine private property rights' [Shleifer,1994, p.3].

In this sense such potential benefits ofprivatisation as `universal' justice or adding to the revenues of the statebudget are inevitably relegated to the background. Nevertheless, if theattainment of `universal justice' in the course of privatisation is abstractand practically unrealistic, then the partial solution of the budget problemthrough privatisation is possible, depending on the models chosen. Theprivatisation process can only have a positive influence and purelyprivatisation issues can only be solved in the context of a package of measuresto provide for financial stabilisation, liberalisation of prices,demonopolisation of the economy, deveopment of financial markets and pursuit ofan active antimonopoly policy and opening of the economy for the import ofgoods and capital. In the conditions of the transition economy,privatisation proper does not automatically lead to the appearance of stableand viable enterprises; it serves only to create the necessary economic andlegal prerequisites for this.

To a large extent the prospects ofimplementation of any privatisation programme also depend upon the level ofdevelopment of the private sector of the economy and the state of financialmarkets, the degree of profitability the enterprises have, the presence oflegal guarantees for foreign investors, the policies of trade unions, thegeneral state of the economy, and the presence of a favourable institutionaland legal environment. And it should be remembered that it is not onlythe nature of property but the market environment itself, the organisation ofthe operations of the firm and the ability of management that determine itsperformance, while economic efficiency depends to a much larger degree oncompetition and not just on the nature of property rights [Bizaguet, 1988,p.75]. Thus we see that the presence (absence) of proper economicenvironment to some extent determins how effective the privatisation becomesand how large or small its scale is /4/. In turn, privatisation serves asan inevitable prerequisite of transformation of the `transition' economicenvironment into a market economy, primarily through the creation of aconsiderable sector of companies independent (at least formally at the initialstage) from the state and oriented to the market.

In a highly developed economy the main issue(within state privatisation programmes) is the choice and preparation of thetechnical aspects of the transfer of property rights to individual companies(their assets) into private hands, this being done to ensure the economicefficiency of the further operations of these companies. Inpost-socialist countries the starting point of privatisation is the choice andtheoretical foundation of conceptions and overall models of privatisation witha whole series of specific features.

In all these countries the followingproblems arise as special features of privatisation :

linkage between privatisation and change in the power relationsin society;

scale of privatisation;

absence of rational market competition environment;

vast technological difficulties;

necessity of ideological choice;

lack of the required institutional structure at the initialstage.

Under the circumstances prevailing in Russia/5/ the development and implementation of privatisation policy becameespecially complex owing to the operation (more significant compared with othercountries in transition) of the following factors :

firstly, running parallel to the process of selection of overall(and legal) models, there has been a vast spontaneous transfer of state-ownedenterprises and property into other forms of property (collective forms orprivate ones, or may be quasi-collective or quasi-private ones);

secondly, the high level of concentration, together with thestate of backwardness characteristic of many sectors of Russian industry,prevent the conduct of an effective and socially `soft' policy of structuralchange prior to and after the privatisation;

thirdly, and in our view most important, it is the policy ofprivatisation and the issues of change of ownership that are the area ofeconomic reforms where the political and economic pressure isgreatest.

The latter circumstance, in particular,directly magnifies the contradictory and unstable nature of the legislativebase, which is manifested in the absence of an integral and uniform approach,simultaneous operation of contradictory regulations, frequent changes oftactics and tactical models, the adoption in some cases of regulations and actswhich give exclusive rights, that go beyond the laws, to one or other party,and the possibility of repeal of decisions already taken.

Moreover, the high degree of politicisationof the privatisation process in Russia and therefore the forced conflict andcompromise character of its development account for the objective necessity ofabstracting - at least at the initial stage of implementation of theprivatisation model - from the issues of `genuine' privatisation in favour of aprivatisation model used to attain a social compromise. In turn, this, asMalle rightly says, `has a negative effect on the amount of transactioncosts. They become higher than in the case when the transfer of therights of ownership would rest only on economic criteria...' [Malle, 1994,p.55].

In other words, the elaboration of anoverall macroeconomic model with regard for `universal justice' and with anintensive spontaneous development running in parallel, leads us astray from thekey goal of privatisation, which is consistent and gradual formation of a neweconomic environment and creation of the incentives for specific economicagents, an effectively functioning microlevel, the attraction and encouragementof `strong' investors who are protected with unconditional legal guarantees andare interested not in `eating up' the resources of an enterprise but in aneffective long-term growth strategy.

In any case this is a long-term processwhose major components are stability and non-contradictory legislation, takinginto account the political atmosphere and feelings of the various strata of thepopulation, providing for a carefully thought=out `balance of participation' ofall interested parties in the process of privatisation. The point is thatif the official privatisation programme is not to a large extent a compromisein nature and does not stem from the principle of ensuring such `balance ofparticipation' along the entire chain of the implementation of property rightswhich existed de factoand were formed spontaneously, then the success of privatisation is more thandoubtful.

I have already made some generalobservations on the goals and special features of privatisation in thecountries in transition and in Russia, in particular. So what are thepractical differences or, in other words, those already seen from experiencebetween Russia and the East European countries /6/

Despite the relative closeness of thecountries of this region to Russia, there were essential differences in theirstarting positions for market reforms in general and privatisation inparticular. Throughout the entire period of operation of the plannedeconomy the East European countries had, in one way or another, a privatesector in the field of agriculture, commerce and the services sector (Poland,the former GDR and Yugoslavia) which considerably facilitated the creation of amarket environment, thus making it possible for the state at once to laygreater emphasis upon large-scale privatisation, without concentrating so muchon a small-scale privatisation process. Because of this, even before thereforms started these countries had some large strata of the population with aconsiderable share of resources and who wished to become owners of the formerstate property. In addition, one should not forget that in certaincountries of Eastern Europe the state sector enterprises enjoyed largereconomic freedoms for a much longer period, which all brought them closer tothe market environment than the state-owned enterprises in the former USSR evenin the period of the so-called cost-accounting (Khozraschet) if 1987-1991.

Outwardly the process of privatisation inRussia was quite similar to the analogous processes in Eastern Europe:rigid selection of enterprises for privatisation on the basis of adoption of apolitical decision, compiling formal lists and adoption of legal normativeacts, the creation of a body responsible for the implementation of theprogramme, sale of the objects of small privatisation for real money, andissuing the people with certificates permitting them to get a part of the stateproperty through the purchase of shares in small-size and medium-sizeenterprises. However, the exterior likeness hides some quite seriousdifferences which determine to a great extent the place of privatisation in thegeneral context of market transformation and its further consequences invarious countries.

As to the differences in the course ofprivatisation and the results of privatisation between Russia and the countriesof Eastern Europe, we can mention the following :

(1) From the quantitative point ofview Russia is far ahead of East European countries in the rate ofprivatisation, and not only in absolute but also in relative figures (whichshould not come as a surprise if we take into account the scale ofRussia).

(2) In Eastern Europe the principleof distributing a certain part of state property to citizens has not becomeuniversal, nor has the idea of preventing a likely concentration of property inthe hands of a limited circle of individuals without corresponding benefit forthe rest of society and the state.

(3) In the course of privatisationin Russia a formal act of restoration of property to private ownership hasacquired an independent value and now the success of privatisation is measuredin terms of the number of privatised enterprises, the amount of money thusearned, the correlation between the initial and actual selling price. Asto the East European countries, they, not being in a hurry with privatisation,began (in 1992-1993) to include elements of industrial policy in theprocess.

(4) The characteristic feature ofthe privatisation of many large enterprises in Eastern Europe is the lack ofexcessive dispersion of shares, and one can observe this phenomenon at theinitial stage of voucher privatisation in Russia.

(5) The role of foreign investors inthe East European countries was much greater, both quantitatively andqualitatively.

(6) In Russia, under the conditionsof slow differentiation of state property by areas of control and the continualstruggle between the centre, subjects of the federation and local authorities,on of the main issues in 1992-1993 was the distribution of the rather smallearnings (as compared with the total revenue of the budget) from privatisationbetween the budgets of various levels to find solutions for currentproblems. In Eastern Europe the pattern of distribution of privatisationearnings was quite different: in 1990 the share of the assets channelledinto the budget and to pay off state debt comprised 85% of the totalprivatisation earnings; in 1992 it dropped up to 40%. The rest of themoney was used to modernise the enterprises going through privatisation, thecreation of guarantee funds for commercial banks which lend money to theenterprises being privatised, despite the risk that this will increase the rateof inflation.

(7) In the course of privatisationRussia in fact did not consider the effectiveness of privatisation either fromthe point of view of the likely losses of revenue to the state (which was quiteimportant, for example, for Poland because of the special payments of stateenterprises into the Treasury (payments for capital, wage growth tax) whichwere absent in Russia) or from the point of view of privatisation expenses(such as upkeep of the apparatus, advertising, issue of vouchers and soon). Nor was there any evaluation in Russia of privatisation of theenterprise from the financial position, the likely advantages to the state fromkeeping it in state ownership, or preparation of development scenarios afterprivatisation.

Beside these basically negative differences,Russia's privatisation was also characterised by some favourable factorscompared with the privatisation in Eastern Europe. For example, in Russiathere was no question of property restitution. (By the by, the onlycountry in Eastern Europe where that issue was solved practically, without anylosses to current production and without a polarisation of society, is theCzech republic. In Poland the adoption of a corresponding law became avery protracted process because of the continuous change in the politicalbalance of forces in parliament. In other countries the process ofrestitution was either associated with large losses or to a great extent becamea formality.)

Russia had only some sporadic signs ofregional separatism in the course of privatisation (registered nameprivatisation deposits in Tatarstan in addition to the vouchers, the admissionat certain auctions of privatisation vouchers that were issued in that regiononly, temporary suspension of privatisation, change in the schedule andprocedure of privatisation of some types of enterprises). As to the CzechRepublic, it was forced to reconsider the strategy of privatisation because ofthe disintegration of Czechoslovakia, leaving in the possession of the statethe shares which were the objects of claims by the citizens ofSlovakia.

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