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Thus in 1992-1994 Russia placed the emphasison the formal restoration of property to private ownership, especially on thequantitative aspect, the rate of privatisation, which is very loosely linkedwith financial stabilisation, anti-monopoly policy, structural change andattraction of new investment (including foreign investment). Once most ofthe enterprises were privatised the possibilities of state influence on themwere drastically lessened. However, the economy did not establish a basefor the necessary future growth. Thus the countries of Eastern Europe,while partially sacrificing the rate of privatisation, solved the problems ofsupport for macroeconomic stabilisation and created a potential forgrowth.

At the same time it would be an error towrite off the negative differences of the Russian model, treating then asmiscalculations (though of course there were miscalculations too). In thefollowing pages i shall try to show that the model of the first stage ofRussian privatisation (1992-1994) was formed objectively in the course of avery complex process of conflicts and compromises. Moreover, I believethat (and I shall try to provide the appropriate argumentation for this),despite the various and multiple losses, this stage may be characterised as arather successful one.

However, we should start the analysis byproviding some background information.

Chapter 2. First Approaches to aReform of Ownership Relations

2.1. Some Cosmetic Measures of the Earlier Periodof Perestroika (1985-1989)

During the earlier period of perestroika and in the period offollow-up measures the question whether it was possible to have other forms inaddition to `people's' ownership was one of the most vivid indicators of howfar the reform had progressed and how deep it had become. Naturally, theemergence of some kind of legislative acts and, moreover, specifically new(quasi-new) forms of ownership was associated with a rather slow prior removalof the taboos and restrictions of communist ideology. And one shouldremember that the use of such notions (in the course of implementation ofreform measures) as `the right of private property' and `privatisation' was notonly unpopular but also potentially dangerous in 1985-1989.

And this is not surprising for, as manystudents of Soviet reforms in 1985-1989 point out, in the course of the firstyears of the policy of restructuring the attempts to reform the economy weregeared to increase the efficiency of the centrally planned economy and in noway touched upon economic transformation. Actually a systematic marketreform was planned only at the end of 1989, when discussions on the `socialistmarket economy' actually reached deadlock and for the first time the plannednature of the system was questioned [CEC, 1991, p.12, 158].

Because of this the issues of the emergenceand development of alternative forms of ownership were not debated in CPSUdocuments or mentioned in USSR normative regulations of the first perestroika years which affected thequestion of the economic reform. The only exception was the USSR law `OnIndividual Labour Activities'. Only after they were eventually made awareof the depth of the country's social and economic problems (and at the sametime carrying out some cosmetic reforms in this field) did the then leaders ofthe CPSU and the USSR allow certain legislative acts to be passed that gavelife to the first wave of legal reforms. It was practically the end ofthe 1980s before such legal forms as leasing and co-operation were looked at asan essential element of the `radical economic reform' and the `new model ofeconomy'. And it was only in the autumn of 1990 that the term`privatisation' came into use in programmes of economic reforms for the firsttime /7/.

The USSR Law `On Individual Labour Activity'actually became the first normative act of the initial period oftransformation, which gave legal power to the possibility of engaging inentrepreneurial activity and deriving income from the de facto use of privateproperty. And this is not surprising, since some experts believe that inthe middle of the 1980s some 19 million people in one way or another wereinvolved in working in the paid non-state services sector - primarily in`shadow' services. And it was assumed that that kind of activity waswholly based on the personal (family) labour of citizens. In other wordssuch forms of work as small private business, family contract lease and someother such forms were legalised.

Naturally, there were many restrictions onthe conduct of such business. These activities could be carried out onlyon the basis of what was actually a rigid list of 29 permitted `sociallyuseful' kinds of activities. One of the most difficult problems was thatof getting a permit from local authorities, who tried to block this kind ofbusiness on the basis of ideological or corruption considerations. Yetwhile at the time this law came into force (May 1987) there were only 82,000`individual workers', in 1989 their number reached 672,000, half of themworking in Russia [National economy..., 1990, p.275]. The overwhelmingmajority - almost 90% - of these were engaged in cottage crafts and in theservices sector.

The co-operators who formed their businessesand operated in the second half of the 1980s and at the beginning of the 1990swere now much more prominent, compared with individual workers - they occupiedthe economic niche and partially ousted the individuals. Theco-operators, however, did not become an alternative to the statesector.

Before a special law was passed theregulation of the activities of co-operatives, both in the USSR and in Russia,at the same time extremely detailed and fragmentary, was based on hundreds ofdifferent normative acts. The ideological distrust of `private enterpriseactivities with the use of hired labour' required that - even after theadoption of the law on co-operation - there should be a rigid ban onparticipation in a co-operative as a member if one did not work in it.Even at the end of the 1980s and the beginning of the 1990s the normative actsof the 1920s were still in force. From the early 1960s, the cottagecrafts were eliminated, only the consumer co-operatives continued in operation- and they cannot be considered as an alternative form to the statesector.

In 1987 there were already some 14,000 `new'industrial, trading and service co-operatives employing more 200,000people. But it was only after the appearance of the USSR law `OnCo-operation in the USSR' (on 26 May 1988) that one can speak of a briefco-operative sector boom (see table 1). In 1990 the USSR already had245,000 co-operatives of this type, whose aggregate share in the gross nationalproduct (GNP) came to 6.1%. At the same time this figure, 245,000, madeup only 59% of the total number of registered co-operatives.

No doubt the law gave a remarkable push tothe development of the non-state sector of the economy and from the legal pointof view, at least formally, it put co-operatives (or, in other words, groupownership) on a level with the state-owned enterprises and introduced theregistration principle for their creation. And yet the expected socialand economic effect - saturation of the market with commodities and services,saving of material resources, involvement of the personal resources of thepopulation in production, development of the secondary employment that wouldstir competition with the state sector - was not produced either by theco-operatives or by the legalisation of individual labour activity.

Quite important here was an inconsistency instate policies toward co-operatives and `individuals' which can be accountedfor by a series of individual factors : there was the negative effect of therather controversial legal regulation, primarily concerning the permissiblespheres of business, taxation, access to materials and raw materials and thegrowing property differentiation between those engaged in the co-operativesector and those working for the state. There was also the negativepublic opinion based on this differentiation and the ideological dogmas thatwere still alive, and the restrictive policies of local authorities and manystate-owned enterprises. In particular, in 1988-1989 price limits wereset on the products of co-operatives and restrictions were introduced on theuse of bank accounts and on certain kinds of activities, and commercial andpurchasing co-operatives were liquidated.

What happened was that, instead of an inflowof unskilled workers into the co-operative sector, a spill-over of qualifiespersonnel from the state sector occurred, not to speak about co-operatives'competition with the state sector. The business activities ofco-operatives (individuals) and the state sector in the production of goods andsupply of services were no in practice stopped. On the contrary, theco-operatives, because of their orientation to a very flexible structure ofoutput, and especially goods that were in short supply, and because they filled`free economic niches', as a rule, switched over to some other range ofproducts as state enterprises familiarised themselves with the new types ofcommodities and services.

Furthermore, the vast majority ofco-operatives actually strengthened the monopoly of the state sector. Itwas no accident that more than 80% of the co-operatives were formed at statestructure, while the number employed in these co-operatives exceeded 90% ofthose employed in the total co-operative sector. Primarily this can beaccounted for by the fact that there was strong administrative pressure(through the local authorities) from the state-owned enterprises in those caseswhen co-operatives actually undercut the monopoly of the state sector.Also, the latter had a monopoly of the supply of raw and other materials, andwithout the co-operation of the interested state enterprise it was not possibleto lease premises or to include the work performed by the co-operatives as partof the plan of the founding state-owned enterprise. At the turn of the1980s and 1990s the creation of co-operatives at state enterprises - with thesame management - became one of the key forms of `spontaneous' privatisation(exploiting transfer prices, transferring property on the basis of the right offull business management, contributing to businesses in the form of shares andso on).

The years 1989-1990 therefore saw a cleartrend towards a reduction in proportion of the population that consumedproducts of the co-operative sector in favour of state-owned enterprises.The greatest rate of development was of construction co-operatives, whose sharein the total number of co-operatives was over 30% by 1990, and thoseco-operatives that turned out production equipment.

Within the framework of the co-operativesthemselves, in addition to this modification of the branch structure of theco-operative sector, one can clearly see two distinct trends in thetransformation of the informal relationships of power and property. Whatactually happened was that a major part of co-operatives operated as individual(family-type) private enterprises with a rigid system of control, with themeeting of the co-operative's members playing a nominal role and extensiveemployment of the hired labour in the form of those with two jobs. Andthat was quite a characteristic feature because on average the situation in theUSSR was as follows: one co-operative had about 25 members plus thosewith two jobs. The larger co-operatives, despite their legal form, wereinclined to adopt collective forms of business, forms close to a joint stockcompany or a partnership with limited liability.

Following the co-operatives boom of1988-1989 these trends could account for the appearance of statutoryregulations in the USSR and Russia in 1990 on enterprises, joint stockcompanies and limited liability partnerships; the consequence for theco-operative sector was that it declined. Most of the co-operatives wereturned into legal forms that were more suited to the de facto relationships between powerand property.

If treated from a broader perspective, onecan then say that, at a time when one could not even speak about a `transitioneconomy', the co-operatives became the first transitional form in the field oftransformation of property relations in the USSR and Russia, irrespective ofwhether one has in mind the emergence of alternative forms of property or thefirst spontaneous steps towards privatisation of the economy.

In the USSR lease relations appeared only atthe turn of the 1980s and 1990s. One can trace the dramatic developmentof leasing at the period of the collapse of the co-operative movement but onecan hardly speak here about any strict succession of forms. Though to acertain extent the lease relations system did pressure the co-operatives fromthe point of view of spontaneous privatisation, yet one has to regard theattempt to introduce leasing from a broader perspective - first of all, it wasa last `safety valve' of reform of the state sector and the economic system assuch without launching any new model whatsoever, a model of actualprivatisation and formation of a private sector as an alternative to the statesector. This basic goal could not be attained for, taking into accountthe size of the state sector in the USSR, the absence of any competition, thesurviving mechanisms of administrative control, and the mechanisms thatcontrolled the business of enterprises whatever their property form, leaseenterprises could become only a symbiosis of the state and collective forms ofproperty, combining the shortcomings of both forms.

A legal impulse for a broad development oflease relations was given on 7 April 1989 when two regulatory provisions wereissued - a Decree of the Presidium of the Supreme Soviet of the USSR `OnLeasing and Lease Relations in the USSR' and a Decree of the Council ofMinisters of the USSR `On Economic and Organisational Fundamentals of LeaseRelations in the USSR'. November 1989 saw the adoption of a morefundamental decree: `Fundamentals of the Legislation of the Union of SSRand of the Union Republics on Leasing'. What actually occurred was arecognition of the right of private persons and enterprises with a non-stateform of property to lease state property and enterprises. If, inaccordance with certain approaches, one treats a lease contract as a`privatisation of management and finances', then such partial privatisation waslegalised on the basis of the documents adopted.

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