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There were also quite substantialdifferences regarding the incorporation of enterprises. Such economistsas V. Selyunin, B. Alekhin and S. Glaziev were in favour of obligatory sale ofall or a considerable portion of shares to private persons and to institutionalinvestors that were independent of the state. Yavlinsky and Grigoriev, onthe other hand, wanted a full-fledged, though somewhat gradual, incorporationof enterprises. These ideas can be seen in the `500 days' Programme/13/. And as to the recommendations and advice of the government experts,and here we can mention fist of all T. Popova, G. Melikyan and S. Assekritov,they were for incorporation that was to a large extent formal, for what theysuggested was to establish largely closed joint stock companies, selling only asmall portion of shares (about 10%) to the work collectives of the enterprises/14/. The last method actually meant a kind of mimicry of the dominatingbureaucratic structures.

3.3. Free Distribution of Property Among the EntirePopulation

The adherents of free distribution of stateproperty among the entire population (L. Piyasheva, P. Bunich, G. Popov, O.Bogomolov, V. Rutgaizer, P. Filipov, M. Malei) believed that both theabove-mentioned methods of privatisation were unsatisfactory, first of allbecause they did not meet the criteria of social justice /15/. Once theSoviet Union proclaimed people's property, its division must be among theentire population. In this case reference is often made to the authorityof Milton Freedman who even at the beginning of the 1980s suggested thatprivatisation of state corporations should be through handing shares out to theentire population of the country. A major influence on the Sovieteconomist here was the vigorous debate and then the adoption in legislation ofthe principle of free apportionment of state property in Czechoslovakia, Polandand Romania.

In practice it was suggested that a freeproperty distribution be made by providing each member of society with specialmeans of payment that could later be used to buy shares of the privatisedenterprises and other state property. The functions of the special meansof payment would be carried out by investment of privatisation vouchers (L.Piyasheva, P. Filipov), bonds (V. Rutgaizer), certificates (O. Bogomolov)etc.

Some other economists advanced the idea thatit was advisable to open special investment accounts (privatisationaccounts). However, actually the difference here is one of name.The mechanism to be applied for property apportionment is the same inprinciple. The amount of means to be issued to one person was calculatedon the basis of a simple division of the cost of the state property subject toapportionment (distribution) into the total number of the population (or onlyadults).

To prevent inflation and rapiddisintegration of society, most of the economists advocating free distributionwere in favour of complete prohibition of the sale of investment vouchers (makethem registered vouchers for this purpose) and a period of limitations ondisposal of the shares of the privatised enterprises. To reduce the levelof risk and promote equal start-up opportunities, some economists suggestedthat citizens should be issued not with shares of individual enterprises inexchange for their vouchers but rather shares of specially established holdingcompanies that would hold shares of a number of joint stockcompanies.

None of the theoretical approaches advancedprovoked such bitter controversy as that of a free distribution ofproperty. The most radical rejection of the idea came form E. Yasin, L.Grigoriev, S. Alekseev, T. Popova and some others, asserting that the principleof property distribution was to carry out privatisation for the sake ofprivatisation, or to effect a reverse collectivisation /16/. As thecritics put it, having focused their attention on populist principles of socialjustice and technical details, the advocates of free distribution of propertypaid little (if any) attention to the primary goal of privatisation -enhancement of production efficiency. There was acute criticism of thearguments about providing equal start-up opportunities and solving the problemof the population's shortage of financial means, and the counterargumentsmaintained that the colossal technical difficulties were underestimated andthat the distribution of property among regions would be unequal.

Now, when the first stage of privatisationin Russia is practically over (including voucher privatisation), the wholedebate seems naive. The important issue lies elsewhere - in one oranother way, practically all these approaches were represented in officialdocuments on privatisation in 1991-1992, thus embodying all these principles,in some way or other, in practice. Chapters 5 and 7 of this book dealwith these issues.

It should also be noted that most `stable'and viable ideas seem to be those of the advocates of the interests of workcollectives. For instance, in February-April 1992 the press carried somereports of Russian economist and publicists pressing for free apportionment ofthe bulk of the property to the work collectives as economic entities,primarily in the form of closed joint stock companies /17/. The paradoxis that the advocates of giving the property to work collectives includetheorists of the communist type and quite a number of assorted nationalultra-liberals, while among those who rejected the idea were Russian democratsand the former and present bureaucracy.

As to the practical `implementation' of thisidea, the demands of leaders of the councils of work collectives of variousindustries and regions were much more pragmatic: a ban on privatisationthrough auctions, a right of complete business management and contractualemployment of the administration by the councils, exclusion of any benefits forthe adminstration in the course of privatisation and so on. Acharacteristic example, though, was the port of St. Petersburg, whereimmediately after the receipt of the right to transfer the controlling block ofshares in the port to its work collective (with the consent of the President ofthe Russian Federation) the trade union leaders of the dock workers notifiedthe Government of Russia of their refusal to agree. The argument was verysimple: the work collective, as the key investor, was insolvent, whilethe port needed tremendous investment to modernise its facilities.

Starting from 1992 (when the officialprivatisation campaign began) theoretical arguments in favour of this approachwere confined to professional politicians and became an instrument of theirambitions, though one quite detached from the real privatisation and policylaw. Many schemes in 1992-1993, which in one way or another affected theinterests of the work collectives, were not put forward by the collectivesthemselves and pursued purely political goals. One example is the `fourthversion of incorporation' /18/, as well as a battery of draft laws proposed bythe communist factions of the former Supreme Soviet on the dominant role ofwork collectives in the process of privatisation.

As to debates on incorporation, theyautomatically melted away as a process of forceful corporatisation ofmedium-size and large enterprises started at the beginning of 1992. So wecan say that the issues discussed in 1992-1994 primarily touched upon thetechnical and legal rights that come from the specific practice ofincorporation.

As to the fate of the approach associatedwith free distribution (apportionment) of property, it is moreinteresting. Initially the law (July 1991) was approved and backed by thecommunist factions, and by the higher echelon (part of the nomenklatura) and by some radicaldemocrats. However, in 1992-1994, when the voucher model of privatisationwas already in progress, most of the advocates of this idea (when dealing withit at the conceptual stage) crossed the line and went to the critics' camp whenit came to practical implementation. The seeming absurdity was that thismodel of privatisation was translated into reality by its initial opponents,while many authors and advocates grew into uncompromising opponents (seeChapter 7, where we describe this in more detail). It is also interestingthat the `struggle with the voucher' in 1992-1994 also turned into a kind ofpolitical campaign, a campaign that was far away from good sense and practiceand primarily geared to the attainment of some political goals. The lastoutburst of this struggle was a campaign launched to criticise the results ofvoucher privatisation in the State Duma in May-June 1994 by the communistfactions and the Liberal-Democratic Party.

It is unlikely now that there will be anyfurther protracted debates of sharp conflicts connected directly with thecourse of privatisation which go beyond political manoeuvring. Today itwould be difficult (not to say suicide) even for the most `irreconcilable' toscrutinise everything that has already been done in this field. InChapter 9 I shall try to show that in future the debate will be on topics thatare close to privatisation, rather than privatisation itself.

Chapter 4.Spontaneous Privatisationin 1987-1992: Forms and Stages

It is well known that the USSR law `On theState Enterprise (Association)' became a corner stone in the reforms of1987-1989 /19/. What most concerns us here is the role played by that lawin the process of spontaneous privatisation and, consequently, in emergence ofalternative forms of property. Thus, in Kochevrin's view the transfer ofenterprises (from 1 January 1988) to the economic mode of operation, asprovided for in the law on the state enterprise, opened a breach in thedistinction between cash in hand and money on account and became `partially aprivatisation on the scale of the entire economy...' [Kochevrin, 1991].In other words, the possibility of pumping state resources - both financial andmaterial - into the non-state sector became one of the most powerful incentivesfor the development of the corresponding forms of ownership in the period underreview.

So the co-operative and lease legislation ofthe USSR, as well as other business regulations of the USSR and Russia of thisperiod, relating both to one or other type of procedure for the transfer ofproperty rights, became a powerful incentive for the development of thespontaneous process. All this resulted, especially in conditions ofgrowing threat to the state authorities' control over enterprises, in theemergence of some kind of symbiosis of quasi-private and quasi-state structuresengaged not in competition with each other but rather in pulling apart theproperty of the state.

The attempts of the centre to retain controlover property on the territory of some former Union republics only led to thebirth of specific forms of transformation of property relations. To alarge extent, under the circumstances, the directors of state-owned enterprisestried to retain control over the property for their future interests and toextract the maximum profit out of the spontaneous appropriation of somestate-owned assets /20/.

It should be borne in mind that any attemptat categorising the forms of spontaneous privatisation will be ratherconventional. And yet the following fundamental forms may be chosen ascharacteristic of 1990-1991:

- nomenklatura-bureaucratic privatisation;

- nomenklatura-territorial privatisation;

- tenders and auctions conducted byulocal authorities;

- people's (collective)enterprises;

- managerial privatisation.

Nomenklatura-bureaucratic privatisation boils down to an officiallysanctioned (by the government) change in the legal forms of ownership withcertain managerial innovations being added (turning ministries and departmentsinto concerns, associations and so on), or it meant creation (on the basis ofstate-owned enterprises of some branch of industry) of joint stock companieswith the controlling interest going to the state. In essence what happensis that either one has an elementary decentralisation of the rights relating tomanagement or a reallocation of property rights within the state-owned sectoritself (see also Gaidar, 1990).

The basic forms found in this type ofprivatisation are as follows:

a) `incorporation' of the branch ofindustry with the controlling block of shares of enterprises being in the handsof the ministry;

b) `concernisation' of the branch ofindustry: what happens in this case is that the ministry is transformedinto a concern with the delegation of rights to it in the area of themanagement of the state property;

c) creation of a sectoral association(which is similar to a concern);

d) delegation of rights to manage stateproperty, including the rights of managing state-controlled blocks ofshares;

e) incorporation of large enterprises,retaining the controlling block of shares in the hands of the ministry and someother such measures.

As far as the territory of the USSR isconcerned, the spontaneous privatisation process became especially intensive inJanuary-June 1991, immediately before the adoption of the officialprivatisation legislation, when practically all the ministries and departmentsat all levels in one way or another tried to secure the maximum number of`their own' enterprises under their jurisdiction and management. Thatperiod alone saw the creation of 126 concerns, 54 associations and about 1500amalgamations and associations, many of which were given a right to manage theproperty and to acquire the functions of a holder of the state shares of thoseenterprises that could be formed into a legal corporation.

At the end of 1990 and the beginning of 1991one could see vigorous activities on the part of union authorities, ministriesand departments in the field of formation of various quasi-stock companies,associations and so on. That kind of activity related to the territory ofa number of the former union republics (especially Latvia, Lithuania andEstonia) so that the centre could retain some control over the union propertyit had there (nomenklatura-territorial privatisation). What it actually amounted towas formation (in one republic or other) of some kind of ministry or stateholding company to manage the all-union property on its territory (theLithuanian Association of Free Entrepreneurs, the State Intersectoral JointStock Association in Latvia, the State Intersectoral Association `Integral' inEstonia, set up in 1990 with the permission of the Council of Ministers of theUSSR). It goes without saying that that kind of activity met strongresistance form the local authorities and thus led to more seriousconfrontation.

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