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. Last Updated: 07/27/2016

Privatization Is Looking Unstoppable

The mayhem surrounding the Seventh Congress overshadowed what, in many ways, was a much more profound and lasting moment.


Last week, public bidding began for shares in the first large industrial enterprise to be sold by the state to the people, the Bolshevik biscuit factory.


Bolshevik is only the first. Professional investors are already bidding for at least four other large state enterprises. It is certain that, within months, not just hundreds but thousands of other firms will follow.


People who are afraid reforms will break down and the clock will be turned back to the hoary old days of the command economy should take heart from these developments in privatization.


As Dmitry Vasilyev, deputy chairman of the State Property Fund, noted last week, by involving the wider Russian public, the auction is a key step in ensuring that the process of privatization is irreversible.


Even at this early stage, indications are that the process is already practically unstoppable due to two powerful forces.


First, there are the worker's collectives and, more importantly, the key directors at the big state firms. Thanks to major concessions worked into the law in April, privatization offers worker's collectives the chance to buy their factories for next to nothing -- one-fifth of the book value.


Critics have argued the wisdom of allowing such advantageous terms. At the time, they were castigated by some as a "bribe" to persuade workers to accept the risk of privatization. But the bribe has worked. Workers are now the most vociferous proponents of privatization.


Second, now that public auctions for vouchers have started, owners of privatization vouchers want privatization to be a success, and they want as much property to be sold as possible. They want their vouchers to be worth something.


Initially, President Yeltsin's announcement in September that the distribution of vouchers would start from Oct. 1 was seen as cynical. Now, it seems shrewd, having set in train an expectation among all Russian citizens that something has to be done on privatization.


These factors guarantee that privatization will change the face of the Russian economy. But there are still some question marks over the process -- above all else, the problem of privatization of land and agriculture.


The government will also face a key challenge next year when its newly whelped privatized state firms run into financial trouble. It will have to have the political strength to let them stand on their own feet.