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. Last Updated: 07/27/2016

In the Privatization Race, Russia Outpaces Europe

The Russian privatization process rattles on: Last month, around 600 medium to large enterprises were privatized. At this rate, Anatoly Chubais will achieve his goal of destatizing some 8, 000 enterprises by the end of this year -- assuming that a reform government remains in power and that Chubais himself survives the huge hostility that he attracts.


The speed of transactions is faster than anything else in Eastern Europe. On Monday, Poland's parliament finally allowed the go-ahead for the privatization of 600 enterprises after stalling for months and nearly causing the fall of the government. The Czech Republic, though also using a voucher scheme (of a different kind from Russia's) moves at a slower pace, as has Hungary. But Russia, due to its traditions, moves -- when it moves -- at break-neck speed. Chubai's rationale is obvious: Get the property off the hands of the state while the opportunity lasts.


This is a remarkable achievement, and it owes much to the personal force and intelligence of Chubais himself. From the radical liberal Petersburg group within the Gaidar reform camp, Chubais has evolved into a skilled politician who spends time with deputies arguing for his policies and who has consistently pushed a process that could easily have been locked up by opposition or become mired in arguments over method.


But there has been more to it than Chubais. He -- like all the reformers -- has had to lean heavily on the decree-making powers of President Yeltsin: had the parliament not been circumvented (as in the case of Poland) Chubai's task would have been much harder, perhaps impossible.


Second, he runs a ministry -- the State Property Committee -- that was newly created and where much of the policy and planning work is done by foreigners. This aspect of the GKI is never emphasized, for obvious reasons, and overall control is vested in Russian ministers. But Chubai's success has depended in part on a bureaucracy that did not block him: his unpopularity in government circles derives in part from his successful capture of the powers of other ministries and the skills of foreign consultants, experts and post-graduate students.


It is also important to realize what privatization does not do -important, because even if the bulk of state enterprises are sold off in the next year or two, the government still has a huge task before it -- while the managers of these enterprises have an even larger one.


Privatization does not, in itself:


ensure better management


improve production, quality or productivity


create competition


bring in new investment


Indeed, in its first stages, it may worsen the enterprise's situation. Managers faced with a majority ownership by workers will be under pressure to relax discipline and raise pay; they may be cut off from state credit, and they will often remain monopoly suppliers in empty markets. The many opponents of privatization have much to oppose: They will grow unless privatization is followed by equally vigorous action to commercialize.


This means breaking up monopolies, exposing managers to competition rather than in-fighting for state resources. Already, foreign companies are beginning to show an interest in Russian plants: Few will take part in the voucher privatization process, but some, perhaps many, will invest after privatization, taking stakes through new share issues and thus bringing in new capital.


It is one these processes on which the real success of privatization will ultimately depend, and with it, the place of Anatoly Chubais in the history books.


John Lloyd is the Moscow bureau chief for the Financial Times.