chapter  3
17 Pages

Agency Problems in the Privatization of Large Enterprises in Russia

WithMichael McFaul

The Russian privatization program has been heralded as the crown jewel of Russia's economic reform. The size and speed of Russia's privatization program are truly impressive. Managerial control, in and of itself, is not necessarily an impediment to the development of effective private enterprises. Privatization has been one of the Russian government's most effective tools for implementing radical economic reform. Privatization aims to "rationalize" the use of resources and thereby maximize the overall productive capacity of the economy. The state, the de jure owner of Soviet enterprises, over time conceded many property rights to the directors of these enterprises. Privatization in Russia, however, could not escape politics. Understanding the implications of the Gaidar or Chubais plan, Russian directors fought to protect the de facto property rights they acquired during the Soviet era. Directors as owners in the Former Soviet Union have a different set of incentives than owners of securities in Western market economies.