Journal Article

The Politics of Russian Enterprise Reform: Insiders, Local Governments, and the Obstacles to Restructuring

Raj M. Desai and Itzhak Goldberg

in The World Bank Research Observer

Published on behalf of World Bank

Volume 16, issue 2, pages 219-240
Published in print September 2001 | ISSN: 0257-3032
Published online September 2001 | e-ISSN: 1564-6971 | DOI:
The Politics of Russian Enterprise Reform: Insiders, Local Governments, and the Obstacles to Restructuring

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Russia and other countries in the Commonwealth of Independent States that have implemented voucher privatization programs have to account for the puzzling behavior of insiders—manager‐owners—who, in stripping assets from the firms they own, appear to be stealing from one pocket to fill the other. This article suggests that asset stripping and the absence of restructuring result from interactions between insiders and subnational governments in a particular property rights regime, in which the ability to realize value is limited by uncertainty and illiquidity. As the central institutions that govern the Russian economy have ceded their powers to the provinces, regional and local governments have imposed a variety of distortions on enterprises to protect local employment.

To disentangle these vicious circles of control, this articles considers three sets of institutional changes:; adjustments to the system of fiscal federalism by which subnational governments would be allowed to retain tax revenues generated locally; legal improvements in the protection of property rights; and the provision of mechanisms for restructuring and ownership transformation in insider‐dominated firms. The aim of these reforms would be to change the incentives that local governments, owners, and investors face; to convince subnational governments that a more sustainable way of protecting employment lies in protecting local investment; to raise the cost of theft and corruption by insiders and local officials; and to allow investors to acquire controlling stakes in viable firms.

Journal Article.  0 words. 

Subjects: Development Planning and Policy

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