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Russia: Analysis From Washington--The Paradoxes Of Privatization

Washington, 29 September 1997 (RFE/RL) - Transferring ownership in post-communist countries from the state to private persons by itself will not guarantee the appearance of a market economy. Indeed, it may not even constitute privatization as the term is typically employed in the West.

That was the unsettling message of Grigoriy Yavlinsky, the leader of the Yabloko faction in the Russian Duma, during his visit to Washington last week.

Speaking on Wednesday at the Carnegie Endowment for International Peace, a leading think tank, Yavlinsky noted that 82% of all enterprises in the Russian Federation no longer belong to the state. But he suggested that few of them were actually privately owned.

Instead, their new "owners" are in fact the old communist-era managers. And these people view their new possessions more like the collective farms of the past than the private enterprises of a market economy.

That is, the new owners do not seek to maximize their profit in competition with other firms but rather to maximize their immediate personal wealth and by gaining additional subsidies from the state.

In order to achieve the first of these goals, they sell off assets created by others rather than investing in their own enterprises to improve the future position of the firm. One mark of this, Yavlinsky said, is that investment in the Russian Federation is likely to decline some eight to ten percent this year, instead of rising as Moscow routinely claims.

Such disinvestment not only pushes any turn-around in the Russian economy further into the future but means that any future growth will start at a far lower level and with far fewer available resources than capitalist countries have following a down-turn.

And in order to achieve the other of these goals, these new "owners" behave much as they did in the past, forming alliances with state bureaucrats who can provide them with both resources and protection from other owners and from other government bureaucrats.

These alliances, Yavlinsky pointed out, mean that both these "owners" and the bureaucrats with whom they are allied generally oppose any real reform lest it challenge both their incomes and power. And just as in communist times, this alliance entails additional costs as well.

Neither group wants to face the prospect of social upheaval that bankruptcies or massive unemployment might produce. As a result, both conspire to prevent the former and to hide the latter.

Both work to keep enterprises in operation even when the efficiencies of the market would dictate that many older and inefficient firms should be allowed to fail and their resources reallocated to better use.

And both work to hide unemployment. Yavlinsky argued that real unemployment in Russia is equal to the number of people not being paid -- some 25 percent of all workers -- not the much lower figure put out by the Russian government. But neither the government nor the firms have the funds to pay them or the political will to deal with the massive social dislocation that formally laying these non-workers might lead to.

For all these reasons, Yavlinsky suggested, simple privatization has not been the panacea that many in both Russia and the West had expected. Instead, privatization as carried out under Russian conditions has often had the effect of reinforcing rather than undermining Soviet-styles of economic activity.

But if privatization has not yet led to a free market and a dynamic Russian economy, Yavlinsky implied that it was a necessary if not sufficient condition, and he suggested that any retreat from a commitment to private ownership and free markets would be even more disastrous than the current situation.

What Russia needs, Yavlinsky said, is both the political will to stand up to the social pressures opposing a shift from collective-farm style ownership to genuine private property and the state institutions capable of making such a transformation possible.

Until Russia has both, he concluded, its economy and even more its political system will remain mired in their currently disastrous state.