Resource information
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 article 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.
