Privatization in Russia

Privatization in Russia describes the series of post-Soviet reforms that resulted in large-scale privatization of Russia‘s state-owned assets, particularly in the industrial, energy, and financial sectors. Most privatization took place in the early and mid-1990s under Boris Yeltsin, who assumed the presidency following the dissolution of the Soviet Union.

post-Soviet reforms of the Russian economy in the 90s
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Russians protest the economic depression caused by the reforms with the banner saying: “Jail the redhead!”, 1998.

Private ownership of enterprises and property had essentially remained illegal throughout the Soviet era, with Soviet communism emphasizing national control over all means of production but human labor.[1] Under the Soviet Union, the number of state enterprises was estimated at 45,000.[2]

In the later years of the Soviet Union, Mikhail Gorbachev relaxed restrictions on private property and introduced initial market reforms. Privatization shifted Russia from the Soviet planned economy towards a market economy, and resulted in a dramatic rise of the GDP and a relaxation of the economic crisis.[3]

Privatization facilitated the transfer of significant wealth to a relatively small group of business oligarchs and New Russians, particularly natural gas and oil executives.[4] This economic transition has been described as katastroika[5] (combination of catastrophe and the term perestroika) and as “the most cataclysmic peacetime economic collapse of an industrial country in history”.[6]

A few “strategic” assets, including much of the Russian defense industry, were not privatized during the 1990s. The mass privatization of this era remains a highly contentious issue in Russian society, with many Russians calling for revision or reversal of the reforms.[7]

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In the late 1980s, as part of the perestroika reformation movement, legislation championed by Mikhail Gorbachev—who pledged to build a “mixed socialist economy”[8]—effectively transferred some controlling rights over enterprises from the government to the employees and management. In 1987, over the opposition of some of his allies,[9] Gorbachev succeeded in passing a “law on state enterprise” through the Supreme Soviet of the Soviet Union, which granted work collectives a greater role in running enterprises.[10] In 1988, the Law on Cooperatives legitimized “socialist cooperatives,” which functionally operated as private companies and were permitted to directly deal with foreign companies, and reduced reliance on central planning.[11] Later that year, private Soviet farmers were permitted to rent land from the state, purchase equipment, and hire workers, a significant step away from mandated collective farming following decades of dominance by state-owned agricultural concerns. The new regulations were seen as an effort to break state farms into smaller units and address critical food shortages in the Soviet Union.[8]

The legislation also enabled these enterprises to withdraw from associations on their own, which led to the process of so-called spontaneous privatization in which control over some industrial assets was acquired by their managers. However, this accounted for only several thousand enterprises, a small fraction of the Soviet industry.[citation needed]

In September 1990, the Soviet parliament granted Gorbachev emergency privatization powers, including the authority to transform state enterprises into joint-stock companies with shares offered on stock exchanges.[12]

One of the largest privatization efforts during the Soviet era was the transformation of the Ministry of Fuel and Energy into a joint stock company known as Rosneftgaz in September 1991.

In the months before the dissolution of the Soviet Union in December 1991, soon-to-be president Boris Yeltsin began assembling a team of economic reformers led by Yegor Gaidar, then a young reformist economist, and including Anatoly Chubais. The reform team initially considered Swedishsocial democracy as a model for Russia, but Gaidar opted instead to study Hungary as a template and was influenced by Poland‘s use of shock therapy. Both Gaidar and Chubais were convinced that despite Russia’s uniquely non-capitalist economic history, a market economy could successfully take hold in the country.[13] Following the August 1991 coup d’état attempt, the economic situation in the country dramatically worsened and an acute food shortage emerged. In October, Yeltsin delivered a speech in which he declared that price controls would be lifted on January 1, 1992, over Gaidar’s recommendation that no specific date for the freeing of prices be given.[14]

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