Privatisation in Russia: behind the hype


By Kirill Buketov

MOSCOW — "So far this year we've sold some 100 firms through national auctions, and we'll sell 200 enterprises in the coming months", a Russian government privatisation official exulted to journalists at the end of March. Fishing fleets, iron ore mines, energy installations, vehicle plants — readers of pro-government newspapers are being whipped into frenzy at the thought of becoming shareholders, private owners of what was once the "property of all the people".

Mind you, there are doubters. According to Moscow Mayor Yuri Luzhkov, the government is selling off public assets "the way a drunkard, in order to buy booze, sells his possessions in the street for nothing." Not that Luzhkov is against privatisation — he simply thinks his city administration isn't getting enough of the proceeds.

If anyone is concerned that the workers might be getting shafted in this free-for-some sell-off, the government has an answer ready-made. No fewer than 70% of enterprises, we are reassured, are being privatised under the so-called "second variant", with a controlling packet of shares going to the enterprise labour collectives.

As of June 30, however, a lot of the pretence will drop away. "Voucher" privatisation, carried out on the basis of securities distributed free to the whole population, will come to an end. "Phase two" will then begin, and the populist camouflage will be dispensed with. State assets liable to privatisation, and not disposed of to that date, will be auctioned for cash. Privatisation chiefs have made clear they are looking for big corporate investors.

Actually, not much more than the facade will have changed. While two-thirds of the population live below the poverty line, privatisation was meant from the beginning to ensure that the assets really worth having finished up in the hands of a privileged few.

This becomes clear when we ask: who are the people who have been gaining control of privatised enterprises so far?

Actually, there are several answers to this question, depending on the type of enterprise involved.


If an enterprise is making profits, if it has valuable equipment, or if it has attractive buildings or other real estate, then as a rule it falls into the hands of the former director and his or her friends in the management. The enterprise then leads a comfortable existence, renting out its offices to commercial or banking structures and gradually selling off its machinery.

There are, of course, any number of laws that are supposed to protect the rights of workers when an enterprise is sold off. But who is to say that the enterprise cannot be declared insolvent, many of the workers sacked and the enterprise then "privatised"? Such a case occurred about a year ago at a small milk processing plant in St Petersburg. When the workers discovered the deception, they occupied the plant and stayed put for a month.

The case ultimately received wide publicity, and the workers' rights were restored. But in the great majority of cases, these scams go through undetected. If someone objects, they risk falling victim to "unknown" assailants, since privatisation has long since become synonymous with crime. During the first six months of 1993 alone, some 3000 crimes connected with privatisation were reported.

It is thus obvious why most of today's wealthy "new Russians" are former members of the Soviet-era nomenklatura who have exchanged the armchair of the factory director or state bureaucrat for that of the proprietor.

Up to the end of March, about 15,000 large and medium-sized enterprises had been privatised, together with more than 60,000 small firms. The latter are generally minor commercial outlets and service firms with fewer than 100 workers. Often, the new owners are women, since in the past it was usually women who administered such enterprises.

The scant prospects of these businesses are suggested by the fact that the new owners are often unable to think up original names for them. As a result, Russia is covered with "Nina" stores, "Yevgeniya" laundries, "Masha" sausage stands, and "Olga" pay toilets. These are simply the names of self-enamoured businesswomen.

Where an enterprise is profitable, a foreign entrepreneur may decide to buy into it; economists say foreigners may have bought about 10% of shares in privatised firms.

The new proprietor in such cases may be an established international corporation, or a gang of fly-by-night thieves. Everything depends on who offers the largest bribe to the local functionary in charge of privatisation. Thus, after the large gold-mining concern Lenzoloto was privatised, 35% of the shares turned up mysteriously in the hands of a small Hong Kong firm no-one had ever heard of.

As a rule, large industrial enterprises in Russia are unprofitable and need state support in order to keep operating. Because such enterprises form the foundations of the country's industry, it would be logical to keep them under state ownership. This is especially true because such enterprises are often the main employers in particular cities, and their shutdown would cause acute social problems.

But as it seeks to gain favour with the International Monetary Fund, the government is anxious to be able to report as quickly as possible on successes in the privatisation of large industry.

Exploit yourself

What can be done if no-one wants to buy a loss-making plant? Sell it to the workers! If you want to keep your job, buy the factory, and squeeze yourself as hard as you like.

And so, the enterprise becomes a joint stock company. Every worker is given a certain quantity of shares, and is told: "Here's your share in our common property. Now you can take responsibility for the success or failure of the firm. True, the factory's in a bad way, and there isn't even enough money to pay the workers, but that's not a disaster, since wages can be paid in the form of shares." And indeed, this is often done.

While no longer accepting responsibility for production, the state has by no means lost interest in the enterprises. This interest grows with every month, as is shown by the imposition of more and more new taxes. Enterprises are already paying more than 40 taxes to the federal and local budgets.

From every rouble of its profits, the Tulachermet metallurgical combine in Tula, south of Moscow, hands over 98 kopecks to the state in the form of taxes. Unnervingly, Tulachermet is among the enterprises considered to be in relatively good financial shape. Somewhat less fortunate is the Lebedinsky ore enrichment combine, which is forced to pay taxes on its profits of 105%.

Now, wouldn't you like to be the among the owners of such an enterprise?

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