Privatisation and buy‐outs in the USSR

Abstract

THE NEED FOR FUNDAMENTAL REFORM in the countries of Central and Eastern Europe is well recognised; so too are the problems of transition to a market economy.1 Nowhere is this more evident than in the USSR, which is under pressure from Western governments and lenders to harden and accelerate economic reforms. Great problems exist in respect of a need for major capital investment, the development of managerial and entrepreneurial skills, the extent and nature of acceptable foreign ownership and the form that privatisation of state-owned assets is to take. Key roles are assigned to Western assistance, such as business-related training and various forms of direct financial investment.2 The applicability of privatisation experience in the West has also been addressed.3 In 1991 the privatisation of state enterprises in Central and Eastern Europe is underway and is spreading to include the USSR, although progress is being slowed by a variety of implementational and institutional problems. Commentators are also particularly divided on the issue of whether the process of privatisation should be gradual, to avoid social collapse, or rapid, to prevent the opponents of reform from gathering their powers of obstruction.4 An important form of privatisation in the West, especially for small and medium-sized enterprises, has been employee and management buy-outs. The definition of a buy-out (BO) is necessarily vague and subjective. A management buy-out (MBO) occurs when incumbent managers acquire a controlling interest in the firm that employed them, and an employee buy-out (EBO) exists when a controlling interest is acquired by employees outside the management. Unlike the labour co-operative, all BOs retain an element of vertical control by a management team.