Privatization and the Role of Regions in the Russian Federation

Abstract

This paper explores how Russian regional governments engaged in privatization policy and what kind of impacts their unique policies had on federal-level policy aims.Implementation of privatization policy can be divided into three periods: The first period, from October 1992 to July 1, 1994, is called “voucher privatization”, the second (to March 1997) is called “money privatization” and the third, “individual privatization.” The federal government had specific aims such as: effective management of enterprises, development of investors and revenue gains.At first, regions were opposed to the privatization and some of them implemented various independent schemes: suspension of the policy, renationalization, control of competition, demand for federal property, etc.Such regional differences originated from the regions' particular economic situation, their leaders' economic/political orientations and countermeasures to the economic crises. The number of reported cases of regional privatization policy has gradually declined, thus it appears as if the differences among regions has diminished. However, the phenomenon can be attributed to gradual institutionalization of federalism and officially enlarged and endorsed regional competence rather than the interpretation that leaders abandoned their policy.Engagement of regions bore both positive and negative consequences. First, Russian fast privatization could not be implemented without the regions' cooperation. Second, the regional governments alleviated the pain of reform by maintaining the employment and old-style social safety net system.On the other hand, however, improvement in management efficiency, the main aim of the federal government, was undermined. Moreover, the policy discrepancy between the federal and regional level hindered the economic transparency of all of Russia, which foreign investors found an political risk. This leads to the further delays to structural reform.Regions placed their particular aims above those of the federal government. This invited a situation in which various ransitional strategies coexisted. On the other hand, the federal government ultimately allowed and endorsed such regional discretions. As a result, while difficulties with the transition were mitigated in some regions, negative impacts can be observed with respect to efficiency, investment climate, and market transparency. These effects amplified the problems already inherent in the federal policy.