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Example research essay topic: Percent Of Gdp Economic Reform - 1,752 words

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Privatization of post-communist economies: policies and results (RUSSIA). The rapid pace of privatisation of former state enterprises has been touted as one of the major successes of the Russian government's economic transformation policy. By the beginning of 1996 77. 2 % of medium-size and large enterprises had been privatised, accounting for 88. 3 % of total industrial output (Blasi, 26). At that time 63. 4 % of all enterprises and organisations were classified by the Russian State Committee on Statistics as in 'private ownership'. In 1995 62 % of the total workforce and over 80 % of those working in agriculture, industry, construction, trade and public services were already employed in the private, privatised or mixed-ownership sectors (Popov, 32).

In comparative perspective these achievements are impressive. Even those East European countries with a stronger historical tradition of private ownership have seen slower rates of transformation of state into privatised enterprises. And yet the significance of Russia's apparent success in implementing this central feature of its economic reform prog rate has remained open to question. From the viewpoint of liberal economic theory, which underlies the Russian government's economic programme, privatisation should have at least two positive effects. First, it should produce an improvement in the performance of the privatised enterprises by making them economically accountable for their own performance and by providing an economic incentive for more efficient management. Second, it should give a broad segment of the Russian population a stake in the process of economic transformation through the transfer into their hands of some share of enterprise ownership on the basis of the issue of vouchers.

In this way a political constituency for privatisation and for market economic reform would be secured, helping to ensure the irreversibility of the processes. The specific form the Russian privatisation programme took was the result of a political compromise which amended the initial conception of its architects, but nonetheless the strategy was theoretically congruent with these two goals of th e reform ideology. By the end of 1995, when the first stage of privatisation was completed, (Nelson, 232) it was possible to begin an evaluation of the effects of the privatisation process both on enterprise behaviour and on the public mindset. Expert assessments relating to the first goal of the process, namely, its impact on enterprise efficiency, have been mixed. Some studies suggest that privatised enterprises can better engage in longer-term strategic planning, but most research indicates that formation of joint-stock companies from formerly state enterprises has not brought significant improvements in enterprise behaviour or performance. This has been attributed to three main types of causes.

First, most managers do not have adequate skills, knowledge or commitment to undertake an effective adaptation of enterprise strategy. Second, the macro environment within which enterprises operate is still only a quasi-market environment: external incentives are often too weak to bring a change in enterprise strategy. Particular y important aspects of the macro-environment include inconsistent and punitive tax policies, the pervasiveness of corruption and criminality, deficiencies in the banking system, inadequate development of a free labour market, an unpredictable policy environment, and restrictions on ruble exchange rates with foreign partners (the ruble corridor). General conditions of economic depression also produce little slack for innovation, since investment funds are scarce, debts are often not paid, and there is overall low demand in society. Finally, internal enterprise relations often have a restraining effect on enterprise adaptation. The predominance of insider privatisation, which the government's privatisation policy encouraged, is often cited as a crucial factor.

Insider privatisation produced incentives for management to maintain a paternalistic relationship with the workforce, which could inhibit the adoption of measures of financial stringency that might improve enterprise efficiency. As Kuznetsov and Kuznetsov a point out, 'for insiders the option of having a long-term income flow from their shares is subordinated to other interests reflecting the realities of transition'. In other cases, internal conflicts between shareholders in management circles have restricted the ability of the enterprise director to take necessary actions for restructuring. Furthermore, external pressures (from outside shareholders) have been inadequate in generating pressure for enterprise adaptation. Thus, in terms of the first goa l of privatisation, at this point the evidence is scant that privatisation has brought an increase in enterprise efficiency, or, indeed, any clear direction of change in enterprise behaviour. The effects of privatisation on industrial sector have to be observed only in the long run.

However, the privatisation process influenced significantly not only enterprises, but Russian public as well, especially employees of companies which have undergone privatisation. This group was more directly affected by the process than the general public and stood to experience the impact of the process in two ways. First, the compromise privatisation law which was finally adopted in 1992 offered each citizen the opportunity to gain a modest share in the process through use of a privatisation voucher. While this opportunity was available to all citizens, the details of the privatisation law gave enterprise employees an additional advantage, since the most popular of the three privatisation options offered to enterprises in the law permitted the enterprise collective to gain a majority (51 %) of the shares in the newly privatised joint-stock companies.

In this way enterprise employees could choo's e to use their vouchers to define a new relationship with their own employing organisation. A second impact of the privatisation process on this group derived directly from being employed by the privatizing enterprise; here, employees, based on their own experience, could make a judgement about whether the process brought an improvement in enterprise operations. The final results of privatisation for Russian economy is very difficult to estimate. The main reason for this is the horrendous financial crash that shook the world in August 1998.

Te majority of economic reforms and programs were not finished by the year of 1998. In March of 2001 Foreign Policy Journal claimed that according to the latest official data, Russia achieved a GDP growth of 5. 4 percent in 1999, 8. 3 percent in 2000, and growth continues today. While many systemic problems remain, Russia appears to have attained a critical mass of market reforms and privatization. Considering the enormous distortions left behind by communism, that is a splendid achievement (FPJ, March 21, 2001). From the critical point of view, the conclusions of the western economists regarding privatisation in Russia made during 1996 - 1999 sounded pessimistic. Frederick Hudson claimed that Poland being a part of Soviet Union economic zone had experienced far more progress due to privatization than other countries of Eastern Europe (Hudson, F. , 76).

However, one should not forget about the fact that Poland started off with a large private sector that was bigger than Russia's. Poland undertook more reforms in nearly all spheres. Russia did not have a choice but to take a road of fast reforms. On the contrary, Ukraine has implemented most reforms, including privatization, more slowly than Russia. As a consequence, Ukraine's privatization has been of worse quality than Russia's, with more ownership going to managers and employees and less being sold on open markets. Ukrainian corporate governance remains far worse than in Russia, where nearly 800 enterprises actually paid dividends to their shareholders last year.

During the period of 2000 - 2002, Russia has seen an extraordinary improvement in its infrastructure. Investment in fixed assets (i. e. , buildings, equipment) increased by 18 percent last year, - a healthy investment ratio of 20 percent of GDP (higher than the standard U. S. ratio of 16 percent). Admittedly, the U.

S. S. R. had an investment ratio of about 30 percent of GDP, but that was an indication of waste. The Soviet Union was notorious in its neglect of infrastructure and its maintenance. Today, privatization and market pricing have revived much of the country's infrastructure.

Free-market competition has fostered an incredible expansion in the telecommunications industry. Airports and airlines have likewise improved. Road construction is up. New ports have been built around St.

Petersburg. Whereas ruins once blighted the landscape of even the Soviet capital, modern-day Russia has initiated a widespread building boom, which is a certain sign for the economic development. However, there are some problems where state monopolies linger, notably in the natural-gas monopoly Gazprom, the state-owned oil pipeline monopoly, and partly in the public utilities. Additionally, the significant effects of privatization in Russia resulted in that the country doesn't need foreign capital to boost its investment rate. Although the country has a persistent large capital flight of more than $ 20 billion a year, it has a higher investment ratio than the United States. This capital flight reflects the country's high level of savings being invested abroad -- a resource for the future.

Enterprises, as well as wealthy individuals, prefer to keep their money in safe banks outside of Russia where the legal systems are stronger. On the basis of comparative survey data spanning a period from mid- 1993 to mid- 1997 there is little evidence that the process of enterprise privatisation has generated its own constituency. It has neither made people more optimistic about their own material prospects nor made them more supportive of market reform in general. Western economists seemed to be pessimistic regarding the estimation of the privatisation in Russia, while the figures of numerous economic researches presented a picture, which is more optimistic for the economy, especially in the long term period. On the contrary, although the first stage of privatisation has been completed, the second stage of the policy, which involves a more open market for shares in enterprises, has not taken off effectively.

So although the first stage of privatisation has been successfully carried out, there is no obvious mandate for its continuation. If the policy has so far succeeded in terms of quantitative measures of numbers of enterprises privatised, it has had some serious problems in terms of the political and economic goals underlying it. References Joseph R. Blasi, Maya Kroumova & Douglas Kruse, Kremlin Capitalism: Privatizing the Russian Economy (Ithaca, Cornell University Press, 1997) Vladimir Popov, A Russian Puzzle: What Makes the Russian Economic Transformation a Special Case (Helsinki, The United Nations University, World Institute of Development Economics Research (WIDER), 1996) Lynn D. Nelson & Irina F. Kuzes, Property to the People: The Struggle for Radical Economic Reform in Russia (Armonk NY and London, M.

E. Sharpe, 1994). Foreign Policy Journal, March 2 / 2, New York, 2001 Hudson Frederick, The Privatisation of Industrial Enterprises in Russia: Four Case-studies, Europe-Asia Studies, 46, 2, 1994


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