State Power, Institutional Change, and the Politics of Privatization in Russia

Abstract

This article reviews recent events in Russia and demonstrates that future progress in developing private property rights will require not only sound economic policies but also more robust state institutions capable of carrying out economic transformation. In January 1992 Russia's first postcommunist government launched a comprehensive economic program to transform the Soviet command system into a market economy. Privatization constituted one of the key components of this program. Two years later, however, privatization in Russia had failed to create real private property rights. By the summer of 1993 insiders had acquired majority shares in two-thirds of Russia's privatized and privatizing firms, state subsidies accounted for 22 percent of Russia's GNP, little if any restructuring had taken place within enterprises, and few market institutions had been created. Progress toward creating private property rights in Russia was impeded by the particular constellation of political institutions in place after the collapse of the Soviet Union in 1991. The set of political institutions comprising the first postcommunist Russian state was not capable of either dismantling Soviet institutions governing property rights or creating or supporting new market-based economic institutions regarding private property.