Privatization in Russia
In 1987, Mikhail Gorbachev passed a law on state enterprise through the Supreme Soviet of the Soviet Union. This legislation granted work collectives a greater role in running enterprises. The number of state enterprises had reached an estimated 45,000 under the Soviet system. Private ownership remained essentially illegal throughout that era. Human labor was the only means of production not fully nationalized by the state. In September 1990, the Soviet parliament granted Gorbachev emergency privatization powers. These powers included transforming state enterprises into joint-stock companies with shares offered on stock exchanges. One major effort transformed the Ministry of Fuel and Energy into Rosneftgaz in September 1991. Spontaneous privatization allowed some industrial assets to be acquired by their managers. This process accounted for only several thousand enterprises out of the vast Soviet industry.
The Russian government distributed vouchers to 144 million people between 1992 and 1994. Each voucher corresponded to a share in the national wealth. Minors received these vouchers along with adults. By mid-1994, between 12,000 and 14,000 medium and large enterprises had been transferred into private hands. Around 40 million Russians became shareholders through this program. Ownership of 15,000 firms moved from state control via the voucher program during those years. Roughly 98 percent of the population participated in the distribution. Most people were not well-informed about the nature of the program or were very poor. They quickly sold their vouchers for money instead of investing. Most vouchers wound up being acquired by the management of the enterprises. The State Committee for State Property Management under Anatoly Chubais carried out the privatization. The reformers hoped to avoid further concentration of ownership among the Russian mafia and nomenklatura.
Managers forced employees to sell their shares cheaply during the voucher program. Intimidation was used to exclude other buyers from auctions of company shares. The resulting wealthy business owners felt that their property rights were insecure in Russia. They engaged in asset stripping to move value from their companies to investments overseas. A few strategic assets including much of the Russian defense industry were not privatized during the 1990s. The effect concentrated ownership among a small number of private individuals. These individuals raided their companies for personal gain at the expense of the general populace. The economic transition has been described as katastroika, combining catastrophe and perestroika. It stands as the most cataclysmic peacetime economic collapse of an industrial country in history. Many Russians called for revision or reversal of the reforms decades later.
From 2004 to 2006, the government took control of formerly privatised companies in certain strategic sectors. These sectors included oil, aviation, power generation equipment, machine-building and finance. The state-owned defense equipment company Rosoboronexport took control of Avtovaz, the primary producer of Russian cars. In June 2006, it took 60 percent control of VSMPO-Avisma. This company accounts for two-thirds of the world's titanium production. United Aircraft Building Corporation combined all of the Russian companies producing aircraft in 2007. That corporation is 51 percent government controlled. The mid-2000s strategy reclaimed strategic sectors like oil, aviation, and defense from private owners. The state regained significant influence over key industrial assets after years of private management.
At least 200 businesses have been nationalized since the start of the Russian invasion of Ukraine. This wave represents the reverse of the privatization that occurred after the fall of the Soviet Union. The 2020s have seen a surge in state ownership following shifting economic policies. In December 2010, President Dmitry Medvedev ordered regional governments to decide on privatization of non-core assets by July 2011. Arkady Dvorkovich said regional privatization proceeds could amount to several billion rubles in 2011. Regional authorities were told to prioritize the sale of utility companies, financial institutions, manufacturing and transportation assets and the media. In October 2017, Minister Maxim Oreshkin stated there are almost no fiscal reasons left for privatization. The economy improved due to increased oil prices at that time. Recent trends show a clear shift back toward state control of major industries.
Common questions
When did Mikhail Gorbachev pass the law on state enterprise in the Soviet Union?
Mikhail Gorbachev passed a law on state enterprise through the Supreme Soviet of the Soviet Union in 1987. This legislation granted work collectives a greater role in running enterprises while private ownership remained essentially illegal throughout that era.
How many people received vouchers during the Russian government voucher program between 1992 and 1994?
The Russian government distributed vouchers to 144 million people between 1992 and 1994. Each voucher corresponded to a share in the national wealth, and around 40 million Russians became shareholders through this program.
What was the loans-for-share scheme adopted by Boris Yeltsin in 1995?
In 1995, Boris Yeltsin adopted a loans-for-share scheme proposed by banker Vladimir Potanin. The government needed funds for the 1996 presidential elections due to severe fiscal deficits, so some largest state industrial assets were leased through auctions for money lent by commercial banks.
Which companies were included in the loans-for-share auctions controlled by insiders?
These assets included shares in Norilsk Nickel, Yukos, Lukoil, Sibneft, Surgutneftegas, Novolipetsk Steel, and Mechel. The auctions lacked competition and were largely controlled by favored insiders with political connections.
When did the Russian government take control of formerly privatized companies in strategic sectors from 2004 to 2006?
From 2004 to 2006, the government took control of formerly privatised companies in certain strategic sectors including oil, aviation, power generation equipment, machine-building and finance. In June 2006, it took 60 percent control of VSMPO-Avisma which accounts for two-thirds of the world's titanium production.
How many businesses have been nationalized since the start of the Russian invasion of Ukraine?
At least 200 businesses have been nationalized since the start of the Russian invasion of Ukraine. This wave represents the reverse of the privatization that occurred after the fall of the Soviet Union and follows shifting economic policies in the 2020s.