Impacts of Privatization in Russian Political Status - Research Paper Example

Name Tutor Institution Date Topic: Privatization in Russia Working title: Impacts of privatization in Russian Political status Abstract Privatization is a common practice in Russia and which has to some extent improved the economic status of the nation hence making it easier for the government to run its operations. However the process has faced challenges which have impacted on the Russian political status. The analysis provides the utilization of political research strategies which can be used in the analysis of privatization in Russia. Chapter 1 Research question: Does privatization have any effect on Russian political status? Statement of thesis Privatization of the public sectors has both positive and Negative effects on the political status of Russia. Russia just like many nations of the world adopted the privatization strategy in order to enhance efficiency in management of institutions and give a chance to private sector management. What then are the Impacts of privatization on the Russian Political status? Introduction/ Background information Positive reforms took place in the Russian privatization within the state owned industrial assets in 1990s, which brought about positive changes in the economic status of the nation. This was immediately after the Soviet Union collapsed in which all private ownership of enterprises was considered illegal. The adaption of the market economy resulted to a big percentage of the national wealth falling in the hands of the tycoons leading to an increase in the wealth gap. Privatization in Russia is still Young and according to the report of most of the researchers, there is a possibility of it leading to the restructuring of privatized firms. This means that they should change their mode of conduct from meeting the interests of the politicians to making the maximum amounts of profits. In most cases the politician’s struggles to influence firms to pursue the objectives of the politicians for example, over hiring or locating identified areas (Sutela 380-410). Back in 1991 when Anatoly Chubais was appointed to be in charge of the State Committee of Management of the properties of the state, top of his reform agenda was not privatization but the politicians concentrated on the liberalization of prices and control of the budget. However, one and half years later privatization had become the most common and successful reforms all over the state. By 1993 more than 20% of the industrial workers were working in the private owned industries hence majority of the residents including some of the politicians supported the change. Privatization in Russia has entailed complicated economic and social structures depending on the distribution of the state owned property, new income generating structures, development of new relationships between the new management and the employees which was completely different from the previous regime and changes in the ways of motivating the workers at their places of work and the managerial practices. The chief social goals of the first program of privatization involved distribution of the former properties owned by the state on the basis of social justice and generating a massive middle class under private ownership considered to be important for social and political stability (Rutland 830-867). The research activity will be based on the possible impacts of privatization of various sectors on the political status of Russia. Chapter 2 Literature review Introduction This chapter shows the reports of the studies which have previously been done by some other researchers by highlighting their perspectives concerning privatization In Russia. It is meant to guide the researcher on the area of specialization by considering areas that have been covered by other researchers and which areas have not. Body Since 1991 when Russia gained its independence and the collapse of Soviet Union it had serious challenges in the efforts of trying to forge a political system. The climax came in 1993 when the acting president Boris Yeltsin dissolved the parliament by use of military force, then called for legislation elections. The elections of the new leaders led to amendment of a constitution which was approved by referendum in December 1993. This constitution legalized the rights to privatization which later led to some signs of privatization (Rutgaizer 120). Privatization in Russia has been criticized due to its redistribution effects. Bim (58) highlights that many of the private sectors in Russia are located in developed areas where all the required resources are available for example, energy, water and labor; resulting to unevenly distribution of assets and resources in some parts of the nation. The Russian government stated that its objective of privatization is to ensure that every citizen enjoys the countries resources. However this particular objective has not been attained, Bim (59) indicates that Russia has experienced a rise of a class of private individuals who have highly benefited from the privatization initiative. A special group is politicians who have acquired ownership of many of the privatized institutions as a result there has been increased political rivalry between these particular individuals. Bin further indicates that instead of enhancing social equality privatization has resulted to class divisions of the haves and the have nots. Yavlinsky and Braguinsky (67) makes a revelation that Russia undertook a lot of key reforms within its institutions within the first 5-7 years of its transitional process, in which privatization and liberalization of firms were basically completed in 1995.Yet, in despite of this particular reforms, throughout the most part of 1990, Russia’s GDP was actually deteriorating and the living standards of average citizens continued to worsen. Most of the privatized institutions faced the challenge of creation of market. Yavlinsky and Braguinsky (68) further highlighted that many of the reforms through privatization were developing foundations of market economies from scratch however the problem with many of the institutions was that they failed to observe the observe market supporting laws or regulations as a result many of them failed. Another problem with privatization in Russia is the difficulties in establishing the boundaries of the private sectors. The government tries to initiate an official way of privatization so as to pave the way for further redistribution of property through mass privatization. According to the report on the State-owned enterprises, people are widely practicing the specific forms of owning private sectors through unofficial forms such as legally transferring a portion of the value created by the state owned enterprises to private ownership (Rutgaizer 24). According to the report from the Ministry of Interior, the biggest percentage of the privatized and the private firms and the commercial banks are obliged to pay the gangs, corrupt officials and racketeers. A number of investment agencies and voucher funds that resemble mutual funds in West have come up to use the vouchers of the ordinary Russians who have no enough confidence to invest in the stock market for themselves. Such activities promote corruption with the state as a result of increased corruption; the citizens continue to lack confidence on the political system. Sappington & Stieglitz (35-39) highlight that the adoption of privatization is basically a strategy of enhancing democracy within a state. Yet in despite of Russia adoption of privatization which acts as the liberalization strategy which is a fundamental aspect of democracy, politically Russia is actually very sluggish in the progress towards attaining full democracy. Russia has still not adopted characteristics that should be within a democratic state for instance the rule of law does not apply to all, lack of transparency and accountability even within the privatized institutions and corruption is wide spread. When making a comparative analysis between privatization in Russia and Australia. Australia adopted the policy of privatization in 1970 which is much earlier than Russia. Since 1992 Australia has generally experienced a period of sustained economic expansion, prosperity and growth without interruption as a result of the privatization strategy. Russia on the other hand since has had a lot of economic challenges since its adoption of the policy. The relative expansion and growth in Australia has been a debatable issue when trying to analyze the reasons why Australia has had such an experience, whereby a phase of growth occurs even without a slight experience of recession. What be concluded is that the difference between Russian privatization and Privatization in Australia is the aspect of governance (Supyan 2001). China has undertaken a mixed privatization strategy whereby, whereby the government has embarked on creating a new market enterprise without much initiative on reforming old state enterprises. Overman (1995) highlights that privatization in China resulted to a double digit economic growth, increase in exports, labour productivity and improved living standards, Russia on the contrary has been has experienced a decline in living standards and outputs. Effective entry into the privatization approach can be linked to the fact that China begun its liberalization approach through low ranking enterprises in villages and townships, the most recent initiated joint ventures and private firms in China have experienced the most dynamic growth in terms of exports and provision of employment. In Russia the main emphasis laid during the initiation of privatization was first on privatization of state property rather than concentrating on small firms. The first attempt was made by Gorbachev when he tried to unsuccessfully make initiatives of developing small firms however he did not succeed. Even presently in Russia more attention is given to the privatization SOEs (state owned enterprises) as opposed to the development of new enterprises The researchers above highlighted the shortcomings of privatization in Russia however it essential to also highlight that privatization in Russia has also brought positive contributions to the countries political status. Frydman (276) highlights that the Russian government has allowed foreign investors to own some of the private sector institutions. This has given it an opportunity to build a good rapport with others nations hence easily accessing ideas on how to do things or improving their activities to meet the international standards. Russia was once a nation faced with huge conflicts with foreign states such as the U.S as a result of Ideological differences which resulted to the cold war in 1990. However due to the introduction of privatization which acknowledges foreign investment Russia has actually been able to improve on its International relations. Chapter 3 Theories on privatization Ownership and principal-Agent theory. Privatization has become a subject of principal agent theory hence this theory attempts to address how to avoid an agent shrinking behavior. The major objective of privatization is to promote the work incentives in public firms. Holmstron is a thinker who derived the best contract which is characterized by the trade-off of risks sharing and the distortion efforts between a risk reverse agent and a risk neutral principal. After Holmostron and his partners: Baron and Myerson in 1982 mad the first move to model the information in a regulatory framework, a principal was needed to regulate an agent with the private knowledge on the production cost. They also concluded that an audit was necessary to prevent the principal from granting the agent who can exploit the private information a rent to control the behavior of cheating. Their strand of literature was a foundation of the applications of the theory of agent to the questions on privatization which were at the top of discussion in the next decade (Supyan & Victor, 38-64). Theory of incomplete contrast Grossman and Hart’s were the thinkers behind this theory. Their arguments relates to the discussion of structure of ownership to the theory of costly contrasting. They define the ownership of a firm as acquisition of residual rights of control of all the activities taking place in it. In some situations only the owners of a firm have the authority or the powers to implement any contingency plan and these rights are critical when a signed contract is not completed in the sense that some of the details of the transaction cannot be agreed upon or itemized by the concern parties. The incompleteness of the contract proposed the idea of ownership structures. Cooter supported the idea by stating that the initial allocation of legal entitlements does not matter from an efficiency perspective so long as the costs of exchange in a transaction are nil, but if the contractual costs exist, the allocation rights to property is essential for efficiency considerations. The situations lead to formation of a model which portrayed public and private firms as different ownership structures. The government is responsible for any public sector and all the private sectors are under the ownership of the relevant management (Frydman et al, 39-67). Theory of incentives to privatization issues When the role asymmetric information became an integral part of the discourse on privatization in Russia in 1987, Sappington and Stiglitz initiated the theory of incentives to privatization issues. Their arguments were based on the differences between the public and private centers on the ease of government intervention to the activities of the firm production. The interventions are cheap in the public sectors because they are not charge on the cost of legal protection like in the private sectors. Through this theory the government came up with the idea of increasing the privatization so as to increase the income from these sectors. The public embraced the idea because unlike the public firms, the private firms can observe a variable which cannot be verified by the government since it does not collect the data on the performance of the sectors it does not own (Bim 12-23). Neo- Liberalism Neo liberalism is an ideology that emphasizes that the attainment of economic liberalism can occur as a result of social progress. Adam Smith, (1776, p25) in his works highlighted that, the practice of neo-liberalism simply advocates for the elimination of government involvement in economic matters These are some of the theories behind the process of privatization in Russia and will help to gather secondary data on the history of privatization. Chapter 4 Research questions 1) How was the process of privatization implemented? 2) How does the process of privatization affect the political status of Russia? 3) What can be done to ensure that privatization only affects the political status of Russia positively? 4) How has privatization affected the employment rates in Russia? The hypothesis 1) Privatization was implemented through 3 main ways. 2) Privatization has both positive and negative effects on the political status of Russia. 3) The government officials can set and try to implement rules and regulations to be followed by any sector whether public or private. 4) Privatization has increased the employment opportunities. Chapter 5 The potential sources of data Data will be collected through group survey although its effectiveness will depend on the fact that the respondents who will be chosen will be in a position to give relevant information in groups. A sample of the correspondents from private and public sectors will be selected to fill the structured questionnaires or respond to the interview questions. The sampling design and procedure to be used will be random sampling whereby the sectors to be investigated on will be picked at random with own specifications of the respondents: either be a private or public sector or must be in Russia. Data will be collected from the primary or secondary source that is either from field work or from the past records concerning the process. Questionnaires and interviews will be used to enhance the process of data collection. These will be formulated based on the research objectives. They shall be self administered and divided into sections containing of background information, open ended and closed ended questions. Survey A survey was conducted on Russian privatization by the Trade unions Research centers. The surveyors used secondary data from government publications which highlighted that by 1996, 77.2% of large enterprises and medium size enterprises were privatized this basically accounted for 88.3 of the total Russian industrial output. The surveyors further evaluated the performance of privatized companies in Russia to evaluate how the privatizations of these organizations have impacted on Russia’s political status, through the analysis of the status of the employees working in the private companies and the graph showing the development of the performance. This study will act as a guide when collecting the data because by studying the trend of the development of the private sectors in Russia and the status of the employees compared to those of the public sectors, I will be able to determine its effects. This will also act as a guide to gather information on the relationship between the private or public sectors and the government and their possible effects; then compare the outcome of both sectors to determine the one with the most positive and negative effects. How to measure the concepts using this data This involves considering the advantages and disadvantages of privatization on the political status of Russia. A way of translating the collected data to simple statistical methods will be identified for easier recording, reporting and reviewing. For example numbers 1-5 can be used representing the comparatives of the effectiveness of the impact: 1: poor, 2: fair, 3: good, 4: very good and 5: excellent. This can also be used to show the employment trend before privatization was implement although the implementation process to the pick. Dependent and independent variable The two types of variables go hand in hand whereby as their names suggests the dependent variable lies upon the values of the independent variables. The independent variable changes or is manipulated and the final result becomes the dependent variable. The study will identify the factors which will occur as a result of the others, for example changing the ownership or management of public sectors to private ownership will result to increase in employment. Management of the firm is an independent variable while increase in the job opportunities is dependent. Reliability and validity of measurements Reliability is the measure of degree to which a research instrument yields consistent results or data on the many repeated trials for verification and validity is the degree to which the results obtained from the analysis of data actually represents the phenomena under study. It also has to do with the accuracy of the data obtained in the study representing the variable in the study. The questionnaire and interview questions will be set so as to help the relevant data from the respondents. The questions will be checked and approved by the sponsors of the activity; discussion with the sponsors and experts will also ensure that the chosen research instruments would be both valid and reliable. Methods or approaches to analyze data The use of statistical method of data collection and tabulation will be used to analyze data. The collected data will be tabulated, computed and percentage realized to reflect the impacts of privatization on the political status of Russia. Data can also be analyzed through descriptive statistical techniques such as mean, frequencies and percentages. This is so as to enable the researcher to meaningfully describe the distribution of the items of study in his study. How The Research Will Build On Previous Research And Contribute To Our Knowledge. The research will increase the poll of information that the other researchers have collected on the field of concern. It will help identify the possible impacts of privatization on the political status of Russia by weighing the data collected on either side and determining the heaviest, either negative or positive. The recommendation of the study will help the concern or the targeted groups to know what to do so as to improve their areas of concern. It will also increase the scope of the literature review of the next researcher in the field so as to know what has been done and what has not been done hence will know where to base his or her research. Conclusions The study will have a summary of the outcome which will guide on the recommendation of the researcher to the target audience. If effective political research approaches are effectively followed ,comprehensive data can be collected concerning the effects or the changes which have occurred in the political status of Russia as a result of privatization of various sectors or transferring institutional ownership from public to private. Works cited Yavlinsky and Braguinsky (1994). Chapter 5 of A Normal Country includes Shleifer’s response to the work of Yavlinsky and Braguinsky Bim A. After-Privatization Problems of Russian Enterprises. Moscow: Voprosy Ekonomiki.2000: 56-72. Frydman R. et al. The Privatization Process in Russia. Baltic: Central European University Privatization, 2002:276. Supyan Victor, 2001, Privatization in Russia: Preliminary results and socioeconomic implications. New York: Demokratizatsiya, 2001. Shively Philips. The Craft of Political Research. Prentice Hall.2008:50-89 Sutela, P. “Insider Privatization in Russia: Speculations on Systemic Change”, Europe-Asia Studies.1999. Rutland P. “Privatization in Russia: One Step Forward: Two Steps Back?, Asia Studies, Europe. 2000. Sappington, D & Stieglitz J. Privatization, Information and Incentives, Policy Analysis and Management, New York: Sage.2001. Rutgaizer V., 2003, Privatization in Russia: Groping One's Way, Voprosy Ekonomiki, Russia. 106-121 Rutland P. “Privatization in Russia: One Step Forward: Two Steps Back?, Asia Studies, Europe. 2000 Read More