Privatization in the Russian Federation: The Rise of Market-Based Systems in Modern Russia

“In an effort to deal with a widening budget deficit in the face of its economic stimulus program, Russia is now focused on outreach to foreign investors through the implementation of a $39 billion privatization program,” noted Ralph Winnie, Vice President, Global Business Development, The Eurasian Business Coalition, at a 3 October 2011 Kennan Institute event. As an example of this increased openness to foreign direct investment, the speaker cited the Russian government’s intent to sell minority stakes in state-controlled enterprises such as Rosneft and the majority banks VTB and Sberbank.

Privatization efforts in Russia have been ongoing for several decades, but activity in the movement has increased in recent years since the government started to make the privatization process more fair and transparent. At present, Winnie explained, President Dmitry Medvedev recognizes that building a strong and flexible economic base is essential for Russia to be competitive with other superpowers in the global economic arena.

Winnie asserted that the Russian government needs to make the commitment to withdraw subsidies on various industries in an effort to support privatization and encourage free and fair trade, discourage the growth of monopolies, and encourage price competition. He also defended that taxes should continue to be transparent and less burdensome on small businesses in Russia. Furthermore, when converting state-owned enterprises to private sector companies, the Russian government needs to emphasize corporate management and the importance of directors’ accountability to their shareholders. Finally, Medvedev must recognize that a major impediment to privatization and entrepreneurship in Russia is a perception that these concepts are linked to industrial corruption, economic inequality and enhanced criminal activity. Increased transparency can influence public perception in Russia that privatization will create jobs and economic opportunities.

“In Russia,” Winnie asserted, “the continuing development of privatization must be part of an overall reform package involving continued deregulation, progressive taxation and a strong and viable monetary policy.” The speaker concluded that the Russian government must recognize that a well-conceived economic program designed to create an independent, broadly-based, and self-sustaining private sector will ultimately lead to increased order and stability; the improvement of the quality of life for the Russian people; and bolster Russia’s position and reputation as a global superpower.

By Reagan Sims
Blair Ruble, Director, Kennan Institute

The Kennan Institute speaker series is made possible through the generous support of the Title VIII Program of the U.S. Department of State.