Privatization as a Means to Property Redistribution in Republic of Armenia and in the Russian

347 Pages·2005·2.2 MB·English

VAZGEN ARAKELYAN
Privatization as a Means to Property
Redistribution in Republic of Armenia
and in the Russian Federation
ACADEMIC DISSERTATION
To be presented, with the permission of
the Faculty of Economics and Administration
of the University of Tampere, for public discussion in the
Pinni Auditorium B 3116 of the University, Kanslerinrinne 1,
Tampere, on June 3rd, 2005, at 12 o’clock.
A c t a U n i v e r s i t a t i s Ta m p e r e n s i s 1086
ACADEMIC DISSERTATION
University of Tampere
Department of Management Studies
Finland
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Printed dissertation Electronic dissertation
Acta Universitatis Tamperensis 1086 Acta Electronica Universitatis Tamperensis 444
ISBN 951-44-6318-8 ISBN 951-44-6319-6
ISSN 1455-1616 ISSN 1456-954X
http://acta.uta.fi
Tampereen Yliopistopaino Oy – Juvenes Print
Tampere 2005
To my parents

TABLE OF CONTENTS
Acknowledgements 7
CHAPTER ONE:Introduction 9
1.2 Basic Choice of the Study 12
1.2.1. Research problem 12
1.2.2 Research questions 24
1.2.3 The object of the study 24
1.2.4 Point of View 25
1.3 Theoretical Background of the Research 25
1.4 The Research Methodology and Techniques 30
1.5 The Structure of the Study 32
CHAPTER TWO: Theoretical Framework of the Study 35
2.1 Introduction 35
2.2 Theoretical Background of Privatization 44
2.3 Privatization 69
2.4 Routs to Privatization 73
2.5 Privatization Goals 78
2.6 Privatization Methods 81
2.7 Privatization techniques 92
2.7.1 Spontaneous privatization 92
2.7.2 Mass Privatization Model 95
2.7.3 Case-by-case Privatization 108
2.7.4 IPO Privatization 112
2.8 Treuhandanstalt 112
2.9 Dangers of Privatization 116
2.10 Alternatives to Privatization 117
2.11 Conclusion on Theoretical Framework 119
CHAPTER THREE: Privatization in the Russian Federation 123
3.1 History of Russian Privatization 124
3.21989-1992 Spontaneous Privatization 125
3.3 1992-1994 Mass Privatization 132
3.3.1 Shock Therapy 132
3.3.2 Small-Scale privatization 147
3.3.3 MEBO 149
3.3.3.1 MEBO Result 153
3.3.4 Foreign Direct Investment 156
3.3.5 Voucher Privatization 157
3.3.5.1 Voucher Privatization Results 168
3.4 (1995) Cash or Post Voucher Privatization 172
3.4.1 Cash privatization result 177
3.51996 Loans-for-Shares 178
3.5.1 Loan for share result 181
3.6 (1997) Case-by-Case Privatization 183
3.6.1 Case-by-Case result 188
3.7 Conclusion on Russian Privatization 189
CHAPTER FOUR: Privatization in Republic of Armenia 195
4.1History of Armenian Privatization 195
4.2 1988-1992 Spontaneous Privatization 198
4.3 Shock Therapy 199
4.4 Small-scale Privatization 203
4.5 (1994) Mass privatization in Armenia 216
4.6 Armenian Privatization program 225
4.6.1 Mass Privatization 228
4.6.2 MEBO 229
4.6.3 Voucher Privatization 231
4.7 Post-privatization firms performance in Republic of Armenia 235
4.7.1 Conclusions and Recommendations 251
4.8 Foreign Direct Investment 254
4.9 Cash or post Voucher Privatization 257
4.9.1 Conclusion 270
4.10 Case-by-case privatization 270
4.11 Problems Completing Privatization 270
4.12 Conclusion on Armenian Privatization 280
CHAPTER FIVE:Comparison of Privatization methods in Armenia and in Russia 289
5.1 Introduction 289
5.2 Beginning of Privatization 283
5.3 Voucher Privatization 293
5.4 MEBO Privatization 294
5.5 Cash Privatization 296
5.6 Loan-for-Share Privatization 298
5.7 Case-by-case Privatization 299
5.8 Conclusions 299
CHAPTER SIX:General Conclusion 301
6.1 Privatizing Starting Conditions 302
6.2 Mass Privatization 303
6.3 Management/Employee Privatization 306
6.4 Loan for Shares 308
6.5 Firm Performance 309
6.6 Privatization Success 310
6.7 Avenues for Further Research 310
6.8 Concluding Note 311
Abbreviation 317
Bibliography 318
Acknowledgements
First, I would like to thank Professor Risto Harisalo and Professor Seppo Hölttä for the enormous
help I have received from them over the years. Their interest in the subject of the research, active
guidance, and effective supervision emotionally and practically helped me to complete the study. I
regard their contribution to this study as more than the contribution an academic supervisor could
be expected to make.
I am deeply grateful to Professor Markku Temmes and Professor Markku Kivinen for their valuable
comments and suggestions that have helped me to develop the final version of the thesis.
My supervisor Professor Risto Harisalo has given ample freedom during my work but at the same
time has always encouraged me to keep up the writing process.
I have integrated into the Department of Administrative Science where I have been studying and
working all these years. I acknowledge and regard highly the contribution of Head of the
Department Professor Ismo Lumijarvi for all kinds of formal and informal support from him that
helped me to carry on my work in the Department.
I am grateful toMarketta Saikku and Sirpa Ramo from the Department of Management Studies for
excellent job in making my life easier at the Department. I am also indebted to all teaching staff at
the Department.
This thesis could not been written without support from my friends and colleagues Research
Director Timo Aarrevaara, Dr. Farhad Hossain, Jani Rajaniemi, Sanja Mursu. They have not only
provided practical advises, but also took the burden to make my stay in Finland much easier.
I am grateful to University of Tampere that sponsored my research for these years, without help of
this organization, this work couldn’t see light.
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Chapter One
1.1 INTRODACTION
Privatization is popular economics movement in all over the world. Most developed, developing
and transitional countries have demonstrated a great interest in privatization. It becomes one of the
major reforms in the last decade. In recent years governments of all political stripes, at every level
have embraced privatization. Market oriented and socialist governments are exploring the
implications of converting state enterprises and services to private ownership. There is no surprise
that transitional countries are choosing way of privatization and free market economy. The results
of many empirical studies indicate that private sector is more efficient than public sector. The
sweeping of global waves of privatization have occupied government and academic around the
world since the 1980s. These global waves of privatization have forced many governments to adopt
what is now considered as market-oriented reforms.
Initially privatization as public policy was originated by two ultraconservative and ideologically
oriented capitalist governments. These were Margaret Thatcher’s government in Great Britain and
Ronald Reagan’s in the United States. They have reached the entire domain of what has
traditionally been considered government and public sector functions around the world for several
millennia. By their effort privatization has become a much more comprehensive and expansive
movement that has infiltrated deep into the core of governmental, public administration and private
sector domains around the globe.
Privatization as fuzzy concept evokes sharp political reactions. It formed a range of ideas and
policies, varying from the eminently reasonable to the wildly impractical. Privatization as a policy
has unambiguous political origins and objectives. It is emerged from the questions of movements
against the growth of government costs in the Western countries, to represents the most serious
conservative effort of our time to formulate a positive alternative. Privatization proposals do not
concentrate only on return services and goods production to their original location-private sector,
but also create new kinds of market relation based on free market attitudes. Thus it is incorrect to
define and dismiss the privatization movement as simple replay of traditional opposition to state
intervention and expenditure. The current wave of privatization initiatives can be defined as conflict
over the public-private balance.
The act of privatization is at least as symbolic as it is substantive. As an experience in symbolism, it
signals the government’s intention to respond to the challenges of change by strengthening the
market at the expense of the state. As such, privatization initiatives field for the truly substantive
elements of this policy set liberalization, and deregulation, as well symbolically it evidences
governments’ willingness to rethink economy tradition.
Structural re-engineering has meant structural changes and adjustments of the governmental sector
in favor of the corporate business dominated market sector in the name of efficiency,
decentralization and more. Behind these mega-global trends of qualitative structural transformation
are the fundamental underpinnings shaping the phenomenon and process of globalization. A key
demand of globalization has been the relentless call for privatization.
Privatization and transfer of government function to the corporate market have become the central
strategic component of both globalization and ideological transformation of modern political and
economic system. At this moment, privatization has become pervasive and, at the same time, a
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global fashion. Privatization is a fashionable movement, even thought studies show mixed result, at
the best, for the privatization experience around the world.
It is important to note that public enterprises have played a key role in economic development and
in industrialization in developed and transitional countries. In fact public enterprises grew
throughout the last century up to the end of 80’s ideologically oriented turnaround, due to market
failures and other fundamental reasons that prompted governments to nationalize sectors of
economic and social functions in the first place. Today, most governments of the world have
experienced privatization.
The movement for privatization at the present time springs primarily from the concern that many
corporations have not been well managed, that they don’t have a policy function to fulfill that
cannot be fulfilled at less cost to the taxpayer, by some other policy instrument. Also there is
growing belief that the effectiveness of public sector corporations in dealing with broad, general
economic problems of unemployment, inflation and economic losses, at least in developed countries
has already demonstrated.
Privatization in Eastern European countries and Newly Independent States that have been
established after USSR collapse is proceeding at a high speed. It has caused dramatic changes in
social life, strong effect on the whole economy. Privatization can serve a variety of purposes, from
reducing budget deficits to restructuring industries to compete in the European Common Market.
Privatization deals with the distribution of property rights, which strongly affect to profitability of
enterprises, physical capital and public sector restructuring. However, if developed countries
usually use only one privatization method, the former socialist countries are demonstrating the most
extensive privatization programs and adopting almost every privatization methods available.
There are different points of view, why privatization is adopted by many countries. In some cases,
like in former socialist countries, it is a method of rapid convert economy from “Plan” or in the end
of 80-th unmanageable economy to free market. In developed countries like Canada and Britain it is
seen as a way of reducing the cost of government.
In the United States, privatization debates focus on the more different forms of privatization, such
as schools and prisons, or on private provisions of infrastructure. With the exception of few very
large state enterprises, there are no real candidates for privatization. But if despite of wide variance
in political motivations, the results from privatizing tend to be similar across nations: higher
productivity, a smaller public sector, and savings for the taxpayer.
Privatization reduces the size of government and leave space for more private sector initiative that
will promote market competition and more efficient allocation of resources. It improves company
efficiency through market discipline by reducing political and bureaucratic impediments, also in
some cases, privatization may encourage individuals to take part in the ownership of major
corporations through equity investment.
Therefore, the expansion of privatization has become a central public policy issue in capitalist and
former socialist countries for ideological, political, economical and organizational reasons. Like
many key public issues, privatization has its advocates and opponents. Each side presents
arguments and reasons that may be debated on various grounds. Consequently privatization has
become the subject of extensive studies around the world.
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