Russian Companies after Twenty Years of Reforms: From the Socialist Enterprise to a Market Firm

Abstract

This paper presents a historical overview of the gradual development of an enterprise model in Russian economy using two key events that predetermined major changes in enterprise behavior. The first was the disintegration of the Soviet Union, the swift dismantling of central planning, and the shock therapy of price liberalization in 1991-1992. The second event was the financial crisis of August 1998 and the political crisis that followed. Special attention is paid to the features of the socialist enterprise and the transition firm and comparison of their Russian prototypes with counterparts in Eastern Europe and China. Prior to 1991, we could speak of socialist enterprises that were included in the system of central planning and have never been firms. The main function of the enterprise was to fulfill the target plan that had been set by the authorities. The transformation of Soviet-type enterprise into transition firm, a sort of phenomenon that did not correspond to the standard forecasts of mainstream economists, was a result of radical reforms. By the mid-1990s Russia had a sort of dual-sector economy. The generally prosperous primary sector was mainly represented by new private enterprises that specialized in trade and financial operations and received rent from accumulated structural and price disproportions. The second sector, represented by old state-owned and privatized industrial firms that were poorly adapted to market conditions, suffered a crisis. In contrast to the market firm, which is oriented towards profit making and business development, these firms were typically oriented towards survival during transition. The diffused structure of ownership rights and their uncertainty gave this sector the incentive to rapidly withdraw liquid assets and limit restructuring. In both sectors, as individual firms engaged in more market-oriented behavior, they became more deeply integrated in the informal economy. After 1998, the specific features of the transition firm started to erode and, the patterns became more in agreement with the standard models established in developing and developed economies. A shift of the government to responsible macroeconomic and fiscal policies was very important for these changes. In the 2000s, a significant part of Russian firms have assumed standard market incentives to develop business, such as making long-term profits, having higher company capitalization, and expanding their market share. In addition, majority shareholders, who, as a rule, maintain operational management in their hands and effectively control the activities of other managers, have become the key figures in most firms. In this context, the gradual disappearance of the concept of the transition firm is a distinct possibility although current global crisis may hold up these trends if governmental anti-crisis measures distort market incentives.
E-mail: longheel@hse.ru
Key words: planned economy, socialist enterprise, Perestroika, firms in transition, market firm, deviations in enterprise behavior, inner restructuring of Russian firms