Russia and Deprivatization Essay

801 Words Apr 18th, 2015 4 Pages
In Russia, approximately 70,000 state-owned enterprises have been privatized since 1992. The purpose of this was to move Russia to market economy. Many of the buyers were foreign investors and companies. In the late 1990’s, citizens were still concerned due to the weak economy. Politicians began promoting deprivatization, which meant reversing previous privatizations and either having the state run them or reselling them to other entities. As the privatization laws in Russia were not clearly defined, the reversals could occur due to something as simple as a paperwork error.
Impact of deprivatization
The impact the prospect of deprivatization will have on investment managers of privatized firms is extensive.
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When an enterprise takes over an organization, they tend to have experience in that particular and know how to run an efficient, profitable economy. Deprivatization also encourages competition, which leads to lower prices and higher quality for consumers. “There are at least two reasons why markets have been more successful in than central planning in large economies. First, the price system motivates better knowledge and information in economic decisions. Second, it provides stronger incentives for individuals to make productive decisions” (Brinkley, Smith & Zimmerman, 2009, p. 81).
Gains and loses
Those who gain from deprivatization are the governments and politicians. The local government and politicians will be able to wield their influence on the organization, which may or may not be in the best interest of the country as a whole. Those who lose are the foreign investors, the citizens of the country and the local economy. “Investors have over the years developed the firms they acquired and this has added value to the firms over the years, previous loss making firms have been improved by these investors who have converted the firms into profit making firms. Therefore when the investors are deprived off their firms they will loose and the individuals, government or investors who are accorded the firm will gain” (Miller, 2010) The foreign investors will look for other

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