Enterprise restructuring and economic policy in Russia

This book is concerned with the role and organization of the enterprise sector in Russia, particularly Russia's concerted efforts to privatize ownership arrangements, and hence replace state control with corporate governance. This volume presents the results of a large survey of 400 industrial firms carried out by the World Bank in mid-1994. The survey allowed a look at the origins of large adverse shocks, a combination of both aggregate demand and supply shocks including major negative effects associated with the decline in explicit subsidies and government transfers, in the diminution of cheap credits, and in trade among the territories formerly comprising the Soviet Union. The authors distinguish between an impact effect, or negative restructuring, and a longer-term, strategic, or positive restructuring decision. Overall, firms have been forced to restructure, primarily through negative restructuring and generally with reductions in employment, working hours, and wages. Employment adjustment in particular has been relatively slow. Chapters 2 and 3 use the survey to analyze the aspects of wage and employment decisions in Russian firms, noting that Russia experienced the negative stage of restructuring with employment reductions and some initial wage flexibility. The structure of control in Russian firms and government preferences have come together to limit the growth of open unemployment. Net job destruction has accelerated and worker monetary compensation has remained low, but firms particularly large firms, still act benevolently, providing employment stability as well as a significant range of non-monetary social benefits. This posture financed by government transfers and the banking system is a short-term solution, impeding complete and effective restructuring. Among other problems the book cites as impediments to positive restructuring is the entrenched power of insiders, particularly managers, in most privatized firms, and potentially the further entrenchment that could result from closer, undesirable links with the banking establishment and the government.