Networks in Market Transitions Managerial Constraints in Post-Soviet Commodity Markets

Managing the transition to a market economy has been circumscribed by the type of organizations in which Russian managers operated. The shift to an entirely new system required the creation of private firms and new market organizations that had been hitherto nonexistent, such as commercial banks, insurance companies, and commodity and stock exchanges. Two processes defined the mechanisms by which these important new organizations were formed: privatization and new private-sector development. Private-sector development hinged on the creation of de novo start-up firms, while privatization of extant Soviet enterprises generated new firms indirectly by fostering spin-offs in the process. Each type of new firm has its own set of distinct advantages and constraints that framed the range of managerial discretion and ultimately the performance of their new organizations. I suggest that key characteristics of initial manager networks capture the important differences of these two processes and frame the further development of both spin-offs and start-ups. Spin-offs functioned as a corollary to the policy of massive privatization, which was advocated as the leading measure for organizational development by the World Bank and other international financial institutions. They considered it more efficient to improve the management of those organizations that already held the greatest re