This volume provides an evaluation of initial efforts to convert post-Soviet Russian industry from that of a highly-centralized, military-oriented economy to that of a civilian economy with a stronger base in private enterprise. The authors address crucial issues of the embattled economic transformation at the level of particular enterprises and geographic regions as well as in the contexts of state policy, finance and planning. Their analyses offer readers an understanding of the various obstacles that impede post-Soviet economic restructuring and point to ways in which they may be overcome.

A balanced look at Russia's attempts to build capitalism on the ruins of Soviet central planning. Recent commentators on Russia's economic reforms have almost uniformly declared them a disappointing and avoidable--failure. In this book, two American scholars take a new and more balanced look at the country's attempts to build capitalism on the ruins of Soviet central planning. They show how and why the Russian reforms achieved remarkable breakthroughs in some areas but came undone in others. Unlike Eastern European countries such as Poland or the Czech Republic, to which it is often compared, Russia is a federal, ethnically diverse, industrial giant with an economy heavily oriented toward raw materials extraction. The political obstacles it faced in designing reforms were incomparably greater. Shleifer and Treisman tell how Russia's leaders, navigating in uncharted economic terrain, managed to find a path around some of these obstacles. In successful episodes, central reformers devised a strategy to win over some key opponents, while dividing and marginalizing others. Such political tactics made possible the rapid privatization of 14,000 state enterprises in 1992-1994 and the defeat of inflation in 1995. But failure to outmaneuver the new oligarchs and regional governors after 1996 undermined reformers' attempts to collect taxes and clean up the bureaucracy that has stifled business growth.Renewing a strain of analysis that runs from Machiavelli to Hirschman, the authors reach conclusions about political strategies that have important implications for other reformers. They draw on their extensive knowledge of the country and recent experience as advisors to Russian policymakers. Written in an accessible style, the book should appeal to economists, political scientists, policymakers, businesspeople, and all those interested in Russian politics or economics.

Russia and other countries in the Commonwealth of Independent States that have implemented voucher privatization programs have to account for the puzzling behavior of insiders-manager-owners-who, in stripping assets from the firms they own, appear to be stealing from one pocket to fill the other. This article suggests that asset stripping and the absence of restructuring result from interactions between insiders and subnational governments in a particular property rights regime, in which the ability to realize value is limited by uncertainty and illiquidity. As the central institutions that govern the Russian economy have ceded their powers to the provinces, regional and local governments have imposed a variety of distortions on enterprises to protect local employment.To disentangle these vicious circles of control, this articles considers three sets of institutional changes: adjustments to the system of fiscal federalism by which subnational governments would be allowed to retain tax revenues generated locally; legal improvements in the protection of property rights; and the provision of mechanisms for restructuring and ownership transformation in insider-dominated firms. The aim of these reforms would be to change the incentives that local governments, owners, and investors face; to convince subnational governments that a more sustainable way of protecting employment lies in protecting local investment; to raise the cost of theft and corruption by insiders and local officials; and to allow investors to acquire controlling stakes in viable firms.

To enhance and sustain economic prosperity, Russian authorities must improve the business climate so that firms restructure and the private sector thrives within a market environment. Meeting this challenge requires actions on several fronts. The Russian government asked the World Bank to write policy papers to address this issue. This volume contains those policy papers which were then presented at a high-level workshop in Moscow. The topics include: • removing impediments to robust interfirm competition, such as structural concentration, arbitrary regulatory practices, and entry barriers; • strengthening corporate governance incentive systems; • enhancing the nascent institutional framework for the exercise of creditor rights and implementation of enterprise bankruptcy procedures; • reducing barter and other nonmonetary forms of business transactions; and • fostering enterprise restructuring. The volume also contains formal comments on these papers presented by senior Russian officials at the workshop.

The transition to a market economy proves to be far more difficult in Russia than in the former centrally planned economies of eastern Europe. The Russian economy continues to face serious problems, including substantial inflationary pressures, falling output, and capital flight. The most positive aspect of the transition has been the relatively fast pace of privatization. Challenges for Russian Economic Reform contains papers published by the post-Soviet Business Forum at the Royal Institute of International Affairs that have been revised for this volume. The contributers, specalists in Russian economic affairs, examine the principal economic and institutional factors that have hindered transformation in Russia. The sheer size of the country has complicated the problem of exposing domestic producers to foreign competition and has weakened the ability of central authorities to control the regions. Economic stabilization has been hampered by the difficulties in establishing sound economic relations with the former Soviet republics. David Dyker and Michael Barrow analyze the problems of monopoly and competition policy in Russia. Philip Hanson assesses the obstacles to economic stabilization posed by regional economic interests and examines regional diversity in reform implementation. Michael Kaser examines the problems of privatization by regions and sectors in Russia and the CIS and the institutional obstacles encountered by foreign investors. Alan Smith explores the problems created by the breakup of traditional trade and payment relations with the non-Russian republics of the former Soviet Union and bilateral trade links with Eastern Europe. He also provides an overall assessment of Russian economic performance since the collapse of communism.