Working Paper Privatization Versus Competition: Changing Enterprise Behavior in Russia

Working Papers are interim reports on work of the International Institute for Applied Systems Analysis and have received only limited review. Views or opinions expressed herein do not necessarily represent those of the Institute, its National Member Organizations, or other organizations supporting the work. Foreword The Economic Transition and Integration (ETI) Project at the International Institute for Applied Systems Analysis (IIASA) started a research activity on the behavior of Rus-sian enterprises under liberalization, privatization and restructuring in 1995{1996. This activity originated upon the initiative of the Ministry of Economy of the Russian Federation. The major reason for focusing on this subject was the fact that the current state and further transformation of Russian medium and large sized enterprises became a c hallenge for the continuation and success of transition related reforms. Despite certain positive tendencies, numerous enterprises still adjust themselves to ongoing changes without considerable market adaptation and modernization. The emerging ownership structure and nancial markets demonstrate limited positive in BLOCKINuence on stockholders' incentives, decision-making process and strategies of restructuring. In the course of these enterprise studies, a workshop on \Russian Enterprises on the Path of Market Adaptation and Restructuring" was organized at IIASA on 1{3 February 1996. Russian and Western experts, extensively working in the area of enterprise performance under transition, focused the discussions on recent empirical ndings and analyses concerning the following issues: typical models of enterprise behavior; development of the nancial situation at the enterprises and its determinants; impact of emerging markets and competition on enterprises; the consequences of privatization and patterns of restructuring ; and enterprise social assets divestiture and conversion. The workshop arrived at both analytical conclusions and recommendations for policy measures stimulating \con-structive" enterprise behavior. Possibilities for a joint research project on the motivations and behavior of enterprises in transition economies were also discussed. The circulation of selected workshop papers as IIASA Working Papers is undertaken in order to provoke broad discussions of presented analytical results. Professors John S. Earle and Saul Estrin dedicate this paper to the thorough analysis of the comparative impact of privatization and competition on enterprise incentives and performance by the relation of behavioral indicators to the variables, measuring ownership and competition.