SULLIED SELL-OFF KREMLIN CAPITALISM Privatizing the Russian Economy By Joseph R. Blasi, Maya Kroumova, and Douglas Kruse ILR Press/Cornell 249pp $37.50 cloth, $15.95 paper It has been one of the most sweeping and controversial privatization programs ever. Since 1992, when President Boris Yeltsin launched radical reforms in Russia, the government has moved 18,000 large state-owned enterprises and tens of thousands of smaller businesses into private hands. The result is what Joseph R. Blasi, Maya Kroumova, and Douglas Kruse refer to in the title of their new book, Kremlin Capitalism--a market economy constrained by ''attitudes and limitations of the Soviet past.'' This new society has fallen short of both Western and Russian expectations, the authors argue. A professor at Rutgers University's School of Management & Labor Relations, Blasi advised the Russian government on privatization from 1992 to 1996. With Rutgers colleagues Kruse and Kroumova, he traveled through Russia visiting enterprises that were being sold off. The scholars' goal was to explore how companies were dealing with the challenges of change. Their conclusions are sobering: ''The bad news is that three-fourths of Russian corporations are in need of radical and far-reaching restructuring.'' Industry has not yet faced up to the need for drastic cutbacks, bankruptcies, and layoffs. By relying on cheap credits from the government, putting their workers on unpaid leave, or simply not paying their bills, enterprises have put off the pain for far too long. Kremlin Capitalism blames old-guard managers for resisting change. Accustomed to now-defunct central planning, many managers came to regard their enterprises as their own fiefdoms. First, they resisted privatization. Then, they pushed for a program that let them gain control of their factories by joining with employees to buy 51% of the shares. More recently, some managers have diluted outside shareholders' stakes by issuing new shares to insiders or deleting stockholders' names from share registries. Fearful of takeover by outsiders, some managers have chosen to bleed their companies dry. ''The mentality of their general directors...makes no business sense,'' the authors write. Worried about a ''destructive scenario'' of rising protectionism, Blasi and his team prescribe a radical solution. The government must push through a new wave of sweeping reforms--from the privatization of land to the creation of a mutual-fund industry--to channel Russians' savings into profitable companies. It must force bankruptcies, allowing workers to drift to better companies or open their own businesses. And it must attack obstacles to start-ups, such as oppressive taxes. Compared with the U.S. and several other developed economies, where companies with fewer than 100 employees account for more than 50% of gross domestic product, Russia is far behind. By mid-1996, there were only 900,000 small Russian companies, accounting for around 12% of GDP. Given Yeltsin's poor health and the current battle for political power, it's unlikely that Russia will implement radical reforms soon. Still, Kremlin Capitalism clearly lays out the successes and failures of privatization in Russia, along with the dangers ahead. By ROSE BRADY RELATED ITEMS PHOTO: "Kremlin Capitalism" Return to top of story

Updated June 15, 1997 by bwwebmaster
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