The Move to Privatization China and Russia Donald Roley

Overview Brief History of both Countries  Economic history  Political history  Demographic/ Geographic Overview Countries in transition Economic Outlook

The History of Russia/USSR Tsarist rule ended with Nicholas II in 1917 The USSR was formerly created in 1922 under Lenin Stalin replaces Lenin  NEP is replaced with “Five Year Plan” Mikhail Gorbachev stepped into a system that remained virtually unchanged for 60 years!

History of China Founded in 1949 as the PRC Under Mao Zedong China undergoes several revolutions  Great Leap Forward of the late 50’s  Cultural Revolution of the late 60’s Mao’s death in 1976 marked the period of real transformation 1978 saw the shift from a command economy to a mixed one

Countries in transition: Russia The move from planned to market economy was abrupt  They had to quickly accomplish the move “If there was no breakthrough…in the near future, the entire process could be stalled…”(Sachs)  There were social/political motives as well Immediately started the voucher program  This successfully privatized 70% of medium and large enterprises and 90% of smaller ones

Countries in transition: Russia Problems with the voucher system  One voucher = one bottle of vodka There was still a distrust of Capitalist institutions  Public auctions were run by the bank Locations changed, phone calls were dropped, etc. Value of the vouchers changed dependent on number of people at the auctions  Self Dealing

Countries in transition: Russia Managers would steal from the company  Use the money to buy vouchers  Convinced workers to sell vouchers  Would run firm into the ground They paid a low relative price for the firm Could steal plowback money Default on debts to suppliers  Suppliers would eventually stop dealing with them

Countries in transition: Russia Second Stage July 94  Direct selling of firms for cash  After the voucher system, the state still held 15 20% of shares in firms  Real GDP Growth -8.2% (US 2000) Third Stage “Loans for Shares”  Government gave banks shares in firms for collateral on debt

*International Finacncial Statistics Yearbook Countries in transition: Russia Problems with loans for shares  80 million dollar budget deficit in 96*  They defaulted on most loans  Rise of the oligarchs

CIA factbook Russia Today Population 143 million  Growth rate -.37%  Life expectancy 67.1 years GDP (PPP) $1.53 trillion 2005 GDP Growth (real) 5.9% Unemployment Rate 7.6% 2004 FDI (current US dollars) 2 billion (WDI)

History of China Founded in 1949 as the PRC Under Mao Zedong China undergoes several revolutions  Great Leap Forward of the late 50’s  Cultural Revolution of the late 60’s Mao’s death in 1976 marked the period of real transformation 1978 saw the shift from a command economy to a mixed one

Countries in transition: China China instituted the HRS in 1978  Basic units were production teams  China grain output raised 5%, and gross value of agriculture by 7.7% From here they went on to the two land approach  Land divided into 3 parts Food, contract, and contingency

Countries in transition: China Two land system is now widely excepted in the country Farmers who participate have a 6.7% higher technical efficiency Problems with HRS  Land Fragmentation  Productive inefficiencies

Countries in transition: China Township and Village enterprises  From 28.2 million workers to 135 million in four years time and ¼ of the nation’s total output in 1996 (DaCoasta) Deregulation of monopolies 1993 share holding approach  Employment in SOEs dropped 20% It took the previous 23 years to realize a similar drop

China transition cont. Rapid Growth without rapid inflation $40 Billion in Direct Foreign Investment (1996)  Shows trust in the rule of law and legitimacy of the government Problems still exist  State Owned Entities  No competition in banking industry

CIA factbook China Today Population 1.3 billion  Growth rate.58%  Life expectancy years GDP (PPP) $8.158 trillion 2005 GDP Growth (real) 9.2% Unemployment Rate 4.2% 2004 FDI (current US dollars) 42 billion (WDI)

Yearbook/russia.html

ent/ent/papers/emd24.htm Ownership Structure 1978 to 1994 COE = collective SOE = State owned IOE = Individual OOE = Other owned

John Sun - Privatization: P. R. China 2005 Percent GDP Growth

In Conclusion Brief History of both Countries  Economic history  Political history  Demographic/ Geographic Overview Countries in transition Economic Outlook

Questions for the future How will Russia get a hold of the growing black market and curb corruption? As China continues to reform, will the Communist government eventually reform with it?

Questions???