Managerial Economics
Order Instructions:
This is a case study with 5 questions needed to be answered. Below I have provided the full case study along with the questions following it. A paragraph (2 max) is sufficient for each answer.
Property Right Security in Russian:
Since 1992, approx. 70,000 state owned enterprises in Russia were privatized. Many of the private buyers were foreign companies and investors, for example from the United States and Western Europe. The idea was to move from a centrally planned economy to a market system.
Yet in the late 1990s a weak economy caused great concern among Russian voters. Politicians, such as Moscow’s Mayor Yuri M Luzhkov, began promoting “deprivatization” or, as the locals put it, “deprivatizatsia.” Under this policy certain past privatizations would be declared illegal and the transactions would be reversed. The company then would be either ran as a state-owned enterprise or sold to another party. For example, in October 1999, a court stripped Wall Street’s Kohlberg Kravis Roberts and the U.S.-Russia Investment Fund of their majority interest in the Lomonosov Porcelain Factory in St Petersburg. These companies had purchased the factory in 1998, but the courts ruled that the company’s initial privatization five years earlier was illegal. Sources suggested that the company was likely to be resold to Soviet-era managers who were set to lose their jobs when the new investors entered the picture.
Politicians, such as Luzhkov, vow that not all privatizations will be reversed- only illegal ones. But one current problem is that privatization legislation is nebulous about what could be termed a violation. Anything from a missing piece of paper in the original tender offer to investment requirements not being met might be ruled a violation. And virtually anyone could file a complaint to trigger an inquiry into a past deal.
1. What impact will the prospect of deprivatization have on investment by managers of privatized firms?
2. What effect will deprivatization have on foreign investment in Russia?
3. Do you think that mass deprivatization is in the long run best interests of Russia?
4. Who gains from deprivatization?
5. Assuming more people are hurt by deprivatization than helped, why would a local politician support such a policy?
