Russia decided to adopt a market economy and sold off its state owned industries and businesses




Russia decided to adopt a market economy and sold off its state owned industries and businesses, the majority of investors were foreign investors while managers who were working in these industries and businesses also acquired them illegally. This will affect the level of foreign direct investment and also the population.

Impact of deprivatization:

This will affect managers of privatized firms in that they may not have the power to make decisions on their own, decisions will be made by the state and this may limit levels of efficiencies in these firms, also the firms may not respond quickly to changing market conditions due to the long process of decision making.

Foreign direct investment:

Deprivatization will discourage foreign direct investment, this is because investors will fear the occurrence of such a situation in the future and therefore will prefer to invest in other regions. There are some factors that encourage foreign direct investment which include political stability and well-defined property rights and when investors learn that political influences will occur they will not invest. Foreign direct investment has advantages in that it increases job opportunities, pay taxes to the government from profits earned, leading to the sharing of information and technologies and also stimulates economic growth, in future less foreign direct investment, will decline and these advantages will not be realized.

Long run effect:

Privatization was aimed at making inefficient public owned businesses to become more efficient when owned by private investors, when this is reversed then we expect to see a decline in the efficiency of these firms in the economy. This is due to competition which will lead to a reduction in the prices of products, better quality, and improved consumer choices.

The government will have a way in which to implement policies and therefore will have a hand in controlling the economy, deprivatization in most cases occur when there is economic distress and it is aimed at improving the current situation in the economy.

Those who gain and lose:

Investors have over the years developed the firms they acquired and this has added value to the firms over the years, previous loss making firms have been improved by these investors who have converted the firms into profit making firms. Therefore when the investors are deprived of their firms they will lose and the individuals, government or investors who are accorded the firm will gain.

In some cases where products produced by the government are subsidized then privatization leads to an increase in prices when the government owns these firms then the consumers will experience a reduction in the price of goods and services produced by these firms and therefore gain.

Why politicians support this policy:

Politicians want mass deprivatization of these firms due to some disadvantages they cause in the economy, one of this disadvantage is that foreign investors will repatriate profits to their home country and therefore does not benefit the host country, the other problem is that they bring stiff competition to the various industries and host country firms will close down due to competition. Finally, the politicians will want investors in the country to invest in these firms and not foreigners and they will not want the illegal allocation of these resources to some individuals.

The performances of a government in power are required to safe guard state property and not transfer property to individuals, for this reason, therefore, politicians may want to increase government popularity by safeguarding public property by deprivatization.

The public owned firms in the market are seen as a tool to further the government goals when the government acquires these firms then it will be possible for the government to further economic and social goals in the whole nation. Finally, private firms may be producing less than the demanded amount, this is because the private owners aim at increasing profits in the short run but the state will have long term goals and therefore these firms will be used to implement policies that will have long term benefits rather than short term.


Thomas Parland (2005) The Extreme Nationalist Threat in Russia: The Growing Influence of Western Rightist Ideas, Routledge Publishers, New York

Source by Yvonne Miller