New Book on Employee Ownership in Russia

Kremlin Capitalism, a new book by Joseph Blasi, Maya Kroumova, and Douglas Kruse (Cornell University I&LR Press, 1996), provides the first in-depth look at the privatization process in Russia, a process largely accomplished through employee ownership. Blasi acted as a special advisor to the state committee overseeing privatization in Russia, and Kroumova was one of his assistants. Kruse is a colleague of Blasi at the business school at Rutgers. The book is based on years of field research by Blasi and his colleagues, including hundreds of interviews with company managers all over the country. The resulting book is a must for anyone interested in this subject.

Russia's privatization program has transferred majority ownership of most of its large enterprises (those over 200 employees) to private hands. This fastest privatization ever was accomplished in large part through employee ownership. Companies had various options for privatizing, but the most popular option turned out to be one in which employees could buy 51% of their enterprises at virtually no cost and then could buy additional shares through a citizen voucher program that provided all citizens an opportunity to purchase the remaining shares in the privatized firms. Employees bought the shares as individuals and could sell them when they liked. Over the last three years, employees have sold some of their holdings, but today employees still own a majority of the stock in 65% of the large privatized firms. Rank-and-file employees own a majority in 31%. Management stakes are still small, but are growing.

Employee ownership has led to little employee control, however. In practice, top management still controls virtually all the privatized firms and, in many cases, is slowly accumulating larger ownership stakes. Ownership by foreign investors is nominal and by Russian investors (including mutual funds) still a distinct minority. Top management has resisted efforts to cede any control to anyone, resulting in continuing inefficiencies in most companies.

The authors argue that employee ownership will remain an important, but eroding, factor in Russia as employees continue to sell shares. The real issue, they argue, is whether enough concentrated ownership by investors can bring capital and market discipline to Russian firms.