Property is a right to enjoy one’s labour, to work and implement powers according to one’s own understanding without any state interference. Government usually infringes on citizen’s property rights through implementing market access restricting policies. Since inception of Russian market economy, it is estimated that, almost 20 percent of all violations in Russian national legislation are property rights linked. Therefore, the extent to which the state respect and protect private property determines to a larger extent the level of economic growth of a country.
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Implication of Deprivatization on investment by managers of privatized firms
Deprivatization occurs as a result of economic distress. First, it negatively affects heavy investments with longer pay back period. For private investors, deprivatization shortens the payback period thereby resulting in investment loss which discourages additional investments. Secondly, foreign investors and companies lose out their intended future earning potentials. Third, deprivatization limit managers own decision making powers as they rely on government for direction. Fourth, it lowers the efficiency of firms due to the long decision making and procedures. Finally, it results in sluggish response to the fast changing market environment as most of decision meetings are hard to convene (Parland, 2005).
Effect of Deprivatization on foreign direct investment in Russia
Investment requires political and financial conducive environment. In countries experiencing instability, foreign direct investment is low. Nevertheless, foreign direct investment has the advantage of increasing employment levels; promotion and sharing of technologies and increasing of revenues through tax payment. Most of the deprivatization processes usually target foreign firms located within the boundaries of a country or partially foreign owned firms on assumption of massive profit being ploughed back thereby depriving local firms and society of opportunities. Therefore, Deprivatization lowers capital inflows into an economy as a result of no guarantee to investment returns.
Deprivatization may also result in lowering of Russian currency demands in foreign exchange markets. This will have an implication on national exports, current account balance and overall balance of payment (Vasiliev, n.d. par. 4).
Gainers and losers in the Deprivatization process
Deprivatization is a political game by those in authority. Therefore, most gainers are politicians and their associated families and friends. These people benefit from government appointments to senior management positions which are left by exiting foreign managers. However, most of these appointments are politically instigated and not merit based (Energy tribune, 2007). Secondly, the poor are also gainers in that, there might be rationing of precious scarce resources that were in the hands of deprivatized firms and were a preserve of the rich families.
However, the major losers are the foreign investors who are denied their hard gained investments. For example, Energy tribune (2007) estimated that foreign investment to be lost in Venezuela’s oil privatization was in excess of $ 30 billion. Foreigners are not well reimbursed of the total investment amounts upon privatization which in most cases are paid in installments. In addition, the general public is usually affected in terms of employment lose in the long term. Most of deprivatized firms are devoid of good management initiatives and are usually cash constrained. In many instances, they incur large debts which result in their closures and massive retrenchment.
Deprivatization, first, serve government short term gains by limiting the operation of free market economy. Second, it increases poverty levels of any economy due to loss of employment opportunities. Third, it enhances government central planning and economic control thereby resulting in dictatorship. Finally, it limits a state’s ability of attracting foreign capital investment. Therefore, deprivatization is not in the best interest of Russian people and economy at large.
Energy Tribune. (2007). The end of privatization for Venezuela’s Oil. Web.
Parland, T. (2005). The extreme nationalist threat in Russia: The growing influence of western rightist ideas. New York, N.Y: Routledge Publishers.
Vasiliev, D. (n.d.). Capital market development in Russia. Web.