Transcript The Move to Privatization China and Russia
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 Public auctions were run by the bank There was still a distrust of Capitalist institutions 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 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 *International Finacncial Statistics Yearbook 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) CIA factbook 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 1978-1984 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% 1997-2001 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 China Today Population 1.3 billion Growth rate .58% Life expectancy 72.27 years GDP (PPP) $8.158 trillion 2005 GDP Growth (real) 9.2% Unemployment Rate 4.2% 2004 FDI (current US dollars) 42 billion (WDI) CIA factbook Annual Inflation Percentage 1000 900 800 700 Percentage 600 Russia 500 China 400 USA 300 200 100 0 1980 -100 1985 1990 1995 2000 2005 Annual Real GDP Growth (Percentages) 15 10 5 China Russia USA 0 -5 -10 1985 1986 1990 1993 1996 1999 2000 2001 2002 2003 2004 Foreign Direct Investment (Billions of US 2000 Dollars) 700 600 500 400 China 300 Russia USA 200 100 0 -100 1985 1986 1990 1993 1996 1999 2000 2001 State Owned Manufactuing firms in Russia 250000 200000 150000 Number of Privatized Manufacturing firms by year Private share of employment 100000 50000 0 1992 1993 1994 1995 1996 http://www.worldbank.org/ecspf/PSDYearbook/russia.html Private share of employment in Percentage 40 35 30 25 20 Private share of employment 15 10 5 0 1992 1993 1994 1995 http://www.worldbank.org/ecspf/PSDYearbook/russia.html 1996 Ownership Structure 1978 to 1994 COE = collective SOE = State owned IOE = Individual OOE = Other owned http://www.ilo.org/public/english/employm ent/ent/papers/emd24.htm Percent GDP Growth 60% 50% 40% State Owned 30% Collective Owned Private Owned 20% 10% 0% 1991 1992 1993 1994 1995 1996 1997 1998 John Sun - Privatization: P. R. China 2005 1999 2000 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???