Estrin (2002)

Management > Comparative Management > Lectures > Independent Research > Estrin > Reform paths > Competition/Exit

Reform paths - Competition/Exit

The pre-reform highly concentrated market structures meant that after privatisation there was still little competition as the existing firms were too big. Entrepreneurs have been kept at low levels in Russia, at 33.2%.

Small firms engage in illegal activities, perhaps because it is too difficult to succeed with the legal framework, given that it is quite weak. Djankov et al (2000) found a positive correlation with high barriers to entry and corruption.

Competition is the most successful method for creating efficient firms, as it encourages the creation of effective corporate governance and the new real threat of losing work spurs managers to create a decent firm.

Exit of firms is another incentive for the bettering of state-owned enterprises. This is more real now, as demand has shifted from domestic to global, from industries to services and from intermediaries to final products.

Establishing exit strategies has been difficult in transition economies, as the government has "bailed firms out" and other informal financial flows between the government and its companies.

Barter payments were a good way to dodge any monitoring by the government, as it is difficult to measure. Bartering accounted for 40% of trade in Russian SOEs in 1997 and was a good way to avoid tax.