Estrin (2002)

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Reform paths

State owned firms suffer from a separation of ownership and control, where the owner has no clear objectives, which can lead to inconsistent targets. The state helps firms out financially, which dilutes the power of managers and is a disincentive for them to be efficient. Even though the state ownership is concentrated, there is often a lack of skilled workers and no constraints to measure insiders' behaviours.

This resulted in "asset stripping", where managers and employees could do what they wanted. This was particularly prevalent in economies in which a black market was prominent.

The sheer scale of privatisation has caused some problems.

• The fear of foreigners caused firms to be sold only to insiders
• Vouchers were handed out, but these were so dispersed that there was still no clear ownership, which meant many managers became even more corrupt. Insider control lead to "non-transparency and insider domination of ownership". In Russia, insiders held 75% of shares
• The state still has significant shareholdings in many firms. Only 50% of firms were completely sold off in Russia
• There was a lack of corporate governance and no strategic owner to create one
• Most shares in privatised companies were either non-tradable or done in a non-transparent way so outsiders were less likely to take the risk of buying them

Reform paths - Competition/Exit