Privatization, Property Rights and Development Potential: Lessons from Poland and Russia

The privatization process in Russia necessitates a reexamination of one of economics' most sacred tenets. Under the wrong circumstances, private property rights can become a destructive force, not the constructive force for economics growth and political stability that economists have always taken for granted. In Poland, a carefully crafted privatization effort was set in motion only after the essentials of a market infrastructure with checks and balances had been instituted. As a consequence, Poland escaped the oligarchic capitalism, corruption, and massive theft schemes such as "Loans for Shares" that haunts Russia today and discredits and undermines the entire reform effort. The paper also explains why it was that in the absence of a system of economic and legal checks and balances, those few who took the opportunity to seize state property of set up cooperatives and banks could become so rich so quickly.