At a workshop on Law and Finance in Rising Powers, held at the Centre for Business Research, University of Cambridge, Rilka Dragneva-Lewers (University of Birmingham), Larry King (University of Cambridge), and Sveta Borodina (University of Cambridge) presented their work on law and finance in Russia. In this podcast interview, they summarize their findings.
Rilka Dragneva-Lewers presented on the EUs influence on Company Law Reform in the Eastern Neighbourhood:
“My main area of interest is
the Ukraine, which stands out amongst the rest of the eastern European
states in that it was probably the last country to reform its law on the
books and it is of course in a state of very serious turmoil at the
moment.
“The main approach of the EU has been to insist on legal
approximation so it has pursued both integration and stimulating
economic development through reform of the laws. But as we have seen
this is definitely not enough and this external pressure has not been a
critical factor, for legal change. Businesses manage to protect their
property rights through various extra-legal ways through access to
political power for example and protection.
“The difficultly with large businesses in Ukraine is that there are
often run by holding companies and they are owned by oligarchs. This has
meant that there has been a very strong business effort to keep
transparency low and maintain the privacy of dealings. Transparency
remains a critical issue in business dealings.
“At the EU level the economics is quite complex. The EU despite
having had a very strong response to Russia’s policy in Ukraine with
sanctions still suffers from a lot of disagreement with its member
states because Russia’s approach of subsequently imposing its own
sanctions against the EU has been divisive.”
Larry King, Professor of Sociology and Political Economy
University of Cambridge spoke about 'The Governance Grenade, the Effect of Mass
privatisation on Corporate Governance in Russia':
“There are many different ways to
privatise and we looked whether how you privatise makes a big
difference, for example how do you allow state owned enterprises to
compete with other private firms? How do you allow domestic owners to
emerge which then go on to privatise firms and which will probably have
much better outcomes? This happened in Poland and much of Central and
Eastern Europe, and here there is a big role for foreign investors.
However, when you try to privatise everything at once, without waiting
for domestic owners to emerge, or without inviting in competitive
auctions involving foreigners, you have to embark on artificial
privatisation.
“Rather than that being a corrupt process in itself, my argument was
that it created corruption. It led to firm failure. Creating owners who
had no capital, who had no expertise, who had no connections, and who
couldn’t monitor firm insiders, created a perfect storm for firms to
fail. Once they started to fail it created a fiscal crisis for the state
as nobody was paying taxes.
“This led to a situation where firms were retreating from the market
as state bureaucrats, who were already demoralised from the transition
and were not being paid, were now ripe for corruption. What emerged in
many of these countries, Russia or Ukraine, is a system of social
property relations that were based on client type ties between political
officers and captured businessmen who were what we call Oligarchs.
“Clearly these systems needed to change but Russia for example could
have done what Poland did and it could have protected its domestic
market and allowed competition to drive enterprise restructuring and
reforms of the state but they tried to do everything at once and that
led to disaster.
“In summary, you can’t really describe these countries as in
transition from socialism to a market society, what you have is a new
type of market society developing, one in which the relative separation
of the political and the economic spheres is different. There is much
less separation and to be in big business you also have to be in a
political community in these countries.”
Sveta Borodina outlines her findings on law and finance in Russia:
“In Russia people
tend to do business with their friends and acquaintances and there is
also the concept of reputation so people know each other. They rely on
law to formalise what they have agreed informally previously. Trust used
to be the way of making deals but nowadays lawyers are getting involved
at earlier stages and they look at the letter of the law before the
signatures are put on the paper.
“People are starting to understand that if you lead your business
according to the rules you are more secure you are safer and you will
have more chances of keeping your business in case there is an attack
from a hostile acquirer.
“I was very pleased to find that the micro side of the business is
improving and that it has improved considerably and the technocrats are
moving the country in the right direction but the trouble is that the
political set up is in conflict with this forward movement. “
Listen to the full interview with Rilka Dragneva-Lewers, Larry King and Sveta Borodina
More podcasts from the workshop on Law and Finance in Rising Powers,
Centre for Business Research, University of Cambridge, December 9th 2014
No comments:
Post a Comment