Essay on Property Right Security in Russia

Submitted By frankgomezg
Words: 709
Pages: 3

The aim of this paper is to understand the effects of moving an economy from a centrally planned economy to a market system using as an example the Property Right Security in Russia. To do that this student will assess the impact of deprivatization on managers and its impact in foreign investment in the country. Moreover, this student will provide a comment regarding the long-term effects of deprivatization, winners, and losers of these actions, as well as the effects of this deprivatization on politics. The case study explains how since 1992 many Russian corporations are now privatized and owned by foreign capital and investors. These privatizations caused a downturn in the economy, which forced the Russian government to reevaluate the privatization rules and to reverse some of these agreements. Although the government pledged that only illegals privatizations will be affected by this measurement, the reality is that because of the unclear rules, any pretext can be use against any corporation where the Russian government could have a renew interest. Because mangers need to be aware of not only the current events within their organizations but also aware of the environment, including the political environment, they will need to understand that there is an increase in risk factor of loss for all current and future investments of the organization. Since all these changes in the ruling of privatization are promoted and sometimes enforced by the Russian government, managers need to recognize that uncertainty will play an increasingly important in calculating the Return on Investment. On the other hand, foreign investment in Russia will suffer greatly because there is no legal framework that will protect organizations from deprivatization. Since the increase of political risk, investor needs to take into consideration the high probability of no return on their investments. Foreign investments in countries are usually successful which makes them attractive to governments that need to increase their profits by appealing to the nationalistic sentiment of their constituencies. A recent example of this is the deprivatization of the Oil Industry in Venezuela that brought about losses in employment, oil production, and profits for both parties both that was beneficial for the Venezuelan government that used this as a political propaganda.
This student considers that if Russia wants to establish a free market system, then the deprivatization of some industries is not in their best interest. Moreover, deprivatization without clear and just rules for both parties involved only affects the environment for possible foreign future investment and will adversely affect the growth indicators in the region. Furthermore, in the case of Russia and Venezuela, deprivatization was a political move that targeted the nationalist sentiment to gain voters without any regards for the economics of the country.
Deprivatization only helps those that will benefit directly or indirectly from taking control