These investors have also lobbied for the creation of a securities and exchange commission that will have the mandate to enforce unrestricted trading of shares. Toward the end of 1993, these investors began to succeed politically, and the government adopted a variety of regulations protecting shareholder rights. In this way, privatization, while not establishing full property rights by itself, has stimulated policies increasing the protection of these rights. As property rights become established, the restructuring of the Russian enterprises begins. Even before privatization, as managers got control rights but before they received cash flow rights, the employment in state enterprises in Russia began to fall.
Most firms continue to consider themselves substantially overstaffed.
Some useful lessons The Russian privatization shows that allocations of control rights can be improved through a combination of allocating cash flow rights to parties with control rights and political transfer of control rights, even under a very weak government. To do that, the reformers must build a political coalition strong enough to counter the bureaucratic opposition to loss of control. The Russian privatization also shows that genuine establishment of property rights comes after the transfer of control rights from the politicians, as private investors begin to use their economic and political resources to protect their rights. At the same time, the Russian experience shows how difficult it is to destroy political control. The privatization of shops in Russia has worked much less well than that in Eastern Europe because local governments continued to control businesses through leases and regulations.