1_What is the Firm

Consideration of a firm as

a part of the economic sector

a form of the entrepreneurship

What is the Firm?

Economic Sector

What do you think about components of the economic sector?

What is the Firm?

Economic Sector

Firms (enterprises, companies)

State institutions

Households

Credit and financial institutions

Economic activity

What is the Firm?

Entrepreneurship: the meaning of the term

Try and formulate a notion “entrepreneurship”

What is the Firm?

Entrepreneurship: the meaning of the term

Independent activity of a registered person aimed at the systematic profit-making by means of use of

property, sale of goods, carrying out of work and rendering of services

What is the Firm?

Flash back: before the transition period

Communist system

•the October Revolution in Russia (1917);

•the countries of Central and Eastern Europe under Soviet rule after World War II

Foundations of the system

•a single party controls the economic life;

•national parties are subordinate to the CPSU;

•state ownership of the means of production;

•private sector is nonexistent or negligible;

•underground business;

•compulsory central planning.

Transition period began…

November 9, 1989: the fall of the Berlin Wall.

December , 1991: the collapse of the Soviet State as a federation of republics.

Beginning of a threefold process:

◦from one-party rule to democracy;

◦from state ownership to private property;

◦from plan to market.

Rebirth of entrepreneurship in Russia

1986: The Law on Cooperatives

1988: The Law on State Enterprise

1990: The Law on Small Enterprises

1991: The Law on Enterprises and entrepreneurship

1991-1994: Voucher privatization

1995: Pledge auctions (“loans for



shares”)

1995: Civil Code

Voucher privatization (1992-1994)

Voucher privatization is a method where citizens are given a book of vouchers that represent potential shares in any state-owned company.

Free voucher privatization : free transfer of shares to the population in exchange for the vouchers.

Most people (ordinary employees) were not

well-informed and/or very poor , and were quick to sell the vouchers for money.

Most vouchers (= most shares) ended up acquired by the management of the enterprises and/or by raiders who could offer cash in exchange.

The "loans for shares" scheme and the rise of the "oligarchs“ (1995-1996)

Original capital

accumulation (who?)

Assets (what?)

•well-placed soviet bosses in the CPSU, Soviet Youth League (Komsomol);

•pioneering entrepreneurs .

•energy, telecommunications, and metallurgical enterprises.

Auctions (how?)

•the state assesses its property;

•in exchange for the loans, the state hands over the assets to those who are ready to buy them for cash right away;

•tenders are held by limited number of banks to keep the auction prices extremely low;

•if governments doesn’t repay the loans (and it never did) by 09.1996, the lender take an equity position in the enterprise.