Tales from two privatizations: Russia and the former East Germany.

Tales from two privatizations: Russia and the former East Germany. Introduction: Microeconomic mi��cro��ec��o��nom��ics?n. (used with a sing. verb)The study of the operations of the components of a national economy, such as individual firms, households, and consumers. AnalysisThe transition from a centrally planned to a market economy currentlytaking place in Eastern Europe Eastern EuropeThe countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. and the former Soviet Union is complexand difficult to understand, both for individuals actively involved withthe local changes and for those viewing it from the outside. The scaleof the problems faced by the governments of countries in transition isoften underestimated by policymakers who raise expectations of economicgrowth in short time periods. Statistics based on macroeconomic mac��ro��ec��o��nom��ics?n. (used with a sing. verb)The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. dataoften show that transition results, especially in privatization privatization:see nationalization. privatizationTransfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned ofindustry, are rapidly approaching levels of Western economies. However,"hands-on" microeconomic information illustrates thepersistent underlying problems of economic transition. Macroeconomic statistics can present a picture of overall economicsuccess while concealing failures in large segments of the economy asmany individual companies continue to struggle with the transition.Macroeconomic information makes intercountry comparisons difficult forseveral reasons, including the limited reliability of data, bothhistoric and current. The historical, demographic and geographicdifferences among the countries of Eastern Europe and the former SovietUnion are as vast as the differences among the approaches used toundertake the economic reforms. Diverse backgrounds and approacheswithin Russia, where the collapse of central control has spawned a largenumber of independent regional and local authorities, furthercomplicates macroeconomic analysis. For these reasons, analysis ofindividual privatization cases can be used to identify problems of thetransition and pin-point the progress of and limits to economic reform. Almost seven years after the beginning of the Eastern Europeanprivatization, a large number of macroeconomic statistics are now beingevaluated to determine the level of success of the transition fromplanned to market economies. Gross national product, unemployment, realwages, foreign investment and cost of living indices show a wide rangeof results from the various privatization programs throughout the formerplanned economies. Two of the most diverse examples of privatization are Russia andthe former East Germany East Germany:see Germany. . In both cases, macro statistics show a pictureof progress towards a market economy. However, after five years ofworking on the microeconomic level with companies in both countries, itis apparent to me that privatization policy shortcomings overlooked byministries in Moscow and Berlin persist in Verb 1. persist in - do something repeatedly and showing no intention to stop; "We continued our research into the cause of the illness"; "The landlord persists in asking us to move"continue both countries. From the following cases, four key factors for success inprivatization can be identified. Two macroeconomic factors stand outfrom my work as playing a vital role in economic transition: 1)maintaining a stable economic and legal system and 1) patience andsupport from the West. However, the focus of this paper will be on thetwo microeconomic factors: 1) general management skills and adaptationto Western business practices as well as 2) accountability and anunderstanding of the importance of accurate financial information. The Economic Transition: Macroeconomic Context In 1989, East Germany's communist government quicklydisappeared. Similar to the Wirtschaftswunder (economic miracle The terms "economic miracle," "tiger economy" or simply "miracle" have come to refer to great periods of change, particularly periods of dramatic economic growth, in the recent histories of a number of countries: Baltic Tiger (Estonia, Latvia, Lithuania, c. ) in WestGermany West Germany:see Germany. after the Second World War, the instant economic and politicaltransition facilitated by funds of almost $700 billion occurred withoutsignificant internal resistance. (1) This high level of investment inEast Germany is often neglected when comparing privatization results.Other factors were at least as important as the massive transfer offunds. Perhaps most significant of these was the adoption of a stableconstitution and legal system. Federal subsidies to companies rangingfrom environmental clean-up to funding depleted de��plete?tr.v. de��plet��ed, de��plet��ing, de��pletesTo decrease the fullness of; use up or empty out.[Latin d pension accounts helpedmake investment palatable pal��at��a��ble?adj.1. Acceptable to the taste; sufficiently agreeable in flavor to be eaten.2. Acceptable or agreeable to the mind or sensibilities: a palatable solution to the problem. to Western firms. For individual companies, aclearly defined set of business rules and legal stability, fromcontracts to tax law, were also very important. Method of Privatization Characteristics Purchase Contract Company acquisition, often with investment and employment guarantees. Over 10,000 successfully completed in East Germany. Management Buy-out Former East German management acquire the company, often with federal assistance. Almost 3,000 privatizations. EastGermany Return of Expropriation Return of the actual company or restitution for expropriation by Nazi, Soviet, or East German government. Communalization Return to local communities, including schools, apartments and sports facilities. Liquidation The closing of over 3,000 companies deemed not salvageable. Voucher Division of ownership through shares, primarily given to employees. Open Incorporation Full public ownership, with financial reporting requirements.Russia Closed Incorporation Limited stockholder companies, lower foreign investment potential. Communalization Return to local communities, including schools, apartments and sports facilities. Acquisition Company acquisition by unofficial means. In Russia, real economic reforms began in November 1991 with theappointment of two young economists, Yegor Gaidar Yegor Timurovich Gaidar (Russian: Его́р Тиму́рович Гайда́рand Anatoly Chubais Anatoly Borisovich Chubais (Russian: Анато́лий Бори́сович Чуба́йс) (born June 16, 1955) is a Russian politician best known for ,to President Boris Yeltsin's first cabinet. However, there was noclear support for the earlier reform efforts and no stability. This wasunderscored by their expectation of holding office only for a fewmonths.(2) Over the next five years the economic transition in Russiamade progress, but instability remains a major factor that only time canchange. Many of the issues dealt with quickly in Germany have yet to beaddressed in Russia. Two macroeconomic factors that still requireattention are legal stability and foreign investment security. Mostcompanies in Russia are at a disadvantage compared with those in EasternEurope for a number of reasons, including a lack of geographic proximityto Western markets and a lack of previous ties to Western partners. Language and cultural understanding also play an important butless tangible role in successful privatizations This list of privatizations provides links to notable and/or major privatizations. See also: Privatization. ArgentinaAerol��neas Argentinas, the former national carrier and the transition todevelop market-driven companies. Less than 10 percent of the 12,000companies that the German Federal Privatization Agency (Treuhandanstalt)sold went to foreign investors. Of those, Swiss and Austrian companieswere among the leaders in the number of former East German state-ownedcompanies purchased. Having Western partners (and potential investors)with language and cultural similarities is another advantage not sharedby Russia. The clean break with socialism, the planned economy planned economyn → econom��a planificadaplanned economyn → ��conomie planifi��eplanned economyn → and theCommunist Party Communist party, in ChinaCommunist party,in China, ruling party of the world's most populous nation since 1949 and most important Communist party in the world since the disintegration of the USSR in 1991. facilitated a relatively smooth transition in EastGermany. Germany's Partei der Demokratischen Sozialismus (PDS (1) (Processor Direct Slot) A single expansion slot on certain, early Macintosh models that was used to connect high-speed peripherals as well as additional CPUs. Providing a channel directly to the CPU, the PDS coexisted with NuBus slots on some models. ), thenew name of the Communist Party, now only receives an average of 15percent of votes in elections in the 5 former East German states. In theremaining 11 states, the PDS has practically no presence and, at thenational level, only 29 of the 673 seats in Congress (4 percent).(3) The situation is different in other former communist countries.Russia (and the remainder of Eastern Europe) has to deal with thetransformation to a market economy while carrying the ideologicalbaggage of former Communist Party bureaucrats. In the Russian Duma, theCommunists remain the strongest party and often block economic reformefforts. Programs of assistance are often derailed by the oppositionparties, sending mixed signals to the West. In general, economic goalsremain less focused than in the former East Germany and the advantagesof a market economy are still often fiercely debated in Russia. Case Studies: Understanding the Basics and Realizing Stability Management is an evolutionary process that has been finetuned inthe West. Modern business skills in finance, marketing, personnel andmanufacturing are required for survival in the competitive world market.Western managers have modified these skills over decades while theircounterparts in planned economies have developed a completely differentset of survival skills, which are primarily political connections. Thefollowing East German and Russian case studies illustrate the difficultyof adjusting to modern business practices. Struggling to Adjust at the Kashira Moebel Kombinat(4) The Kashira Moebel Kombinat in the Moscow Region provides anexample of the problems resulting from a lack of basic business skills.Founded in 1922, the furniture factory grew to a peak in 1975, becomingone of the largest wooden chair manufacturers in the Moscow Region.However, like many Russian consumer goods consumer goodsAny tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or nondurable. Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and manufacturers facing outsidecompetition for the first time, Kashira is in serious trouble. Centralplans no longer ensure raw material delivery and distribution channelsof the past have broken down. Suppliers of raw materials now demandpayment upon delivery or in advance, often in Western currency.Long-established fabric producers have vanished and expensive importsremain the only option. The once secure flow of customers to purchaseeverything the factory produced without question has now vanished.Decisions regarding purchases might have had serious cost consequencesfor the company, but individual directors never assumed responsibilityfor these management decisions. As a result, the workforce has droppedfrom over 500 to 160 and the factory's current production estimateof 50 percent of capacity is optimistic op��ti��mist?n.1. One who usually expects a favorable outcome.2. A believer in philosophical optimism.op . The abandoned shell of anunfinished five-level manufacturing building provides a visible sign ofthe harsh changes. While crime and taxes are serious problems for companieseverywhere, the scale of the problem is much greater in Russia andthreatens Kashira's existence. Organized protection groups andlocal tax authorities keep a watchful watch��ful?adj.1. Closely observant or alert; vigilant: kept a watchful eye on the clock.See Synonyms at aware, careful.2. Archaic Not sleeping; awake. eye on production companies andcan extort To compel or coerce, as in a confession or information, by any means serving to overcome the other's power of resistance, thus making the confession or admission involuntary. To gain by wrongful methods; to obtain in an unlawful manner, as in to compel payments by means of threats of a large portion of their income. To avoid the possibility ofappearing profitable, many companies keep their records secret. But thisis often an exercise in futility FutilitySee also Despair, Frustration.American Scene, Theportrays Americans as having secured necessities; now looking for amenities. [Am. Lit.: The American Scene]Babioperforms the useless and supererogatory. [Fr. ; for example, tax authorities and mostcriminal groups are well aware of any large transactions, such asfurniture purchases for housing projects, long before the productioncompany is informed. Vital company information is hidden or forged forvarious reasons and inhibits sound management decisions. It is tellingthat even Kashira's own director is unsure of most of thecompany's key financial information, including profitability. Since privatization in 1992, the general director, who served as"comrade director" in the 1980s, has attempted some reforms.Unfortunately, Kashira does not possess the managerial expertise to makethe transition to a market-driven company. Much day-to-day business isaccomplished through the same network of connections that drove theplanned economy. The economic evolution proceeds slowly while politicalinstability in the Kremlin often rekindles hopes among many managers fora return to the old business methods. During my group's work with Kashira and other consumer goodsmanufacturers, we discussed many relatively obvious problems withmanagement. For example, when the inventory of one particular model ofchair increased, production continued. We asked Kashira managers whetherthe company planned to correct the problem through sales or marketingefforts, and made concrete suggestions, such as low-cost advertising inthe regional newspaper. These recommendations received a cool response.The director explained that production would continue and marketingefforts would not be made' reasoning that if the products were ofgood quality, they would be sold as they always had been. "Onlysecond-class products need to be advertised," he argued. Explaining new concepts and making suggestions help to somedegree, but the transition will take time. Some companies will adaptfaster than others, and the process of natural selection will determinewhich companies survive in the new market economy While the old economicsystem is disappearing fast, lack of understanding or trust stillpersists among a whole generation of ax-communist managers still incontrol of much of Russian production. For example, the functionlesscentral planning office for furniture distribution still exists, andKashira's director still maintains contact with the administratorswho, in the past, accepted each piece of furniture produced to meet eachyear's plan. Russia's current business school graduates provide hope forthe transition, but they face intimidating in��tim��i��date?tr.v. in��tim��i��dat��ed, in��tim��i��dat��ing, in��tim��i��dates1. To make timid; fill with fear.2. To coerce or inhibit by or as if by threats. obstacles upon entering thejob market in a society that places high value on age and experience.With few exceptions, the only available management positions foraspiring as��pire?intr.v. as��pired, as��pir��ing, as��pires1. To have a great ambition or ultimate goal; desire strongly: aspired to stardom.2. young business graduates are with the limited number of foreigncompanies in Russia. The remaining alternative for the most qualified isto leave Russia. The resulting "brain drain brain drainn.The loss of skilled intellectual and technical labor through the movement of such labor to more favorable geographic, economic, or professional environments. " slowsRussia's transition to a market economy. A large number of successful Russian business men are Russianemigres from the 1970s and 1980s who returned with Western businessskills and retained their Russian language and cultural skills. Thisgroup also plays a role in the Russia's transition. However, unlikethe West German managers who flooded East Germany in 1990, returningRussian emigres tend to be more interested in taking short-term gainsand exploiting unchecked areas of the Russian economy.(5) This could bedue primarily to the fears of instability and a return to the oldsystem. In contrast to the examples of management skill deficits inRussia, the Treuhandanstalt is full of examples that highlight howquickly many in the former East German management class recognized theopportunities of the transition to the market. These individualsparticipated in 2,983 management buy-outs (MBOs) of the companies inwhich they had worked throughout the period of communism.(6) Though thegovernment encouraged local entrepreneurs through support funding, theprimary motivation for most MBOs came from within the former management. Continued Focus on Production: The Yegorsk Shoe Factory(7) Problems at the Yegorsk Shoe Factory result from a Sovietera focuson production rather than on reducing costs, meeting market demand,distribution, marketing and sales. One of the Moscow region'slargest shoe manufacturers, Yegorsk continued producing lightweighttextile shoes in high volume without questioning the costs or potentialmarket demand for its product. After a tour of its modern productionplant, the director proudly explained to us how production figures hadsteadily increased over the last two years in spite of overwhelmingdifficulties in obtaining raw materials. Yegorsk's manager saw thisas a tribute to his managerial skills--meaning his industry connectionswith plastics and textile suppliers. Furthermore, the manager was confident that the company wouldproduce over 6,000 pairs of shoes in the following month. Only afterfurther examination of the factory grounds did we discover thewarehouse, which held over 20,000 pairs of the same shoes being producedat record levels. The distribution system that supplied shoes fromYegorsk throughout the Soviet Union had collapsed. Marketing and saleswere never functions left to the production companies, but they must nowbe rapidly acquired. Resistance to Change: The Dolgoprudnie Candy Factory(8) Difficulties at the Dolgoprudnie Candy Factory further illustratea lack of business understanding and the fairly widespread illusionamong small and mid-sized Russian companies that foreign investors aresaviors. This case also highlights the lack of the required managerialskills and the Soviet characteristic of placing hope on a larger sourcebeyond control of the company. From an aging factory on the outskirts of Moscow, Dolgoprudniemanufactures popular soft caramels, primarily for Moscow and thesurrounding areas. The director has worked for the company for more than10 years but is nervous about addressing the changes of the past 5years. Only with a high degree of reluctance were Westerners allowed towork with the company. However, it quickly became obvious that in theopinion of the director, the only thing Russian firms can use from theWest is money. Management of the small factory continues much as it hasover the last 20 years, with little regard for the new economic system.This includes a wide range of "non-core" business activitiessuch as providing childcare and vacation housing for its employers. Thefact that declining sales and increasing costs result in a large deficitis secondary. The company hopes to survive through connections andbarter barter:see exchange. barterDirect exchange of goods or services without the use of money or any other intervening medium of exchange. Barter is conducted either according to established rates of exchange or by bargaining. until the system returns to "normal." The director made it clear that she had no intention of changingto so-called dishonest capitalist business practices, though sheindicated that she would be interested in talking to Noun 1. talking to - a lengthy rebuke; "a good lecture was my father's idea of discipline"; "the teacher gave him a talking to"lecture, speechrebuke, reprehension, reprimand, reproof, reproval - an act or expression of criticism and censure; "he had to any Westerninvestors we knew. Further questioning revealed her definition of aWestern investor: a company from a capitalist country with too muchmoney. In her eyes, investment in Dolgoprudnie would simply entail entail,in law, restriction of inheritance to a limited class of descendants for at least several generations. The object of entail is to preserve large estates in land from the disintegration that is caused by equal inheritance by all the heirs and by the ordinary arich investor giving money. While this view may not represent themajority of Russian firms, it shows a large gap in the understanding ofbasic market principles in many smaller firms and illustrates theproblems of an entire generation in dealing with economic transition. In contrast to the poor understanding of basic market principlesthroughout many Russian companies is the success of individualprivatizations in the former East Germany. Two strong historic argumentsexplain the ease of the transition to a market economy. First, thestates of former East Germany have a long entrepreneurial tradition,especially the state of Saxon, where industrialists in Dresden andLeipzig were among the strongest of pre-Second World War Germany.Second, the East German socialist and planned economy lasted only 45years, not 75, as in Russia. Together, these two factors are difficultto quantify Quantify - A performance analysis tool from Pure Software. but their impact is clearly evident in discussions withmanagers over a wide range of industries throughout the new Germanstates. Rapid Transition: The Privatization of the Kabelwerk Oberspree(KWO KWO Kansas Water OfficeKWO Kernkraftwerk ObrigheimKWO Kosovo Wide Operation )(9) The privatization of KWO, the cornerstone of the former EastGerman cable production conglomerate conglomerate, in businessconglomerate,corporation whose asset growth, often very rapid, comes largely through the acquisition of, or merger with, other firms whose products are largely unrelated to each other or to that of the parent company. , illustrates how a privatizationcan quickly overcome obstacles and provide benefits for risk-takinginvestors. Prior to the privatization of KWO, foreign cable manufacturersattempted to enter the lucrative German market for electrical cables foryears without success. As with each privatization, the German governmenthad several goals for the company. The first was to retain as many jobsas practical at the factory, which is located in an industrial sectionof East Berlin. The second goal was to modernize mod��ern��ize?v. mo��dern��ized, mo��dern��iz��ing, mo��dern��iz��esv.tr.To make modern in appearance, style, or character; update.v.intr.To accept or adopt modern ways, ideas, or style. the factory'saging 30 year-old machinery. The third goal was to break thenear-monopoly status which West German cable manufacturers enjoyed in apractically closed market. Privatization proceeded with relative ease and the goals of bothinvestors and managers were met. The level of integration of the formermanagement was an unexpected cost savings for the investor. The newowners initially replaced in key officers, but many of the mid-levelmanagers remained at the company. After evaluation and training, the new"imported" managers determined that several key positionscould be best filled by former managers, who were eager to learn newmanagement skills and who quickly adapted to new market practices. In summary, the individual cases of privatization show deficits inseveral areas of basic business skills. In Russia this problem has ahistoric base. However, over time it can be overcome with training, aslong as the prerequisites of stability and security are present. WestGermany contributed billions of dollars to facilitate East Germantransition, but even more valuable was an immediate assurance of futurestability through a constitution and laws. Additional German advantagesinclude the instant conversion to western systems and accountability. Alarge number of systems, contracts and business methods were quicklyadapted to the companies of the former East Germany. These tools, aswell as the management "invasion" from West Germany, are stillmissing in Russia. Case Studies: Accountability The history of management information in Russian companies isdeeply rooted in secrecy secrecysee confidentiality. . Russian accounting has its own detailed set ofrules and exceptions which served its purpose in the planned economicsystem. This system has been maintained to a large degree during therecent transition period although it is fairly incompatible with theGeneral Agreement on Tariffs and Trade General Agreement on Tariffs and Trade(GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization. accounting methods. An additionalcomplication complication/com��pli��ca��tion/ (kom?pli-ka��shun)1. disease(s) concurrent with another disease.2. occurrence of several diseases in the same patient.com��pli��ca��tionn. for recent accounting is the period of rapid devaluation devaluation,decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. ofthe ruble from the fixed non-convertible value of over one U.S. dollarper ruble to its current relatively stable rate of over 5000 rubles toone U.S. dollar. There is the additional problem with the lack ofreliable information within Russian companies. Almost every figure, fromannual sales to assets, can vary significantly in most firms. This isoften a result of the historic need to fulfill ful��fillalso ful��fil ?tr.v. ful��filled, ful��fill��ing, ful��fills also ful��fils1. To bring into actuality; effect: fulfilled their promises.2. annual production plansand cover various former Soviet interests. Attempts by Western investorsor consultants to audit Russian companies typically result in a largedegree of guess work and frustration. Accounting Secrecy and Multiple Records: The Obukova CarpetFactory(10) The Obukova Carpet Factory illustrates both the secrecy ofinformation and the general mistrust of foreigners and authorities.Initially, it appears to be a modern Russian company operatingsophisticated spinning and weaving weaving,the art of forming a fabric by interlacing at right angles two or more sets of yarn or other material. It is one of the most ancient fundamental arts, as indicated by archaeological evidence. machines and running at nearcapacity. Only upon discussions with the chief accountant and thegeneral director does one learn of Obukova's problems. After ourthird visit and many requests, a manager informed us that the financialstatements which we were shown were based on the production projectionsfrom 1990. Further investigation revealed that the planning departmentmaintains two sets of accounting books; neither set, however, reflectedthe actual costs, income, and assets of the company. Alhough this information was useless, the planning department wasnot allowed access to the alleged actual figures from the financedepartment. The finance department maintains still another, separate setof books. Questions and simple analysis reveal that this set was alsonot a true reflection of the company's business. Furtherquestioning led to the discovery that only the general director knew theaccurate information; and he was not willing to divulge even the leastsensitive portions. Interest in working with the West is obviously lowand could involve only a "no questions asked" capitalinvestment. In several Russian companies there is high interest inunderstanding Western financial management. However, there are at leastan equal number of companies such as Obukova that survive in a world ofsecrecy and intentionally-limited transparency of basic company data. Eroeffnungsbilanzen: Financial Statements for East GermanCompanies(11) There was no question of the level of information on privatizedcompanies with the 13,815 companies held by the German FederalPrivatization Agency. An army of accountants immediately set upon thework of developing what was called an Eroeffnungsbilanz, or openingbalance sheet, for each of the companies. This monumental task was thebasis for valuation of the entire economy of the former East Germany.These companies employed over 4 million workers and estimates put over30 percent of the companies in legal bankruptcy Legal bankruptcyA legal proceeding for liquidating or reorganizating a business. . Only 10 percent wereestimated to be able to reach profitability after the collapse of theplanned economy. An initial credit of $20 billion was issued by thegovernment in October 1990 and the political and economic debate overthe cost of transformation began. German federal laws required each company to produce detailedaudit reports which included costs of environmental clean-up, personnelreduction plans and costs of restructuring. Committees of industryexperts, accountants and consultants solved the accounting problems asquickly as possible. On 31 December 1994, the Privatization Agencyclosed its doors after finishing the successful transition from aplanned to market economy, in just over five years. Many of the first steps undertaken in Germany have not yet begunin Russia's privatization. Concepts quickly agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations"stipulatorynoncontroversial, uncontroversial - not likely to arouse controversy and set inpractice in Berlin are still being discussed in Moscow. These aremacro-level issues which must then be implemented case-by-case in eachcompany throughout the entire country and will require patience of bothRussians and foreigners. Conclusions: Russian Problems and Lessons from the Former EastGermany Develop Management Skills A long-term management education process is needed forprivatization progress in Russia. Currently, the large number of Westernassistance efforts remain fairly uncoordinated un��co��or��di��nat��ed?adj.1. Lacking physical or mental coordination.2. Lacking planning, method, or organization.un because of competingpolitical interests, both among aid donors and within the variousRussian ministries. Coordinating existing management education programswould be more effective than additional random efforts by individualgroups. Another key to successful training would be the development ofmanagement skills based on proven practices in the West and adapted tothe Russian economy. This would involve integrating existing Russianmarket characteristics and adapting management programs in marketing,finance, organization and personnel to meet current needs. Simplycopying Western programs that are often poorly suited to dealing withthe current transition problems in Russia is inadequate. Improve Accountability Accurate financial information and accounting standards will notonly facilitate foreign investment but will also promote more efficientinternal company management. An initial attempt at transplantingAmerican and European systems to selected Russian companies resulted inconfusion and duplication duplication/du��pli��ca��tion/ (doo-pli-ka��shun)1. the act or process of doubling, or the state of being doubled.2. of accounting efforts. Before individualcompanies can make the transition to western accounting and managementpractices, stable government requirements such as tax regulations mustbe established. As with management skills, accounting and financialstandards involve a long-term education process that should be supportedby western countries. Attempts to simply impose a Western system onRussian companies without improving accounting standards are not likelyto succeed. Promote Macroeconomic and Legal System Stability Legal and economic stability is a key factor to a successfultransition for companies struggling to adapt to market needs. Based oncase evaluation, this stability has not yet been achieved in Russia. Thenature of the political and economic transition in Russia will,unfortunately, prohibit pro��hib��it?tr.v. pro��hib��it��ed, pro��hib��it��ing, pro��hib��its1. To forbid by authority: Smoking is prohibited in most theaters.See Synonyms at forbid.2. the immediate development of stable systemssimilar to those in Germany and other Eastern European countries. Forthis reason, Western agencies assisting in the financing ofRussia's transition must continue to support efforts towardstability in Russia. Continue Western Patience and Support A better understanding of the scope of economic transition willhelp both Russians and foreigners to set realistic expectations.However, this process will require patience and steady assistance fromthe West over the coming decades. Steady progress towards the goal of amarket economy in Russia should be supported on all levels. Educationefforts in Russia and further study of individual privatizationsuccesses will correct earlier transition mistakes and help ensureeconomic stability. Ultimately, the transition will succeed byrebuilding the Russian economy step-by-step, as with each of the casesexamined above. The resulting transformation of Russia into a strongeconomic partner will benefit the world economy in the long run. (1)World Bank, From Plan to Market, World Development Report 1996(Washington DC: World Bank, 1996) p. 10.(2) Maxim Boycko, Andrei Schleifer and Robert Vishny, PrivatizingRussia (Cambridge, MA: Massachusetts Institute of Technology Press,1995) p. 1.(3) Sigrid Dillman, "German Election Results - Bundestagwahl1994," Congressional Information Service (Berlin: 1995).(4) Andrei Sacharov and Scott Thomas,"Treuhandostberatung--Project Summary Report," paper deliveredto the Moscow Oblast Moscow Oblast (Russian: Моско́вская о́бласть, Moskovskaya oblast), or Podmoskovye[1] Privatization Commission (Moscow: December 1995)pp. 32-39.(5) Tuemen Regional Ministry of Commerce, The Current State ofBusiness in Western Siberia Western Siberia is a part of Siberia located between the Ural mountains and a watershed of the rivers Ob and Yenisei.Politically-administratively the territory of Western Siberia is divided into Kemerovo, Novosibirsk, Omsk, Tomsk, and T��men Provinces, Hunty-Mansi Autonomous (Tuemen: Tuemen Regional Ministry ofCommerce, April 1996) p. 3.(6) Treuhandanstalt, Abschlussstatistik der Treuhandanstalt per31.12. 1994 - Statistical Report (Berlin: Treuhandanstalt, June 1995) p.2.(7) Karl-Heinz Dubner and Scott Thomas, "Treuhandostberatung -Project Summary Report," paper delivered to the Moscow OblastPrivatization Commission, (Moscow: December, 1995) pp. 14-21.(8) Irene Voloroisch and Scott Thomas, "Treuhandostberatung -Project Summary Report," paper delivered to the Moscow OblastPrivatization Commission, (Moscow: December, 1995) pp. 46-47. (9)Treuhandanstalt, Daten und Fakten zur Aufgabenerfullung, SummaryArticles (Berlin: Treuhandanstalt, 1995) p. 2.(10) Andrei Sacharov, "Gesellschaft fur TechnischeZusammenarbeit," paper delivered to the Moscow Oblast PrivatizationCommission (Moscow: April 1996) p. 3.(11) Treuhandanstalt, Daten und Fakten zur Aufgabenerfullung--AnnualReport, Summary (Berlin: Treuhandanstalt, 1995) p. 18.