Employee Ownership Rising in China, Falling in Russia

Two researchers report in a new NCEO publication that the tide of employee ownership is receding in Russia but rising in China. A new report by Joseph Blasi of Rutgers University for the NCEO's Journal of Employee Ownership Law and Finance, to appear in the fall 1995 issue (available in October), indicates that broad employee ownership of Russian firms continues to erode. Russia is the only country in the world to undertake a successful mass privatization program. Almost all state-owned firms have now been sold. In almost every case, employees, including management, bought a majority stake in these companies, through a combination of vouchers and purchases of shares at artificially low prices. Initially, the management stake was low--5-10%. Because the employees are free to sell their shares, however, there is a gradual erosion of broad employee ownership, both from sales to outsiders and to managers.

Blasi, who is an advisor to the Russian government, reports that employees and their unions have been lax in exercising even the legal rights of ownership provided them, much less pushing for additional rights. As a result, management has been able to dominate most firms, even violating various laws intended to limit their control. Outside investors are also beginning to take more control. The result, Blasi believes, will be that employee ownership will recede to a level similar to that of public companies in the U.S., with employees typically owning 5% to 25% of their companies. Some firms will remain majority employee owned for a substantial time, however.

Meanwhile, George Tseo of Penn State reports in the same issue of the Journal that the Chinese government is looking more favorably on employee ownership. In one medium-sized city, most city-owned enterprises have been sold to employees. The central government's committee on economic restructuring, which had favored a very limited role for employee ownership in the economic transition for large state owned firms, now appears ready to allow employees to own an unlimited percentage of company shares.