Managerial Economics

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MBA 5600 Managerial Economics
Assignment #1

1. What impact will the prospect of deprivatization have on investment by managers of privatized firms? The impact will be:
- Loosing corporate focus;
- Missing planned CEO turnover;
- Affecting planned managerial objects and strategic efficiency Obviously, normal managers invest in long-term projects, products and services, deprivatization may come up with a different strategy that not aligned with corporate goals and its profit will probably go to different parties. Managers believe, in a privatized firm, in greater gains and therefore have different incentives to implement long-term and in many case different strategies than in a deprivatization firm. In a competitive market, manager will constantly search for better ways to sustain profits and constantly reduce the costs. In absence of these incentives and the pressure to maximize the profits and reduce the costs, the manager of deprivatization firm will only rarely be involved in such extensive exercise and will only meet his superior requirement.

2. What effect will the deprivatization have on foreign investment in Russia? Based on the answers of question 1, foreign investment is will decrease if deprivatization increases: The room to maximize foreign profits will be small;

Long-term investment will be no longer valid as the government will have greater share in the local market and will force foreign investment to shrink; Short-term investment may not be profitable enough to return the investment; Renovation in technology may suffer as well;

Exceptional technology and knowledge will leave the country and will be expensive to attract again.

3. Who gains from deprivatization? Who loses?
Who will gain?
- The local government;
- Politicians;
- Anyone endorses the deprivatization for his/her own goals. Politicians and wealthy businessmen will abuse their power to help them increase their power and profits. Who will lose?
- Foreign and local investors;
- Local economy;
- Current products and services (quality, variations, healthy products, etc); - Consumers and workers;
- Jobs.

4. Assuming more people are hurt by deprivatization that helped, why would a local politician support such a policy? Government officials again will abuse their authority to benefit themselves. They get power and money by controlling the economy. Privatization--or "privatization," as it is often called in Russia--did not take place in an economic or social vacuum. It was accompanied in the 1990s by the worst economic depression of modern times and the impoverishment of a great many Russians, probably the majority of them. In the process, it created the oligarchic economic system that exists today. In 2000, Yeltsin-era oligarchs, fearfully aware that they were loathed by most Russians--they still refer to them contemptuously as a "Communist populace"--and that they lacked any real legal legitimacy, put Putin in the Kremlin to be a praetorian president safeguarding the system, its creators and its beneficiaries in business, politics, the media and even intellectual circles.

After a decade, and despite a purported "economic boom"--really little more than a bubble inflated by high world oil prices--most of the country's essential industrial, agricultural and social infrastructure is still starved for investment and disintegrating. The human toll continues to grow in the form of more poverty, disease, crime, premature deaths and homeless children. From the vast provinces beyond "booming" Moscow, one hears persistent reports that "Russia is dying." And indeed, the population is shrinking by nearly a million people a year.

Nowadays the attitude of the majority of population is negative to the market economy because they see criminal character of Russian capitalism. The new bureaucracy and oligarchs try to use public opinion in their own purposes. The state is reinforced significantly during...
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