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Institutional Technology and the Chains of Trust: Capital Markets and Privatization in Russia and the Czech Republic


  • Bruce Kogut
  • Andrew Spicer


The introduction of mass privatization policies in Russia and the Czech Republic depended on the creation of impersonal capital markets to finance the needs of privatized companies and to provide a secondary market for the trading of securities. Yet, mass privatization created the contradictory conditions of generating millions of poorly informed shareholders, with no efficient markets for the sale of the shares. The absence of financial markets created systematic pressures to move assets by illegal or non-transparent means to users who value them. Privatization created the incentives to destroy the financial markets critical to its success. A comparative case analysis of post-privatization market formation in both these countries demonstrates that the functional necessity for these markets does not engender their own creation. In the absence of institutional mechanisms of state regulation and trust, markets become arenas for political contests and economic manipulation. The irony of these policies is that a principal lesson has been that market reforms cannot create viable markets, only institutional formation can.

Suggested Citation

  • Bruce Kogut & Andrew Spicer, 2000. "Institutional Technology and the Chains of Trust: Capital Markets and Privatization in Russia and the Czech Republic," William Davidson Institute Working Papers Series 335, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2000-335

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    1. Richard Podpiera, 1996. "The Czech Investment Fund Industry: Development and Behaviour," William Davidson Institute Working Papers Series 22, William Davidson Institute at the University of Michigan.
    2. Fox, Merritt B. & Heller, Michael A., 1999. "Lesson from Fiascos in Russian Corporate Governance," Berkeley Olin Program in Law & Economics, Working Paper Series qt1fk9b8g8, Berkeley Olin Program in Law & Economics.
    3. Michael A. Heller & Merritt B. Fox, 1999. "Lessons from Fiascos in Russian Corporate Governance," William Davidson Institute Working Papers Series 282, William Davidson Institute at the University of Michigan.
    4. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
    5. Simon Johnson & Andrei Shleifer, 1999. "Coase v. the Coasians," Harvard Institute of Economic Research Working Papers 1885, Harvard - Institute of Economic Research.
    6. D. Stark, 1996. "Recombinant Property in East European Capitalism," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    7. Hayri, Aydin & McDermott, Gerald A, 1998. "The Network Properties of Corporate Governance and Industrial Restructuring: A Post-Socialist Lesson," Industrial and Corporate Change, Oxford University Press, vol. 7(1), pages 153-193, March.
    8. Peter Murrell, 1995. "The Transition According to Cambridge, Mass," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 164-178, March.
    9. Hingorani, Archana & Lehn, Kenneth & Makhija, Anil K., 1997. "Investor behavior in mass privatization: The case of the Czech voucher scheme," Journal of Financial Economics, Elsevier, vol. 44(3), pages 349-396, June.
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