cow, while enterprise managers and regional authorities bargained for the right to separate local plants from national conglomerates by setting up holding companies and offering ministry elites blocks of shares in them.

To minimize outside control, regional elites used regional banks to purchase and hold regional assets and acquired shares in other regional firms. The resulting pattern of ownership was hybrid, with equity divided among enterprise workers and management, regional elites, institutional investors—usually banks and investment companies—other enterprises and holding companies, foreign investors, and state agencies.

At the end of the first stage of mass privatization, insiders—managers and workers—owned 65 percent of privatized firms. Management, separately, accounted for 25 percent of the ownership share; outsiders-—citizens, firms, investment funds, holding companies, and banks—accounted for 21 percent; and the state held 13 percent (Blasi et al., 1997).

In the 2 years following mass privatization, further shifts in ownership occurred. Top managers together retained about 18 percent of their firms. Workers retained about 40 percent. The share of outsiders—commercial firms, investment funds, and citizens—rose to 32 percent, on average, but majority outsider ownership was concentrated in a small number of large firms, many of these export oriented (Blasi et al., 1997). In fact, de facto control by top managers is considerably greater than these statistics indicate.

During 1995, the Russian government attempted to sell 136 large companies in a round of cash sales, but desire to retain domestic control of the shares eventually led to a loans-for-shares agreement between the government and several Russian banks. Banks were allowed to organize auctions themselves and participate in them as both bidders and depositors for bids. In the end, stocks in 12 firms were sold, including LUKoil, Surgutneftegas, and Norilsk Nickel.

A further privatization of government shares in several large companies and utilities is to continue in 1997. At the end of 1996, then, employees of privatized state-owned firms, about 10-15 percent of the population, owned some 58 percent of their firms. Several million additional Russians had acquired property in small-scale privatization, and about 12 million Russians had acquired ownership of their housing. On the one hand, privatization created a constituency favoring property rights in small-scale assets, but the unequal distribution of wealth created another political constituency opposing private ownership of large firms and land.

Will privatization lead existing Russian firms to restructure themselves? Whether firms restructure depends on who exercises control rights and what the incentives are for productive investment versus rent seeking and subsidization.