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input/output decisions, as well as contract enforcement. There is a growing realization, however, that many inherited personal and social networks are becoming increasingly unreliable and an impediment to adjustment. For instance, the general director of a large radio-electronic plant in St. Petersburg was skeptical that he could dramatically restructure the management structure of his company. "Because of implicit obligations to my deputies and to other staff, it is difficult for me. Someone from the outside must do it." The same manager allowed certain units of his enterprise to spin off while using the parent company's infrastructure and research and development capability. One of the spin-off companies had attractive assets, so the parent company management obtained a loan to acquire a controlling share of its stock during the share auction. There was an agreement—based on personal trust—that the spin-off company would not redistribute shares without consulting the parent enterprise. The spin-off company subsequently broke the agreement, and the management of the parent company lost control, as well as a share of its investment. Ex-post, this was probably an efficient outcome, but had the managers of the parent company predicted it, they would never have allowed it to happen in the first place. One of the functions of a network is the provision of information and the diffusion of learning experience. The failure of the "engineered spin-off" became known to other enterprises and formed their attitude toward similar actions.

Some enterprises with strong charismatic leaders are now choosing to separate themselves from any networks and to be free of the associated implicit and explicit obligations. The prevailing attitude, however, is to carve out new networks combining viable elements of the old ones and to seek closer associations with banks, trading companies, and other agents of the nascent private sector. Associations of graduates of elite Moscow colleges such as Moscow Physics-Technical Institute, University imeni Bayman, and the Aviation Institute play an active role in the process. Once the major source of human capital for the defense industry, these institutions have now become major suppliers of skilled labor for the banking and trade spheres. Graduate associations, some of which are quite active, provide a cross-fertilization of expertise between reform-oriented directors and the new banking elite. New networks are being formed, the major function of which is the provision and distribution of information. Through such networks, for instance, banks obtain information about which assets are potentially competitive and thus worth including in emerging business groups.

There is also a process that parallels the carving out of a restructuring-oriented network: the formation of rent-seeking networks, a phenomenon that is particularly pronounced at the regional level. Managers of defense enterprises, many of which are the only employers in their respective communities, have always been considered "shadow" local governments with an authority exceeding that of the real government. Faced with the imminent collapse of



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