In a way, the state was privatized because so much of society was nationalized. To understand this drama, we need to identify the main means of rent seeking. I shall focus on Russia, because I possess the best knowledge about rent seeking there (Åslund, 1996).

The fundamental method of rent seeking was arbitrage: to buy something cheaply at fixed state prices and sell it at a high free market price at home or abroad. The great bonanza of arbitrage was in 1991 and 1992, when raw materials, notably oil, gas, and metals, sometimes cost as little as 1 percent of the world market price. The trick was to have access to these commodities in Russia and to be able to sell them abroad at the world market price. Considering the domestic and world market prices and the volume of exports of these commodities, it is easy to conclude that total rents arising from the export of oil, gas, and metals amounted to about 30 percent of Russia's GDP in 1992.² These rents went to state enterprise managers and commodity traders dealing in oil, gas, and metals; various middlemen; and corrupt officials.

A second, similar source of rents was import subsidies. Multiple exchange rates allowed this kind of arbitrage. In 1992, an importer of essential foods paid only 1 percent of the official exchange rate, and no less than 15 percent of Russian GDP went to import subsidies that year (International Monetary Fund, 1993:132-133, 140). Import subsidies did not show up in the Russian budget, as they were financed with Western commodity credits off the budget. Yet the Russian state is responsible for servicing and paying back these debts. The import subsidies went to a small group of commodity traders in Moscow.

A third form of rents was huge subsidized credits. When prices were liberalized in January 1992, money became scarce as the money supply did not rise as rapidly as prices. State enterprises urged the government and the Central Bank to replenish their working capital. Unfortunately, the government and the Central Bank accommodated them. As a result, from June to September 1992, the money supply increased by almost 30 percent a month. Worse, most of these credits were issued at highly subsidized interest rates, 10 or 25 percent per annum, while inflation was 2,500 percent a year. Thus, these credits were virtual gifts from the state to the receiving enterprises. The net credit expansion amounted to 33 percent of GDP in 1992, and the interest paid was less than one-tenth of that volume. Hence, the total volume of credit subsidies reached some 30 percent of GDP in 1992 (Granville, 1995:67). The subsidized credits were directed primarily to three kinds of enterprises: agrarian enterprises (primarily Roskhlebprodukt, the previous Ministry of Grain