Autocratic Elections and Corporate Raiding: a Natural Experiment in Russia

Timothy Frye (Columbia University)

Abstract : Many argue that property rights are rooted in the relative bargaining power of rightholders and rulers (North 1981; Levi 1988; Bates 1989; Goldstein and Udry 2008). However, because bargaining power both influences and is influenced by property rights it is difficult to identify how a change in one affects a change in the other. I explore a plausibly exogenous shift in bargaining power in Russia induced by the surprisingly poor showing of the ruling United Russia party in parliamentary elections of December 2011 to explore how changes in bargaining power shape perceptions of property rights. Using data from a survey of 922 firms conducted across Russia in November and December 2011, I find that a negative shock to the bargaining power of the ruling party helped to level the playing field for some groups of firms. Firms with immobile assets, fewer workers, and some state ownership viewed their property rights as more secure after the elections than before. More specifically, they saw their firm as less likely to be the victim of a hostile (often in the literal sense of the term) takeover after the elections. This suggests that exogenous changes in bargaining power can influence perceptions of property rights; it also reveals that even Russia’s highly imperfect elections shape expectations about property rights.

Raiders, Property Rights, and Investment: Evidence from Russia's Regions

Irina Levina (Higher School of Economics)
Israel Marques (Higher School of Economics)
Andrei Yakovlev (Higher School of Economics)
Anton Kazun (Higher School of Economics)

Abstract : How does uncertainty over property rights shape the investment decisions of firms in poor institutional environments? Existing works largely focus on the dangers firms face from the state. In canonical models, the state is unitary, implying that property rights can be secured by imposing strong institutional constraints on the state’s authority. Less well studied, however, are cases in which the state consists of myriad groups facing different degrees of constraint. Here, firms are threatened by less constrained elements of the state and by rival firms, who find state partners for predatory behavior. In this paper, we examine a concrete example: raiding “Russian style”. In Russia’s regions, firms often collude with law enforcement turning the weapons of the state against competitors and exposing them to hostile (often violent) take-overs. Drawing on existing work, we argue that in a regional environment where state-abetted raiding attacks on firms by other firms, firms should feel less secure in their property rights and less willing to invest. We also argue that this effect should be weaker for firms that are able to hide their assets and activities from others, thus making them less attractive targets. To test these arguments, we exploit regional level variation in the quality of institutions and in the extent of raiding. Specifically, we combine micro-level data from a survey of 1950 manufacturing firms in 60 Russian regions with a unique dataset of corporate raiding attacks across the Russian federation compiled by the NGO “Business Against Corruption”. Our main finding is that firms in regions in which raiding activity is higher are less likely to invest. We also show that certain types of firms – those willing to report their ownership structure, those with mobile assets, and those belonging to a business association – in regions with high levels of raiding are more likely to invest than other firms in the same regions.

Public-private Partnerships Under Weak Institutions: Co-investment and the Case of Vocational Education in Russia’s Regions

Israel Marques (NRU Higher School of Economics)
Thomas F. Remington (Emory University)
Vladimir Bazavluk (NRU Higher School of Economics)

Abstract : How and when are governments able to convince firms to engage in costly co-investments in the absence of strong institutional constraints on the state? This paper draws on evidence from a particularly costly form of public-private co-investment: the use of public private partnerships (PPP) to create institutionally complex, costly forms of vocational education designed to promote a high skill labor market and alleviate skill shortages. In much of the literature on professional education, credible commitment is the key to co-investment between different firms, between capital and labor, and between the broader business community and the state. This is generally achieved through the joint efforts of civil society – employers’ associations and labor unions – and the state within a democratic context, resulting in institutionally complex, cooperative forms of Vocational Education and Training (VET). Russia’s regions present a paradox for this literature, however. On the one hand, many regions are characterized by institutionally complex, costly forms of PPP that require close cooperation between firms and schools, as well as significant investments of time and money by firms. On the other hand, civil society is weak in Russia, the state generally poorly constrained, and political competition heavily circumscribed, making co-investment more risky for firms. This paper tests two theories that might explain the emergence of costly forms of PPP in Russia’s regions – state capacity and political accountability (both via elections and the integration of firms into the dominant party). We test these theories using unique data on all PPP in VET undertaken by over 1,654 secondary vocational education schools across Russia’s regions and find support for both. These results complement existing work on investment in settings with weak institutions and have important implications for work on the political economy of investment, bureaucracies, and vocational education.