Abstract
China adopted a "gradualist" approach to privatisation, which helped it to achieve spectacular economic growth. Initially the Government focused on small SOEs and allowed liquidation of the loss-making entities. In contrast, Russia started with the "big bang" approach, and went for mass privatisation. This led to the emergence of "phony capitalism", dominated by the oligarchs, and caused sharp output declines and high unemployment which aggravated absolute poverty. However, a turnaround has recently occurred in Russia. This article argues that while it is not essential for privatisation to be preceded by appropriate institutions, such institutions are nonetheless necessary for effective functioning of a market economy.