Who will play Abramovich?

Privatisation options: Barack Obama will soon be faced with a problem similar to the one that defeated Boris Yeltsin. The US president needs a strategy for privatising the government’s stakes in companies it has bailed out. The experience of Eastern Europe and the former Soviet Union in the 1990s suggests two ways: give shares to the public or employees. Or better yet, sell them cheaply to big private investors.

The US Treasury controls General Motors, has a stake in Chrysler and Citigroup and owns warrants over American International Group, Fannie Mae and Freddie Mac. The temptation for political meddling may be difficult for Congress to resist – witness how lawmakers recently voted down a proposal to distribute GM and Chrysler shares to taxpayers.

The US has one advantage Eastern Europe lacked: an active stock market, where it could float the stocks of strong companies. However, government ownership may make it difficult for these to become profitable. Even so, the cash infusions needed to keep some of these entities alive may become intolerable.

To shed these stakes, the government could give the entire populace an equal allowance of vouchers that individuals would use to purchase shares in the companies. If East Europe’s experience is any guide, informal markets would then develop for vouchers and company shares. This generally results in the privatised companies being controlled by their management with no outside governance. It also makes it difficult to raise further finance.

Alternatively, the government could give shares to the companies’ employees – an approach already employed with Chrysler, which is controlled by its union. Finance for this can often be obtained from pension funds. But employee ownership can make it difficult to implement unpopular but necessary strategic moves, like shutting plants.

The most practical alternative, which would also raise capital for the cash-strapped Treasury, may be a cut-price sale to big private investors. That can be done relatively quickly, but could appear unseemly – in Russia, individuals such as Mikhail Khodorkovsky and Roman Abramovich became extremely wealthy by snapping up government stakes.

Here, likely buyers would be private equity groups with operating experience in these industries. However, one would hope the process would be open and transparent enough to avoid having the companies fall into the hands of the US equivalent of a group of politically connected oligarchs.