BORIS KAGARLITSKY, MOSCOW
PUTIN’S CORPORATE UTOPIA
Russian corporate enterprises are on the rise: share prices are growing, profits are excessive and foreign investors are eager to put money into the Russian assets.
But strangely, the share price explosion has nothing to do with efficiency improvement. At least one can never be sure that the latter underpins the former – in the situation where both economically efficient businesses and inefficient bureaucratic monsters grow equally fast all performance indicators are misleading. Despite all economic laws, in today’s Russia ineffective managers enjoy the same high capitalization ratios and surge in profits as successful decision-makers do.
In the privatization era of 1990s the Russian state bargained away its property. And it came as no surprise that soon after the owner changed a market value of the Russian enterprises grew out of thin air. Later when the oil prices hit records the Russian private sector got super-profits it hadn’t actually earned.
Against this economic background Putin’s team has started its rhetoric about wider state participation in national economy and social protection along with that launching a new round of privatization. State-owned blocks of shares in banks and oil companies are being sold out, new laws favoring private initiative in cultural and educational spheres are introduced, and all transportation networks have switched to working on the basis of a free market economy. Companies that have the state as majority shareholder are permitted to issue additional stock, hereby reducing state shareholding. All in all, as for the economic policy, I don’t think there has ever been more liberal government in Russia, except for the earl Sergey Witte’s ill-fated administration, which as you might know, let the country plunge into the 1905 Revolution. In a strange way, all the current free-market measures not only have failed to fight monopolies but strengthened them. After privatization the majority of corporations retained their status of natural monopolies, abolishment of state control being the only novelty.
Needless to say that President Putin and his team won’t let the matters take their course. Authorities zealously oversee the corporate elite’s behavior. But this special attention is given not to competency of decisions made in pricing, investing or salary policy. Bureaucrats seek to secure themselves from the results of political activity of the economic elite – financing the opposition, bribing the Kremlin lobby or even having unwelcome (by the Kremlin) acquaintances.
Does the Russian state try to grip control over big business? The answer is: positively it does, but only in political sphere. As for the economic policy, few Cabinets in Russia’s history depended on capitalists more than the present Cabinet depends on the interests of big business. Corporations dictate today’s agenda in Russia – they got this right in exchange for their loyalty not only to the existing political system but to the President and any high-ranking official in the Administration.
And as the things stand today, they have all reasons to be loyal – authorities provide favorable conditions, profits and prices on shares grow constantly. Why would business beware of the Putin’s regime – because of the problems with the free press? But the business press covering mostly changes in securities quotations doesn’t suffer from the state’s pressure. Or is it because of the problems with human rights? Well, don’t you know that in our country people are different, and while some have no rights, the others have no problems at all? As for the problems with ethnic Chechens, any Chechen possessing several milliards of dollars can afford to buy amnesty and respect. As for bureaucratic pressure on small and medium businesses, doesn’t it serve the interests of big business? As a matter of fact, big business is even more practiced in making small enterprises bankrupt than the corrupt bureaucrats. Putin’s bureaucrats are ready and willing to do business themselves. Thanks to their business interests they better understand concerns of the Russian entrepreneurs. Thus, they have ousted foreign enterprises from lucrative oil business. But in doing so they opened way to domestic businesses.
Moscow learns from the West; and its conflicts with the Western partners on the energy projects only prove it to be a good pupil. Putin lobbies interests of the Russian business just as Angela Merkel lobbies interests of the German business, which strives to own a part of the Russian lucrative energy market.
President Putin’s vision of the capitalism à la Russe is quite plain: strong centralized power based on and supported by big private corporations. The two elements are linked by bureaucratic capital, which is permanently bread within the state and permanently privatized. Through this the state accumulates resources and sustains the order. New business projects are nourished by the state and when a chance occurs it is ceded to business or becomes a private corporation itself. Needless to say that bureaucrats are rewarded for their services – they take bribes, have their interest in flourishing businesses and enjoy loyalty from the part of big capitalists.
Bureaucrats want the oligarchs to respect certain rules, a kind of code of honor but the problem is that in this country it is ridiculous when a bureaucrat appeals to morality.
President Putin’s conception is based on a viable market approach similar to American or German corporatism, but with specific Russian character. It is that in systems of peripheral capitalism bureaucracy always tends to be outsized, corrupted and incompetent.
Being “the leading national force”, “the locomotive of development” bureaucracy can rule the state; at any rate it copes much better than private business would do. And it is accountable to the people unlike the foreign capital and its servants in Russia. For the Russian capitalism bureaucracy is the lesser evil.
Consider, for instance, national projects initiative. There is no harm in using the money from stabilization fund, for example, to improve education system. But the trick is that the money allocated from the fund will never be spent on education – it will be deposited elsewhere. It is not that the bureaucrats will steal the money. Point is that in our centralized administrative system top officials will ever learn about the needs of a concrete school in a remote village.
Bureaucrats are aware of their own impuissance and they transmit these back-burner issues to the market, which is even less potent to resolve such problems.
So what do they do? Instead of allocating money among local authorities and schools’ principals they pay for pompous but useless events. And when they intend to enlarge autonomy of schools, libraries and universities they initiate privatization of the educational sphere. National projects have multimillion budgets, but the state doesn’t invest money directly into schools and libraries. As a result administrators of the lower echelon have to make both ends meet by leasing the premises and selling the capacities.
National projects are accompanied by thievish privatization in the form of autonomous institutions. Ongoing centralization of the bureaucratic authority and liberalization of economy make national projects simply pointless.
In the long run this policy will lead to popular discontent and politicization of the society. The more bureaucratized capitalism becomes the higher the possibility that social protest will take the form of a revolt is. And we shall witness the revolt but after the presidential elections of 2008, when the bureaucratic corporations will split into factions redistributing the assets.
But as long as bureaucrats are united they are invincible.
Boris Kagarlitsky is a Director of The Institute for Globalization Studies
November 2, 2006
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