In the Russian Federation, a country where hundreds of companies are launched every year, the plans to create yet another one would not be particularly noteworthy. Except that Russian Technologies is to be very different from most of the rest. It will be no capitalist venture conceived by a profit-seeking entrepreneur, but a corporation established by a decree of the Russian Parliament. A giant conglomerate with the state apparatus behind it, its official mandate will be to ‘develop Russia’s heavy industry.’
Neither will Russian Technologies be the first of its kind, for there are a number of similar entities already in operation. The brainchildren of President Putin and his inner circle, they have been designed with the expressed purpose of overseeing and controlling whole sectors of the Russian economy. Industries such aircraft manufacturing, shipbuilding and nanotechnology have already been implanted with such companies. And proposals for more are in the works with pharmaceuticals and fishing next on the list.
So all-encompassing has this effort been that one Russian business analyst observed that ‘the country does not have any more industries that qualify as obvious candidates for the creation of state corporations.’
It should not take long to realize that this amounts to nothing other than a thinly-disguised attempt by the Russian government to take over the world’s eleventh largest economy.
Although this development may take many by surprise it was not unexpected, since for the past several years Russia has functioned as an inherently unstable anomaly. On the one hand, there has been a rapid centralization of political power, while on the other there has existed a comparatively autonomous private sector which made Russia’s one the freest wheeling-dealing economies around.
But such a state of affairs can never last very long, because whenever a government acquires undue political powers, it will invariably seek economic control as well. We have seen this dynamic at work in numerous places throughout recent history, and today it is being played out in Russia once again. Given the political condition of the Russian Federation, the question was not whether the government would attempt to take over the economy but only by what means. Now we know that this effort will primarily take the form of Parliament-established, state-backed corporations mandated with overseeing and directing Russia’s major industries.
The government for its part seeks to justify the creation of these entities by claiming that they will boost economic growth. There could be no more absurd argument than this, since historical evidence overwhelmingly shows that free private sector almost always vastly outperforms government-run enterprises. No one should know this better than the current crop of Russian statocrats most of whom have spent the first part of their careers in a system which featured exclusively the kind of companies they now seek to establish. We all know what a disastrous economic failure the former USSR turned out to be.
Not everyone in the Kremlin is willing to go along, however. Arkady Dvorkovich, the government’s chief economic advisor and head of the administration’s experts department, warned: ‘I view the fashion of creating state corporations as being particularly dangerous, particularly for the industries proposed. It’s a path toward setting to nil the growth of the Russian economy.’
But there is little hope that his voice will be heeded, since it is becoming increasingly obvious that the proposed corporations serve merely as an excuse for those in power to bring the country’s private sector under their control.
Not surprisingly those in charge of these state entities are invariably closely connected with the ruling clique. The man slated to head Russian Technologies, for example, is one Sergei Chemzov, a former colleague of Vladimir Putin in the KGB. It is telling that Chemzov currently heads Rosoboronexport, a state-owned corporation, on which the US government recently imposed sanctions for selling arms to Venezuela and Syria. The Syrian contract alone was worth $9.7 billion and entailed a transfer of rather sophisticated military hardware which somehow found its way into the hands of Hezbollah in its recent conflict with Israel.
In a similar appointment, Nikolai Tokarev has just taken over state-run pipeline monopoly Transneft. A man with a murky past, he spent the mid-1980s as a KGB operative in East Germany where he worked for a time by Putin’s side. Up until now, Tokarev served as general director of Zarubezhneft, another state-owned firm that represents the Kremlin’s oil interests abroad. Incidentally, Zarubezhneft was the biggest transgressor in the UN’s oil-for-food scandal transferring nearly $3 billion to Saddam’s government. The fact that this affair did nothing to harm Tokarev’s standing tells us much about the ways of today’s Russian power structures.
Needless to say, Tokarev’s new appointment is part of the government’s bid to consolidate control over the Russian oil sector. To understand what this involves, we should remember that the Russian Federation is the world’s leading producer of crude oil. It certainly does not bode well that under Vladimir Putin the state’s share in the country’s oil production has gone from fourteen to over forty percent. This has been achieved with the help of some unsavory tactics such as the government’s seizure of oil giant Yukos and by the forceful squeezing out of foreign firms.
Remarkably, this unfolding takeover of one of the world’s largest economies has so far gone mostly unnoticed by the international community. Conducted discreetly and largely under the radar, it bears the hallmarks of Mr. Putin who has managed to acquire vast political power behind the façade of democracy. Now a similar effort is underway in the economic sphere even as most of the world still thinks of Russia as one of the freest economies in sight.
Should this trend continue, the Russian state could well end up with unbridled political and economic powers in a not-too-distant future. Given today’s complex geopolitical situation, this is a troubling prospect to contemplate. Equally worrying is the fact that this undertaking is being carried out by a group of former KGB operatives. Looking at all this one can hardly resist the feeling that the old days may be coming back again.