Saturday, June 14, 2014

Russia: Wild Privatization vs. Centralized State

Post-Soviet Russia has had tumultuous economic path since the final decade of the 20th century. It has dealt with financial crisis, private sector scandal and corruption, and political struggle. As we discussed during the opening week of the course, during the years leading into the collapse of the Soviet Union there was a mass transition of state capital transitioned into private sector pockets, which has created over time became an oligarchy that “pushed out communist-era bureaucrats and managers” (Herspring & Wegren, p. 161). During the early Yeltin privatization years, crime and corruption increased dramatically in the name of capital accumulation and competition as “businesses started using criminal groups and not the courts to enforce contracts and secure their property rights” (Herspring & Wegren, p. 162). As is a general rule in privatization and capitalism and which also proved to be true in Russia, “more powerful competitors pushed out their weaker rivals, and economic power was concentrated in the hands of a small number of individuals” (Herspring & Wegren,p. 164). This first phase that created the oligarchy in Russia, basically the early years of Yeltin reforms, has been referenced as the ‘wild privatization’ phase (Herspring & Wegren, p. 163).

Following the historical trends of capital privatization, “the oligarchs were parasitic on the Russian state”(Herspring & Wegren p. 164) to a point of destabilization. The capitalist oligarchs managed to produce soaring budget deficits and draining the state of assets and revenues which contributed to the economic crash of 1998 after Yeltsin’s 1996 election. Upon the emergence of Putin and United Russia, the Russian state has somewhat regulated ‘wild privatization’ and balanced it with a renewed state control of key natural resources. The energy sector, which remains under price control by the state, is one of the most important of sectors and has seen an increase of “new private regional energy companies” (Herspring & Wegren, p. 168). Despite trends indicating a soft authoritarian state, Russia has managed to integrate into the international market. Russia has been a member of the European Union since 2002 and a majority of Russian economic activity “now takes place in legally independent private corporations, and price controls on most goods have been abolished” (Herspring & Wegren, p. 160). It must be noted that price control is still implemented on “natural gas, electricity, and housing utilities” (Herspring & Wegren, p. 160).

The energy and oil sectors of the Russian state are blended between state and private ownership, and both sectors show signs of growth and problems. While the potential for solid economic growth for Russia exists, it is interesting that the Russian state has utilized the same measures that are typically used by private sector entities, such as “using shell companies, offshore banking, and other nefarious maneuverings to conceal its economic activity from outside observers” (Herspring & Wegren, p. 175). I am not completely sure that having the state as a competing entity with the domestic, and even international, free market is a bad thing. History and current events clearly show how damaging private sector ownership, especially foreign investment (capital exploitation), can be on a state. At the end of the day, Russians must ask themselves what would be better for the future: 7 individual billionaires who can move to another state and leave behind a ruined state that is depleted of natural resources or a strong centralized state capable providing a long term societal infrastructure and of developing new technologies for future economic development within the state?

Herspring, D, & Wegren, S. 2010. After Putin's Russia : Past Imperfect, Future Uncertain. Lanham, Md: Rowman & Littlefield Publishers: p. 160-177.

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