Sunday, May 7, 2017
Anders Åslund - Russia’s Neo-Feudal Capitalism
Vladimir Putin’s Russia is looking more and more like the sclerotic and stagnant Soviet Union of the Leonid Brezhnev era. But in one area, Putin’s regime remains an innovator: corruption. Indeed, in this, the 18th year of Putin’s rule, a new form of crony capitalism has been taking hold.
Over the last decade, Putin has overseen a major renationalization of the Russian economy. The state sector expanded from 35% of GDP in 2005 to 70% in 2015. It would seem that, in Lenin’s words, the state had regained control of the “commanding heights” of the economy. And yet it would also seem that state-owned firms like the energy giants Gazprom and Rosneft operate like modern businesses. After all, they have corporate-governance rules and policies, supervisory and management boards, and annual shareholders’ meetings. They undergo independent international audits, publish annual reports, and maintain boards with independent directors. But appearances can deceive.
Major state-owned companies’ rules and policies are mere formalities. They are not even really run by the state. Instead, they are controlled by a small group of cronies – former KGB officers, ministers, and senior officials in the president’s administration – who act as Putin’s personal representatives. The system carries the hallmarks of the ancient feudal model described by Harvard’s Richard Pipes in his classic Russia under the Old Regime: it affords a maximum of freedom to the ruler, who delegates tasks to the feudal lords.
In effect, Russia’s state-owned companies have transformed public property into a new model of czarist ownership. International investors have caught on. They buy Russian stocks, but only for the sizeable dividend yields – not for shareholder influence. No surprise, then, that Gazprom’s market capitalization has collapsed from a peak of $369 billion in May 2008 to some $55 billion today. The operations of the so-called state corporations are particularly problematic.. read more: