[Marxism] Latest reassertion of Russian state control over strategic industries

Marvin Gandall marvgandall at videotron.ca
Sun Nov 19 08:27:18 MST 2006

Russia was considered by the US Commerce department to have made the
transition to a market economy in 2002 - a determination which is of more
than academic interest since it affects how a country is treated in
antidumping cases and other trade disputes. Since then, the state under
Putin's direction has embarked on what the Washington Post, echoing
disgruntled Western and Japanese governments, describes as Russia's
"effective renationalization of key industries", notably its leading oil and
gas sector. This hasn't, however, prevented the US from finally agreeing
this weekend to Russia's bid to join the WTO, expected to happen next year.

China meanwhile was admitted to the WTO in 2001, and Vietnam was admitted
earlier this month. Both are still, to my knowledge, officially regarded as
"non-market" countries by the US and other capitalist states, although this
designation has typically been ignored when it has suited their interests to
do so by deeming certain certain industries in these economies to be
operating in accordance with market-based principles.

The evolution of Russia, China, and Vietnam has equally challenged the left
to determine whether and when these countries - previously described as
"socialist", "state capitalist" or "workers states" - have reverted to
capitalism. The consensus appears to be that all three have already made or
are well on the way to making the transition back to market-based capitalist
economies, but this view is by no means unanimous on the left in some or
even all of these cases. Moreover, there doesn't seem to be any consensus -
or even much debate - about what the criteria are in relation to such
matters as the mix of FDI and public ownership, monopoly of foreign trade,
exchange controls, state planning of enterprise inputs and outputs, etc. to
determine when the line has been crossed. I'd be interested to learn what
others think the markers are, and how applicable they are in each instance.

Kremlin Inc. Widening Control Over Industry
Critics Say Russian Government Is Using Takeovers to Do Its Political
By Peter Finn
Washington Post Foreign Service
Sunday, November 19, 2006; A01

VERKHNYAYA SALDA, Russia -- The orange glow of molten titanium ingots
illuminates the cavernous factory, one of several Soviet-era facilities that
sprawl across 5,000 acres in this small city east of the Ural Mountains. The
hot metal will soon be fashioned into dozens of parts destined for Boeing's
new aircraft, the 787 Dreamliner.

This throbbing, isolated complex was moved here as the Soviets evacuated
their industrial complex to the east in the face of the German advance in
1941. Now it is the headquarters of VSMPO-Avisma, the world's largest
manufacturer of titanium, the strong, lightweight metal that is a basic
element in the aviation industry. Near collapse in the early 1990s, the
company was resurrected into a world-beating enterprise, a key supplier for
Boeing Co., Airbus and Rolls-Royce that now controls 27 percent of the
global titanium market.

What happened next has become a common occurrence for companies that are too
successful in Vladimir Putin's Russia: VSMPO-Avisma was taken over by the

In industries such as energy, aviation, engineering, mining and car
manufacturing, private companies that emerged after the collapse of the
Soviet Union are being brought back under state control or consolidated in
the hands of businessmen loyal to the authorities. Government ministers and
Kremlin insiders now sit on the boards of the country's largest companies.

And Kremlin Inc.'s appetite for control shows no sign of abating. According
to Tatyana Stanovaya, a senior analyst at the Center for Political
Technologies in Moscow, the Kremlin is also eyeing new stakes in energy as
well as diamond extraction, metallurgy and machine building.

The Kremlin defends the swelling economic role of the state as an essential
element in the creation of powerful companies that can compete in the global
economy. The takeovers are also officially called a necessary reversal of
dubious privatizations in the 1990s that deprived the state of income and
strategic assets crucial to Russia's security.

But the emergence of the government as a preeminent business player has also
led to charges that the Kremlin is using its vast powers to force itself on
unwilling partners, and is wielding its new economic clout as a foreign
policy weapon while enriching political insiders.

This effective renationalization of key industries is also a retreat from
the goals of privatization, a pillar of Russia's efforts to become a market
economy after the collapse of the Soviet Union. The drive to put property in
private hands stemmed from a belief that such companies would be more
efficient, and more attractive to investors, than the industrial dinosaurs
of Soviet times.

"The state has decided it's time to gather all the stones that were cast
away; it's all according to the Bible," said Vladislav Tetyukhin, 73, an
entrepreneur who, along with his partner, Vyacheslav Bresht, was behind the
titanium company's ascent. He bowed, reluctantly, to the takeover. "They
told me that for the state it will make sense to have everything in one

Rosoboronexport, the state-owned Russian arms-trading company, this month
took the majority of seats on the board of VSMPO-Avisma after acquiring 66
percent of the company's shares, including the stakes of Bresht and of
Tetyukhin, who will stay on as general director. The new chairman of the
board is Sergei Chemezov, the head of Rosoboronexport and a former KGB
officer who served in Dresden, East Germany, with Putin. Chemezov declined
to be interviewed.

"Within the global economy, the principal requirement is to be strong and
competitive; otherwise, you'll be devoured," Sergei Markov, a political
analyst and Kremlin consultant, wrote in a recent article. "Vladimir Putin's
policy is becoming increasingly clear -- to promote the creation of a pool
of major Russian companies that could become global players. That would
enable Russia to preserve the independence of its economy and, amid free
competition, to save the choicest morsels of the Russian economy from being
acquired by foreign multinational corporations."

Others are deeply skeptical. "We should differentiate between state
capitalism and bureaucratic capitalism; here we have bureaucratic
capitalism, groups of state bureaucrats taking control of companies," said
Nikita Belykh, leader of the small Union of Right Forces party. "The
attempts of the state to get control of various companies can be explained
by the desire of officials to redistribute property. And the lack of
transparency in these deals is scary and dangerous."

The growing state role in the economy began with oil, when the state-owned
energy company Rosneft took control in late 2004 of the prime assets of
Yukos, the company founded by Mikhail Khodorkovsky. The oligarch was
imprisoned for tax evasion and fraud, and his company was dismantled. The
state-controlled energy giant Gazprom, in which the government took a
majority stake in 2005, purchased Sibneft, the oil company owned by tycoon
Roman Abramovich. Soliciting rival bids was never considered, according to
Putin's former economic adviser, Andrei Illarionov.

Several Western oil majors are currently being investigated for licensing
and environmental violations, which some analysts describe as a thinly
disguised effort to rewrite deals cut in the 1990s and increase the state's
stake in energy projects. A $22 billion project led by Shell on Sakhalin
Island, north of Japan, is now threatened with the loss of its license.
Other billion-dollar projects, involving British Petroleum, are facing a
similar fate. State control of oil production rose from 10 percent to 30
percent from 2004 to 2006, and could reach 50 percent next year, according
to a recent report by the British company Control Risks Group.

"We welcome foreign investment, but the state has to have a controlling
stake in the pillars of the economy," said Vladimir Tarachev, a member of
parliament for the ruling United Russia party. "This is not

The government is considering a law that would prevent foreign investors
from obtaining control of companies working in some industrial sectors, such
as energy and mineral resources, defense, aviation, space and nuclear power.
And according to Tarachev, there is a strong lobby within the government to
subject all foreign investors seeking minority stakes in certain industries
to an approval process controlled by the FSB, the domestic successor of the

Presidential staffers and state officials, including ministers, now sit on
the boards of state-controlled businesses such as Gazprom and Rosneft as
well as mining, shipping, railway and airline companies. Deputy Prime
Minister Dmitry Medvedev, a potential presidential candidate in 2008, is the
chairman of Gazprom. Defense Minister and Deputy Prime Minister Sergei
Ivanov, another possible presidential candidate, has just been proposed as
the head of a new unified aviation corporation that will bring all the
country's airline manufacturers under the umbrella of a state-controlled


More information about the Marxism mailing list