The Putin Project: Final Phase

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At the end of July, Dmitry Kozak, the deputy head of the presidential administration, proposed an amendment to the law on subsoil resources which, if passed, would fundamentally alter the economic system that is taking shape in Russia. What we are talking about is the nationalization of oil, gas and all other natural resource companies. The essence of the amendment can be summed up very simply: to convert existing natural resource production licenses into concessions. In other words, going over to the form of relations between capitalists and the state that Vladimir Lenin bequeathed to us ("A concession is an agreement between the state and the capitalist. The latter becomes a leaseholder rather than owner").

Just about everyone with the slightest understanding of how a market economy works immediately started commenting on and criticizing the idea. As a result, 10 days later, in early August, Kozak appeared to back down from his initial position, presenting "an entirely new version of the law on subsoil resources."

Vedomosti newspaper, in this connection, published an article under the reassuring headline "They've Changed Their Minds," with the subtitle "The Kremlin no longer wants to nationalize natural resources." In the article, however, it was written that Kozak in his "entirely new version" was still insisting on the conversion of licenses to concessions, although now with the inclusion of a load of provisos more favorable to natural resource companies than the initial version had been.

So, did the Kremlin really rethink its position and was Kozak thoughtlessly acting on his own initiative, or has the Kremlin finally decided to supplement "managed democracy" with a controlled economy?

Since the countless journalists servicing the Kremlin will no doubt adduce a plethora of arguments to support the version that this is just another case of inadvertent stupidity by just another bureaucrat, I will not pursue this avenue of inquiry.

I will put forward another version, arguing that the Kremlin actually wants to nationalize the raw materials sectors of the economy. Moreover, I believe the authorities have no real choice in the matter. Establishing a vertical chain of command in the economy is the logical conclusion to the reconstruction of a fully fledged authoritarian state in Russia.

In order to understand the Kremlin's logic -- or to be more precise the logic of President Vladimir Putin -- it is necessary to look at the initiative of Kozak, a high-ranking bureaucrat (but still a bureaucrat) in the context of preceding events.

The first stage was accomplished in the spring and summer of 2000 and was called "restoring the executive chain of command." This stage proved largely painless for the authorities -- with the exception of a few governors kicking up a fuss and one "madman" giving up his seat in the State Duma by way of protest.

The second stage was reinstating a chain of command in the mass media. After all, how can you have managed democracy without the media being subordinate to the state? This stage, however, provoked a major scandal, as the Kremlin had to wheel out the heavy artillery -- the Prosecutor General's Office, Interior Ministry and FSB -- as well as availing itself of Interpol. The operation to reinstate a chain of command in the media proved much more painful and took almost two years to complete. Nevertheless, the desired result was achieved.

However, the project remains unfinished. The final stage in constructing any authoritarian regime is securing state control over the main sectors of the economy and over finance -- without the completion of this stage, the whole thing is futile.

Big business always tries to influence government, and this is the case throughout the world. Governments, for their part, always try to resist this influence. If there are no checks on the state in the form of democratic institutions, civil society and independent media, then big business is the only counterweight preventing the overwhelming concentration of power in the hands of the state. For an authoritarian regime it is absolutely crucial to bring big business under control so that the whole of society can then be brought under control without hindrance. Therefore, Putin has no choice but to institute an executive chain of command in the economy.

The first part of this third stage has been the easiest. It simply involved appointing loyal people to top posts in key state-controlled enterprises: Gazprom, the Railways Ministry, banks, etc.

The second part has been the redistribution of private property. First up were the national television networks NTV and TV6 ; then came Sibur, followed by the alcoholic beverage sector (the Stolichnaya and Moskovskaya vodka brands) and others.

Finally, the authorities turned their attention to the most important target: the natural resource sector. This is the third and final step in the construction of a vertical chain of command in the economy.

For those slow on the uptake -- which turned out to be the majority of Russian politicians and businessmen -- Putin spelled it out in one of his speeches to the Federation Council: "[S]ome of our companies have [natural] resources for the next 10, 15, 25 or even 30 years. And some companies are already prepared to trade these resources, boosting their capitalization at the expense of the country." In other words, according to Putin, raising the capitalization of Russian companies does not mean raising the country's capitalization but on the contrary decreasing it.

Putin not only voiced his innermost thoughts but also indicated how they could be realized: The problem should be resolved through legislation (hence the Kozak initiative) but without fuss, "so as not to put our companies in a difficult position." You don't get much clearer than that.

So the bill prepared by Kozak is the execution of a direct order from Putin. In essence, it is an attempt to complete the final stage in constructing a fully fledged centralized, authoritarian -- and thus unconstitutional -- state.

Will this third stage be completed?

Russia's history provides an answer to this question, and it is in the affirmative. The only question is at what price.

Privatization in the 1990s, i.e. transferring state property into private ownership, was an extremely painful process but did not entail major bloodshed or a civil war. State property (which belonged to no one) was transferred to private hands with the assistance of bureaucrats (i.e. in return for bribes). Bureaucrats did not reach for their guns because they never considered state assets to be their own private property.

The Revolution in 1917 also involved the redistribution of property, but in reverse. Property was seized from private individuals and handed over to the state. The result was that millions of owners, deprived of their houses, land, mines, factories, plants, shops, and stores, reached for their guns. The ensuing civil war took the lives of tens of millions of people.

Of course, traditions of private ownership, prior to the Revolution, had developed over the course of centuries. During the years of Soviet rule, these traditions were razed to the ground and have only started to revive in the past 10 to 12 years.

This is probably why Russia's young property owners have yet to mature -- they have no family estate, bank or factory handed down from generation to generation. And the vast majority of Russian citizens lack a firm grasp of the concept of private ownership.

Putin has conclusively made his choice for Russia's future.

Now it is important that he and other citizens comprehend and evaluate all the consequences resulting from this choice for themselves.

Boris Berezovsky, a co-chairman of the Liberal Russia party, contributed this comment to Vedomosti.