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. Last Updated: 07/27/2016

Against State Ownership

This is the second of two articles on whether strategic industries should be state-owned.








The saying that language is intended to be used to hide the truth certainly applies to political figures. How are such terms as "national interests," "geo-political threats" and "strategic importance" used? When politicians conscientiously invoke such ideas, they usually have in mind, at the very least, fending off privatization and, at most, nationalizing a number of Russian enterprises.


Why is the set phrase "strategic importance" so dear to certain political groups? First of all, the use of military terms is very effective in countries at war. Second, the words are used much in the same reflex way as the phrase "military-strategic parity" was during the Soviet period. Third, such ideas are put forward by not only elected officials but the many people who are tied to the military industrial complex. However, unlike many other set phrases that have entered the current political discourse in Russia -- such as "Yeltsin's criminal band" -- the expression the "strategic significance of an industry" has always had more than one meaning.


When such expressions are invoked, it is not immediately clear for whom strategic enterprises are necessary. For the nation? The government? The financial sector? Certain banks or enterprises? Their directors? And it is worth looking into the question, since, in most cases, these expressions usually directly reflect the interests of certain figures and political and economic organizations.


In general, taking the monetary value of an industry as a criterion to determine its "strategic significance" is not at all unusual. But there is only one difficulty in such a criterion: No one at present knows what the Russian economy will look like in six to eight years, and which industries will hold sway on the world market -- if, of course, the process of integration of Russia into the world economy is not reversed. Industries that are now profitable and attractive may not necessarily remain so. Moreover, many industries that are currently seen as jewels in the imperial crown, such as the oil industry, are no longer as stable as in the past.


In this sense, they could be no less strategically important than if they were competitive on the world market, since they threaten the country with ecological or social catastrophes. Therefore, the notion that an industry is strategically important because in three to five years its production will help it break into the world market is rather doubtful, as long as there is no proof that this is the case.


The second criterion for industries to be considered strategic is whether they bolster defense capability. The line of reasoning here is very simple: "Industry X produces weapons system Y, and therefore is strategically important." But such logic mgnores the fact that the current Russian army can not even use the country's existing weapons, and not only because of the limits on the military budget. As Congress of Russian Communities leader General Alexander Lebed pointed out in a recent article, the army must first establish an administrative system and then change the way it is organized according to a new military doctrine, and only then will it be clear which weapons systems it will require.


The third criterion is whether an industry has a monopoly on a certain market: Company X produces 60 percent of product Y, and, therefore, it is strategically important. Can this really be a serious argument, when no such Russian monopolies exist currently on the world market? A classic example of this is that even on the Russian market there are no longer any monopolies of domestic products.


One could continue with such arguments, but what should be understood is why they are needed. Those who argue in this way have three goals:


1) To stop privatization.


2) To stave off foreign investors.


3) To gain access to budget resources.


As for the Communists, it is very simple: putting a halt to privatization and re-establishing nationalization is a key element of the party program. Both goals could very well be the motive behind supporting the "strategic importance of industries." There is, however, another group that can benefit from the idea of strategic significance. First, there are the managers of large companies, who fear losing their control over them. Second are Russian financial circles that for one reason or another lack, for the moment, the means to buy a given enterprise and do not want competition. (This may explain the conflicts that arose among various Russian banks in 1995.) And last are the federal and regional officials who oversee these enterprises and do not want to lose their control over them, since it would diminish their authority. It does not even matter that they do not have any real power over these existing enterprises. Thus, a good many officials would like to "freeze certain industries." They have an interest in protecting their companies from competition and outside investment.


Furthermore, if an industry remains the responsibility of the government, it has the right to ask for its help in order to uphold its strategic importance.


Karl Marx was right at least in one aspect: Material interests are the force behind social life. This is how the activities of certain factory managers, people from various scientific academies and communists, who all seek the support of ministers, should be understood. The tragedy lies in the fact that such people truly believe in what they say. It is unfortunate, of course, that they are deceiving part of society. It is equally sad that society can be so stubborn, if it wants to be. In such circumstances, the structural reform of the Russian economy will be frustrated, and the growing gap between Russia and developed countries that will follow is something that many may regret.





Sergei Pavlenko is the head of the Russian Federation government's Working Center for Economic Reform. He contributed this comment to The Moscow Times.