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. Last Updated: 07/27/2016

Bringing Some Orders Back To Investment

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The success of the "Chukotka experiment" has made it tough for other regional leaders. By uniting business and political power in his own person, Roman Abramovich did much for the region: Between 2000 and 2006 the average monthly salary of Chukotka residents grew from 5,687 rubles ($220) to 25,114 rubles ($970) and the portion of the population living under the poverty line fell from 50.1 percent to 19.9 percent. Now, the presidential envoy for the Far East Federal District, Kamil Iskhakov, is calling on businessmen to help with 87 major projects aimed at pumping 2.7 trillion rubles ($104 billion) into the economy.

So far there has been little concrete information on the projects as most remain only proposals from various governors. There already is a clear example of the type of thing the state is looking for, in the form of a private-public sector partnership program for the development of Sochi. If Sochi wins the right to host the 2014 Winter Olympics, the Economic Development and Trade Ministry plan calls for a total development budget of 313.9 billion rubles ($12.1 billion), with 185.8 billion rubles coming from the federal budget and the rest from the private sector.

The problem is that official development policy calls for the state to help business by building infrastructure, but the far eastern projects suggest the opposite.

None of the infrastructure development projects targeted by the state investment fund have received a kopek. The 2006 budget was 69.7 billion rubles, but the application approval process took so long that no money was disbursed.

How did big business end up under the state's thumb so easily? The birth trauma of big business came in the privatizations and tax schemes of the 1990s. This created a particular model of dependency between business and the state: First and foremost, companies have to be loyal. The important thing is not to pay taxes in full and on time, but to pay "special taxes" immediately and whenever asked to. These taxes have come in the form of financial or media support during elections and the reconstruction of palaces. Lately they have given rise to the phrase "social responsibilities for business." Now we have reached a new stage where the state not only tells businesses how much they owe, but also how and where to invest the money.

The form of private and public sector partnerships is increasingly what you would expect from a planned economy -- where the question isn't one of attracting investment but of directing it. In the opinion of analysts, this model for regional development is unlikely to be a successful one -- investment is only effective in case where there are the proper economic conditions, and businesses are better at identifying these than government officials.

This appeared as an editorial in Vedomosti.