AMID VOWS TO LIMIT STATE INTERFERENCE, THE STATE’S STAKE IN BUSINESS GROWS

The members of President Vladimir Putin’s administration who are also the heads of state corporations are running again for re-election to the boards of those companies, which will have the effect of maintaining state control – and, perhaps more importantly, control by members of Putin’s inner circle – over a huge chunk of the Russian economy. According to Elena Krasnitskaya, corporate governance analyst for the Troika Dialog investment bank, the market value of the state’s shareholding portfolio hit $469 billion in 2007, equaling 40% of the capitalization of Russia’s stock market (Vedomosti, February 6).

With Putin’s term coming to an end and First Deputy Prime Minister Dmitry Medvedev poised to succeed him as president, Vedomosti reports that not one member of Putin’s team currently chairing the board of a state corporation plans to give up his position. Indeed, the government announced on February 5 that Kremlin deputy chief of staff Igor Sechin, the chairman of the Rosneft state oil company who is often identified as the informal leader of the hard-line Kremlin siloviki faction, will run again for the Rosneft board (Reuters, February 5). That news came a day after the energy giant Gazprom confirmed that Prime Minister Viktor Zubkov is the top-ranked official running for its board. According to Reuters, sources said last week that Zubkov is set to become Gazprom’s chairman, a post currently held by Dmitry Medvedev (Reuters, February 4).

According to Vedomosti, presidential aide Viktor Ivanov, who chairs both Aeroflot and the Almaz-Antei arms manufacturer, will run again for the boards of those state companies; another presidential aide, Igor Shuvalov, who is chairman of Sovkomflot, Russia’s largest sea shipping company, will run again for its board; First Deputy Prime Minister Sergei Ivanov, who is chairman of the United Aircraft Building Corporation, will run for its board (as will Rostekhnologii general director Sergei Chemizov and Vneshekonombank chairman Vladimir Dmitriev); and presidential aide Sergei Prikhodko will run again for the boards of the Technical Military Armaments corporation and the Sukhoi military aircraft manufacturer.

Ironically, both Putin and his chosen successor recently vowed to reduce the state’s role in the economy. “We don’t want to create state capitalism,” Putin told leaders of the Chamber of Trade and Industry at a meeting in the Kremlin last December. “It’s not our choice, it’s not our path.” He added: “We won’t keep these state corporations. When these sectors can stand on their own two feet and can become competitive on world markets then we will create the conditions for them to work exclusively in market conditions.” State monopolies, Putin said, “have to be monitored so they don’t stifle business” (AFP, December 11, 2007).

Following his mentor’s lead, Medvedev also issued public reassurances last month that Russia will not follow a statist path. “We have come to create state corporations in some priority fields, but that doesn’t mean a change of course or the renunciation of a market economy, not in the least,” Medvedev told reporters in Chelyabinsk. “Desire by the state to grab everything for itself as a rule leads to a crash” (Reuters, January 17).

For the time being, however, state involvement in Russia’s economy appears, if anything, to be increasing. The day Putin assured the captains of Russian industry that creating “state capitalism” was not a goal of his administration, Prime-Tass noted that “state-controlled conglomerates” are being created in a host of industries – including oil and gas, aircraft manufacturing, aircraft engine making, airline travel, banking, shipping, shipbuilding, titanium, bearing manufacturing, residential utilities, steel, nanotechnology and nuclear energy – as well as for the construction of Olympic facilities. The news agency noted that proposals had also been put forward to create state companies for airports, machine tools, automobile manufacturing, military electronics, toll roads, investment promotion, grain exports, pharmaceuticals, and fishing (Prime-Tass, December 11, 2007).