ECONOMIC THINKING IN THE KREMLIN SHIFTS IN THE “MUNICH” DIRECTION

The organizers of the Russian Economic Forum in London never thought that the Kremlin would sanction their high-profile event. The 10th annual meeting, aimed at bringing together Western investors and Russian business leaders, opened April 22 with only a few scheduled presentations by Russian officials, including Arkady Dvorkovich, the head of an expert group in the presidential administration, and Kirill Androsov, deputy minister for economic development, but many CEOs of Russian “flagship” companies had been expected to attend and speak. Last Thursday, however, the Kremlin issued a firm signal that civil servants should stay home and postpone their presentations until the St. Petersburg Economic Forum in June. Even before the death of former president Boris Yeltsin was announced, most of the “captains” of Russian business, including Peter Aven from Alfa-Bank, Sergei Bogdanchikov from Rosneft, Anatoly Chubais from Unified Energy Systems, and Alexei Mordashov from Severstal, immediately found compelling reasons that prevented them from traveling to London (Kommersant, April 21; Vedomosti, April 20).

No official explanation for the sudden “recommendation” — allegedly coming directly from Russian President Vladimir Putin but delivered by Viktor Ivanov, a far more important figure in the presidential administration than his simple title of “aide” suggests — was given, except for the disapproval of the “émigré gathering” that was nothing else but the “second Courchevel,” alluding to the French ski resort where the Russian nouveau riche flock for winter holidays. As Irina Yasina pointed out, burning money in wild partying and business networking are two different things and breaking commitments involves reputation damage (Ekho Moskvy, April 20). The Kremlin had not shown much concern earlier about the morals of the business elite, but it has probably registered that Mikhail Kasyanov presented his new platform at the 2005 London Forum and that Boris Berezovsky made appearances at the related social events. Neither was expected anywhere close to the sessions and galas of the jubilee Forum this year, but the Kremlin has become so idiosyncratic in its responses to these two names that an official boycott of the “tainted” event appears entirely plausible (Lenta.ru, April 20).

There are, however, reasons to believe that this demonstrative affront is a sign of a deeper shift in the economic thinking within the tight circle of Putin’s aides and lieutenants, where even Dvorkovich has only a limited access. Only in January, Dmitry Medvedev, the first deputy prime minister and a card-holding member of this cabal, assured Western investors at the World Economic Forum in Davos that nobody in the Kremlin had any “nationalization itch” (Vremya novostei, January 29). These days, Sergei Ivanov, another first deputy prime minister and Putin’s long-time confidant, asserts with confidence that many sectors would be “by definition” controlled by the state by holding at least 75% of the relevant company shares, emphasizing particularly the intention to restore state control over key assets in the energy sector (Financial Times, April 18). Putin is expected to elaborate on these guidelines in his address to parliament later this week.

Ivanov leads the effort to gather major enterprises in key industrial sectors, like shipbuilding or aircraft building, into giant state-controlled holding companies that are expected to be competitive on world markets. The keyword for this policy is “innovation,” since these “national champions” are supposed to invest heavily in modern technology and produce state-of-the-art products and services, like the GLONASS satellite navigation system. In fact, however, the super-companies enjoy privileged access to state funding and monopoly on domestic market, which does not stimulate innovation at all (Vedomosti, April 18). The negative results of this “giant-mania” are particularly visible in the military-industrial complex, as the prices on the weapons systems rise faster than the allocation in the “defense order,” while the technological edge achieved back in the Soviet era becomes increasingly blunt (Nezavisimaya gazeta, April 20).

One particular aspect of this dirigisme without any central planning involves control over financial flows where the role of the Central Bank is supposed to be central indeed, but, as the investigation into the murder of Andrei Kozlov, first deputy chairman of this bank, has shown, many streams and trickles travel their own way (Novaya gazeta, March 19). The main agents of this financial undercurrent are the retired “professionals” from the special services, particularly the FSB, who have quickly risen to prominence in many state-controlled companies and bureaucratic structures. Their networking gives a whole new meaning to the notion of “invisible hand” that, in the Russian case, describes clandestine accords and discords between entrepreneurs who belong to the “cloak-and-dagger” world.

Putin’s demarche against the London Forum betrays his desire to re-format international cooperation on Russian terms and make Western investors kiss that sordid “invisible hand” (Gazeta.ru, April 21). Hence the investigation recently opened by the Federal Tax Service against the accounting firm PricewaterhouseCoopers accused in helping Yukos to “optimize” taxes (Expert, March 9). Quite a few respectable Western companies indeed show every readiness to play on Moscow’s terms, as the margin of profit appears so excitingly high; for that matter, the Italian energy “champion” ENI with few doubts bought several assets of the dismembered Yukos at a rigged auction in order to resell them to Gazprom (Vedomosti, April 5).

The main strength of the economic policy of corrupt dirigisme is its perfect compatibility with the confrontational turn in Russia’s foreign policy marked by Putin’s “Munich” speech in February. Rejection of Western democratic norms and “recipes,” exemplified by the massive brutal attacks on the opposition rallies in Moscow and St. Petersburg last week, goes hand-in-hand with enforcement of anti-market rules for doing business in Russia. It does not mean that Sergei Ivanov has gained a solid lead in the race of presidential contenders as some “insightful” sources claim (Nezavisimaya gazeta, April 20). It does mean, however, that Russia has hurt itself yet more in the political convulsions caused by its particular variation of the “resource curse” — and that homegrown business has received more proof of the need to get rid of the oppressive embrace of “Putinism.”