Publication: Prism Volume: 7 Issue: 2

By Aleksandr Tsipko

It is well known that the vast majority of people in Russia have a negative–even angry–attitude to the privatization of state property. There are many reasons for this. Soviet people genuinely believed that state enterprises belonged to everyone. They therefore equate the transformation of state property into private with the loss of something which used to belong to them.

Negative attitudes to privatization in Russia also have something to do with the methods used. During the privatization process Russia’s reformers were pursuing not so much economic goals as political and ideological ones. And it is this, incidentally, which marks the qualitative difference between privatization in Russia and privatization in former socialist bloc countries.

From the outset Russia’s reformers were concerned not with the economic effect of privatization–not with a growth in production–but with the emergence of a class of new proprietors and the formation of a political base for their new anticommunist regime. The task was to consolidate state property as quickly as possible in the hands of a narrow circle of proprietors who were to become known as the “oligarchs.” This concept did not lead to a revival in production or economic growth so much as to the emergence of “new Russians.” Few of the new owners invested any money in the former state enterprises which they had bought for peanuts–and at auctions where the identity of the winner was agreed beforehand. Instead, the new private owners of these enterprises engaged in profiteering on the back of the property they had secured for next-to-nothing, and the capital they made reselling it was for the most part illegally exported out of Russia.

As a result, privatization in Russia produced the so-called “new Russians,” notorious for their profligate consumption and luxury nouveau riche lifestyle, particularly in the early 1990s. The wholesale privatization in Russia, including that of the fuel and energy complex, did nothing to save the country from a collapse in production. This is why the policy of privatization is so unpopular with Russians.

What Russians found most incomprehensible, and what they were most angry at, was the sell-off of companies in the fuel and energy complex, which had been built up by the state by means of mobilization, and which exploit the “natural rent,” natural resources. In the mentality of the Russian people, natural resources should belong to the whole of society and bring returns to everyone in the country. For this reason, the privatization of the fuel and energy complex was perceived quite simply as the theft of national wealth, and the property of Berezovsky, Abramovich, Khodarkovsky and the other owners of fuel and energy companies was perceived as stolen property. To understand the political situation, it must be borne in mind that the siloviki [the heads of the “power” structures, intelligence services and army] now coming to power in Russia have exactly the same attitude to the oligarchs’ property as ordinary people do. All these negative attitudes to privatization among Russians are well known in the West. They are usually put down to the “archaism” and “traditionalism” of the Russian people.

However, few people–either in Russia or the West–have noticed that this critical attitude to privatization in Russia is also on the increase among the liberal intelligentsia. Anatoly Chubais’s voucher privatization, particularly the so-called “pledge auctions,” are now coming in for some sharp criticism from experts who were not so long ago insisting that Russia needed radical market reforms, and arguing that state property should be transferred in its entirety to the private sector. Andrei Illarionov’s stance on privatization underwent a particularly dramatic change, especially after he became economic adviser to the president. His sharp criticism of Chubais’ plans to privatize the generating sectors of his Unified Energy Systems, for example, came as a shock to the intelligentsia. Illarionov openly accused Chubais of “doling out the tastiest morsels of the communal pie practically for free” during the privatization drive. My theory of a change of heart with regard to privatization among the liberal intelligentsia is also confirmed by the sharp criticism in Russia’s democratically oriented media of the Kasyanov government’s latest privatization plans. This refers to the prime minister’s plans to sell off more than 30 large state enterprises and to use the proceeds to pay off part of the debt to the Paris Club. Specifically, there was talk of selling off the remains of the once mighty Aeroflot, “Siberia” and “Domodedovo” airlines and Tuapse Sea Port.

An article entitled Prodaite poslednee (“Everything Must Go”) by Ekaterina Kats in Segodnya newspaper (February 9, 2001) cast doubt on the advisability of Kasyanov’s latest privatization plans. Meanwhile, in Novye Izvestia, Otto Latsis (Chem pravit novoe pravitel’stvo / “What does the new government actually run?”) bluntly accused Kasyanov of planning once again “to sell off state property for a few cents, just to get his hands on some easy money”.

It is comforting that from now on not only public opinion but as well the democratic elite itself will be an obstacle to a repeat of the unthinking privatization which undermined the entire economic security of the country. The transition from the old ideological approach to privatization to an economic one–in the precise sense of the word–is also gratifying. We are now embracing economic efficiency in the broader sense. It is now clear that, while private ownership is undoubtedly the foundation for progress and the basis of modern civilization, by no means does it follow from this that privatization in Russia today will bring us jam tomorrow. It is now clear that we did not realize, back in the late 1980s and early 1990s, that privatization might be just the inverse of nationalism, and might have the same ruinous consequences as the revolutionary attack on capitalism. It is now clear that Russia’s privatizers, unlike others, tend to view what they have snatched purely as their personal wealth, not as a means of production or a business. This is why privatization here led first and foremost to the semilegal export of capital, an increase in attempts by the privatizers to avoid paying tax on their riches, the criminalization of society and a growth in extravagant consumerism.

In my view, this change of heart with regard to the privatization of state property has been influenced in many ways by the energy crisis in the Far East. This whole saga has demonstrated that without the state, and without state intervention in the economy, Russia, with its climate, would simply not survive. Not one private company would have been able to cope with a catastrophe like the current energy crisis in the Far East.

It is now clear that it was a mistake to privatize the fuel and energy complex, given the extreme conditions in Russia. If it wants to save itself, the state must take direct control of all the main elements of society’s life-support system, above all the natural monopolies, energy, transport and natural resources.

Russia must keep its main energy resources under state control because the capital assets inherited from the Sovieet Union are obsolete, and because we are entering an era of technological disasters such as the current energy crisis in the Far East.

The instincts of our elite are now functioning correctly. If the state loses control of what is left of its property and lets go of the natural monopolies, we will simply not survive.

It is now clear that for Russia to survive as a state, it must keep hold of the huge economic resources which are essential for dealing with this type of technological disaster. It is now clear that Russia is only surviving and providing the basic conditions for existence because the privatization of the natural monopolies has not progressed too far, and the state has maintained partial control over the natural rent. It is now clear that in view of the natural climate in Russia, the “heating” question is fundamental and cannot be resolved purely in accordance with the economic climate. The truth which has now dawned on the majority of the population is that in Russia, where a significant number of people live in extreme conditions, especially in Siberia, the problem of heating cannot be the individual problem of each individual family. The heating problem is a task of national importance and cannot be farmed out, left to chance or dependent on either economic conditions or the mood and whim of energy producers. When the health and lives of hundreds of thousands of people are at stake, bargaining over the price of coal or oil is inappropriate. In extreme or emergency conditions, the exchange value and commerce should probably take a back seat, at least for a time.

In these crisis conditions, exacerbated by the extreme living conditions in Russia, it is probably essential to reestablish in its entirety the state system for supplying the country with heat, from national coal reserves to local boiler-houses. Meanwhile, business should work for business where there is free choice. A commercial energy system, built on private capital, should run in parallel to this.

All this points to the fact that as Russia’s capital assets wear out, the approach to privatization will be increasingly cautious. The days of romantic faith in privatization in Russia are over. It cannot be ruled out that when the debt problem becomes acute–the peak repayment period will be 2003-2004, when we will have to wrest some US$17-18 billion from a still meager budget–Putin will probably reassess the privatization of the fuel and energy complex and try to leave all the natural rent in the hands of the state.

Aleksandr Tsipko is senior associate at the Russian Academy of Sciences’ Institute for International Economic and Political Research and a columnist for Literaturnaya Gazeta.