WILL PUTIN CONFISCATE THE OLIGARCH’S PROPERTY?

By Aleksandr Tsipko

The question serving as the title to this article was indirectly formulated by the “father of privatization” Anatoly Chubais. In an interview with the weekly Kommersant Vlast (30 [381], July 28) he stated that Putin, who is currently quite taken with Solzhenitsyn’s ideas of confiscation, might well decide to revoke the privatization of former state property. At the same time Chubais accused Solzhenitsyn of “hating today’s capitalist Russia.” For Anatoly Chubais, Solzhenitsyn’s talk about how Russia’s oligarchs have plundered the people and have not repaid even one tenth of the national wealth that they appropriated, may lead to another redistribution of property. “Paradoxically,” said Chubais in this interview, “Solzhenitsyn’s current position entirely coincides with that of the most reactionary element in the intelligence services and the KPRF.”

Chubais’ comments always have a provocative element to them. Solzhenitsyn is only voicing what everyone is talking about, with the exception of the owners of the privatized companies themselves. And even they admit that they their property was procured amidst violations of the law. It is not only the communists who are saying that a large proportion of former state property was acquired by its owners for peanuts in the process of privatization: The most liberal publications write about this every day.

Nevertheless, Chubais’ latest interview deserves our attention. If he says that Putin is planning to review the results of privatization, then this issue really is on the agenda.

If Putin has divested the oligarchs of political power, then why should he not pull the foundations of their economic might from under their feet? Especially as the fortunes which they received for next-to-nothing may also be bought back for next-to-nothing. Putin has already solved the main problem by restoring to the state the power privatized by the oligarchs. And, to everyone’s surprise, he achieved this remarkably easily. He has brought his authority into line with Yeltsin’s constitution. He has taken the powers enshrined in our Basic Law to their logical conclusion: total and absolute autocracy. According to the constitution the president has the right to appoint and dismiss the power ministers and the heads of the army, the state security organs and the police personally, without using intermediaries. Putin, as Russia’s most popular president of recent years, has no need for the oligarchs to act as intermediaries between him and the people, between him and the political elite or between Russia and the outside world. The political mission of the oligarchs did not have a deep, structural rationale. The old oligarch puppetmaster could only exist under the anemic, ailing President Yeltsin, who enjoyed being the boss of the Kremlin but did not enjoy the routine of the everyday running of the country–especially the economy. This is why Yeltsin transferred possession of the entire fuel and energy complex–traditionally the main source of additional income for the national budget–to a handful of people, so that he wouldn’t have to burden himself or his cabinet with managing state property.

But appointed oligarchs can always be sacked. And this is the root of the problem, the source of Anatoly Chubais’ alarm and concern. Of course, as a convinced liberal who understands the civilizing value of private ownership, Putin is not going to review privatization as a whole, or undertake another communist-style expropriation of private property. Russian sociologists recognize that even the most reactionary and conservative element in the FSB and the most reactionary communists to whom Chubais alludes in his interview do not want to take anything away either from small or medium-sized property owners, or from those who made their fortune from scratch by virtue of their entrepreneurial talent. The textile magnate Aleksandr Panikin, who manufactures cheap clothes and dairy products, is popular even among communists, among those who vote for Zyuganov. Total deprivatization is no longer possible in Russia, where the vast majority of the population has a positive attitude towards private ownership.

It is only the sell-off of the fuel and energy complex and the natural monopolies that is under threat of deprivatization. What one president has given, another may always take away. On top of this, the oligarchs let their greed get the better of them. They tried to use the period of stagnation under Yeltsin to get their paws on the most tasty and lucrative bits of the nation’s assets. Above all, they encroached upon the fuel and energy complex–the natural rent–which whole populations live on, even in the countries of the Persian Gulf. History shows that natural monopolies are the most rickety form of private property. Rulers, even liberally minded rulers, are always faced with the temptation of taking advantage of the natural rent in the name of strengthening the state and their own personal power-base. Why shouldn’t Putin–who rightly refused to privatize the military industrial complex–stake everything and renationalize the fuel and energy complex, which is even more of a cash cow? This is the question behind all the fears of the oligarchs–or “former” oligarchs, as we may now call them.

It would be easy to return the natural monopolies into the state’s possession, not only because there were several violations of the law when they were privatized, but also because their new owners have been in no hurry to invest in their property. So, when faced with the inevitable prospective energy crisis, Putin will have no choice but to deprivatize the natural rent. The longer the owners of Russia’s oil and gas companies avoid paying their taxes, the more likely this unpopular move will be.

The difficulty for the oligarchs lies in the fact that during his July meeting with leading businessmen in the Kremlin Putin pretty much rejected the idea of a so-called privatization amnesty. On the one hand, he said that he did not have “the political will to review the results of privatization as a whole.” On the other, he would “not stop the law enforcement bodies which are currently investigating economic crimes committed during the acquisition of former state property.”

There is indeed a real threat in this last phrase of Putin’s, a threat to the property and the power of the former oligarchs. Even during the meeting, Putin advised Potanin to accede to the request of the General Prosecutor’s Office and pay the state the US$140 million they believe he owes on the purchase of the Norilsk Metallurgy Plant.

Putin has probably not taken a final decision on what to do with the results of privatization. This is why he did not want to give the magnates any guarantees or sign any joint declarations with them.

The fate of the ownership of the fuel and energy complex probably hangs in the balance. It all depends on the results of the liberal reforms envisaged by German Gref’s program. If the liberalization of tax policy currently being implemented brings the economy out of the “shadows” and begins to stimulate economic growth, then Putin will probably not review the privatization of the companies which are making huge profits from the natural rent. In this case, if the present form of ownership is preserved, the accent will be on rigid tax discipline and control of capital exports. Putin does not plan to condone, for example, the fact that “family” member Abramovich conceals 90 percent of Sibneft’s financial activity from the tax authorities. Putin is already demanding that the captains of the fuel and energy industry refrain from leaving their hard currency proceeds in offshore zones.

But if the new president’s liberal reforms fail, and if he does not have enough money either to finance his administrative reforms, or to pay the pensions and salaries of public sector workers, or to finance his ambitious military programs, then he will probably take the natural rent away from the oligarchs, and deprivatize all the natural monopolies. The imminent crisis in the fuel and energy complex may push Putin to implement these unpopular measures. Eventually the fact that electricity keeps getting cut off because debts are not paid may cause serious unrest among the population. Everyone is saying that the fixed assets of the fuel and energy complex, created in Soviet times, are now obsolete, and that fresh investment simply is not forthcoming. The moral and psychological situation in the country may also prompt Putin to deprivatize the fuel and energy complex. Putin is a liberal, but more in the puritanical–specifically Germanic–mold. He only admires and respects property which has been earned and amassed through the proprietor’s efforts. Here, too, he is a typical Russian–he dislikes ill-gotten gains. Putin makes no secret of the fact that the wealth and extravagant lifestyle of the oligarchs grates on him. It was no coincidence that during his meeting with them he called upon them to live more modestly and not to aggravate the public. He once said that the oligarchs are like “fisherman who only enjoy fishing for big fish in muddy waters.” Consideration should be given to the fact that Putin’s social base is made up of those who work in the power structures and the traditional sector of the Russian population–those who are most irritated by the affluence of the oligarchs. The vast majority of those who voted for Putin did so in the hope that he would remove the oligarchs from the political scene and strip them of the state property that they acquired for next-to-nothing. The Russia which supported Putin as a patriot and as a statist expects him to resolve the problem of the oligarchs–especially as they are in no hurry to bring back to Russia the capital they have sent abroad or to pay their taxes in full.

Thus, if Putin’s political base begins to desert him, he will simply have no choice but to deprivatize the fuel and energy complex in order to shore up his position of authority. Despite his huge popularity, Putin has not yet appealed to the people. But in a crisis he might well announce a campaign against the oligarchs’ property–particularly as such a move would be easy to justify in the interests of national security.

So there are several possible scenarios. But the probability is that Putin will not manage to avoid deprivatization of the fuel and energy complex in some form or another. We were too hasty with our privatization program, and now we must face up to the negative moral, psychological and economic consequences.

Aleksandr Tsipko is the chief scientific officer at the Institute for International Economic and Political Research, Russian Academy of Sciences.