At Large

Back to the Future With Putin

Once again, Russia thinks state control of the economy is essential to its becoming a great power.

By 11.27.07

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It is clearly a retrogressive, though not entirely unexpected, path that Vladimir Putin appears to be carving out for the Russian political economy. The major infrastructure giants of the natural gas monopoly, the principal pipeline developer, and the oil cartel have been returned primarily to state control. And this is only part of the story.

From Putin's standpoint -- and that of his fellow intelligence and security compatriots -- regaining control of key basic industries from private hands was essentially a patriotic act of law and order. From the philosophic position of political economics it was strictly a move toward socialism and away from capitalism and free enterprise. Kremlin apologists correctly note that something had to be done to wrest control from the criminal oligarchs of the 1990s Yeltsin period, but the problem had existed long before.

Russian domestic life had come to accept everyday criminality within the old Soviet Communist system going back decades. The preferential treatment of Communist Party members had become built into Soviet life. Nepotism ruled all aspects of political life and that was accompanied by a structure of black market operations and general economic corruption from the top to bottom throughout the Soviet Union.

A large and powerful class of traditional criminality had grown by the 1970-'80s throughout Russian business. The big operators of this illegal system were the first ones to benefit by the breakdown of Soviet state ownership after Gorbachev. They had the money and connections to win the auctions of state property and so became the arbiters of Russian business life -- the oligarchs -- after the fall of the Soviet Union. An initial honeymoon followed Yeltsin's departure, but the millionaire crooks soon became a target of Putin and his ex- KGB/military reformers -- the siloviki.

The old line Russian intelligence and security officers value state ownership as the primary instrument of a socially and politically viable society. The state owns, the state, governs, the state regulates and protects. The ordinary citizen and his enterprises must remain subsidiary to the general welfare as defined and controlled by the state.

Such an attitude is the essence of the modern Russian national personality increasingly defined by Vladimir Putin's leadership. It's democracy in name only just as was Lenin's interpretation of Marx. Russia is on the slippery slope of returning to a state-managed industrial economy justified by the need to have strong central leadership in order to avoid a reoccurrence of the chaotic Yeltsin period. And Putin has an over-70% approval rating among his countrymen!

Putin and his team have the riches of Russia's oil and gas on which to build their new quasi-socialist state. This is potentially as dangerous an adversary as the Soviet Union ever was. Driven by the same sense of xenophobia and paranoia that affected Russia of the earlier years, Putin's Russia falsely equates the U.S. plans for a modest anti-missile base in Poland with Russia's own efforts to justify the resurrection of medium range missiles aimed at Western Europe. A concomitant question now is how far will the Russian leadership go to expand their conventional and missile arms industry supposedly justified by the United States' minuscule ten interceptor base in Poland?

Investment by the Russian government is not simply targeted at basic industry. The high technology aspect of Russian manufacturing has received considerable attention. Scores of billions of dollars are being poured into projects as diverse as nanotechnology, pharmaceuticals, the chemical industry and aerospace. Any industrial area that requires large injections of capital are now current and potential recipients of state financial aid and accompanying management influence and eventual control.

There is no doubt that state intervention with money and talent is one of the ways to jump start an emerging economy. Nonetheless it has been pointed out that in spite of its overall size, Russia's GDP per capita is still only about 40% of Portugal's, even though Moscow has stated that it wishes its nation to be one of the world's top five economies by 2020.

Some analysts have calculated that to make this possible will require an investment of a trillion dollars in the next ten years. Russian bankers have stated they see a considerable potential for private investment, foreign and domestic, in these ambitious plans. State intervention and control does not encourage such expectations.

The recent experience of Royal Dutch Shell in being pressured out of a key oil and gas project it had pioneered in Sakhalin has had a dampening effect on foreign investment in other energy infrastructure projects and akin areas essential to broad scale development. This has not deterred the Kremlin's drive to press forward. It retains its objective to be competitive with the rest of the industrialized world while returning to a centralized economic power structure of state control of basic industries and research.

One would have thought all those bright thinkers in the Kremlin would have learned a bit more from their past economic lesson.

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.