Russia » Economics
Author`s name Michael Simpson

Privatization not to be Revised


No privatization has been actually conducted in Russia
The turmoil among Russian and foreign businessmen caused by criminal cases filed by the Prosecutor's Office against MFO Menatep, and officials and shareholders of the Yukos oil company has generated lots of suggestions concerning the situation and scenarios according to which it may further develop.

But society has not brought up the pressing question of what private property in Russia is. Over the whole period of reforming in Russia, the fundamental issues have never been discussed. It is not ruled out that if the public had paid closer attention to the reforming process, they would have been razed to the ground immediately.

The father of the voucher privatization in Russia, Anatoly Chubais, following the father of the Polish economic reforms, Leszek Balcerowicz, believed that reforms must be performed so fast that nobody has time to understand what has actually happened. In other words, it is only a group among powers that be is aware of what kind of reforms have been conducted in the country. In fact, this is what we actually have: it is only a group among powers that be which is aware of the issues of reforms.

It is said that a better opinion can be given of any situation when it is looked upon from the outside. This is the reason why I like to discuss the results of Russian privatization with foreign experts. They sometimes arrive at really interesting conclusions.First, I talked to an American whom I met at a conference organized by the Russian Bankers Association in the city of Krasnoyarsk. Richard, a cheerful American speaking good Russian, studies Russian economy. He does expert researches for western businessmen and consults Russian market enthusiasts. We talked about investments.

I wondered why energetic American capital was still inactive in investing in Russia. If Americans are reluctant to build enterprises in Russia, they could have invested dollars in exporting companies working in Russia and yielding guaranteed profits. I was shocked to hear his response: "They (Americans) do not want to deal with owners of these enterprises as they are not proprietors, in fact." The popular Russian phrase "in fact" sounded somewhat strange pronounced by an American, but later I understood what he actually meant.

Western businessmen do not care for the naming that is so popular among "new Russians". If they want to be called "owners of enterprises", let us call them call this way. But Western businessmen still consider the state to be the owner of Russia's aluminum, nickel and oil. If it is so, they believe it is dangerous to buy shares of Russia's industrial giants. Foreigners fear that today, they may give their money to some Russian oligarch, but the investment will not be reimbursed if the results of privatization in Russia are revised. At the same time, the Russian authorities are strongly persuading the West they will not nationalize what has been given to private proprietors. But foreigners are inclined to believe in the actual state of things, but not the words.

This alleged property of oligarchs was in fact created by the people of the country and remains national property. Western lawyers do see the difference between the actual, legally protected propriety from the temporary right to dispose of some property.To be able to do something and to do it in public are two different things. I realized it when I talked to an experienced British consultant.

During this past spring, Russian energy monopolist RAO UES held a seminar for journalists from the city of Krasnoyarsk to teach them what was the right way to ask RAO Chief Executive Officer Anatoly Chubais questions. A British consultant experienced in power system restructuring spoke at the seminar. The expert was in fact a German living in Latvia for 10 years. He spoke perfect Russian.

 When I talked to him, I said that people in Russia were not inclined to trust private owners, especially in everything concerning the power system. They mostly rely upon the state in this sphere as it will not cut off energy with a view to derive profits from consumers. The British consultant became offended and asked: "You are speaking about the state. But where was the state when the war broke out?" Later, I understood that he meant 1941 when German troops captured Russian territories in a blitzkrieg.


I was not inclined to indulge in historical polemics, but just said that the industrial center was formed on the banks of the Yenissei River during WWII, when machine-building enterprises were moved to the city of Krasnoyarsk from the European part of the Soviet Union within a couple of months. But the only thing the expert wanted to explain to me was that one cannot call results of privatization into question.The consultant asked me with slight irritation: "What have Russians done with the vouchers they had been given before the privatization campaign? They squandered them on drink!" At that very moment I realized I was talking not to a highly professional Western consultant but with an ideologist who mostly cared about emotional arguments, not the actual state of things. Meanwhile, the expert has been consulting RAO UES for many years, and top managers of the enterprise follow his recommendations. May it be the reason why power reform is so slow in Russia?

I have already touched upon the low qualification of Western experts working in Russian companies. The self-consciousness of all people from countries with developed market economies must be based upon some key economic values. Let us try to discuss Russian problems with an imaginary interlocutor as based upon some code of developed market capitalism. We should look upon Russian problems from the point of view of a person belonging to Western society, one who does not understand Russian reality.

Let us take the Baltic countries for example, where people are becoming accustomed to property restitution. A man of Estonian origin arrives in the city of Tallinn from abroad and presents documents saying that his grandfather used to own a three-storey building with a view over the town council. And, despite the fact that since the time his grandfather owned the place the country experienced a revolution, a war and occupation, this man may restitute his ownership. This is the "natural right" as it is.

Now say who is the owner of a nickel producing enterprise situated behind the polar circle, or of the East Siberian oil fields. Does an oligarch who obtained the assets as a result of legally incorrect privatization {the privatization was conducted according to a presidential decree which was not approved by the parliament), or the state which built the infrastructure, financed the exploration, design works, production of construction materials and recruiting of manpower?

And this in fact has nothing to do with communist revenge or privatization results revision. In the West, any court of arbitration would consider an oligarch's property claims insignificant: it will state that if it was not the oligarch who built or bought some infrastructure, he must not own it. It may happen in Russia only that an oligarch such as Mikhail Khodorkovsky thinks it is normal to say in public that nobody can tell him what he must do with his billions of dollars. The Western mentality cannot comprehend paradoxes of this sort.

Let us imagine some expert from the West with whom we can discuss the issue. We say that ten years ago, the democratic government of Russia told the people that it could not run enterprises effectively and offered to hand them over to capitalist ownership. Enterprises were handed over to oligarchs, but what we have now instead of dynamically developing capitalist economy is complete chaos. The new owners of Russian enterprises turn resources into dollars and move the money out of the country at a time when much of the Russian population is living below the poverty line. And we can ask the expert what can be done in this situation.

He may say that if the decision made by the democratic government turned out to be ineffective, we should take another, an effective one. If we follow this advice, we will have to take enterprises away from those who now say they are owners of the infrastructure. On the other hand, these people have money and power; they will not give everything back as they do not want to lose their super profits. What is more, the government has already declared that oligarchs own the enterprises.

Then the western expert may respond that if the government had sold enterprises to the oligarchs, it may buy them back and reimburse the spending of the new proprietors. But the whole of the problem in this situation is that these new proprietors spent no money to obtain control over the enterprises they own now. They just collected vouchers that the government distributed among the population during the privatization campaign and exchanged the papers for ownership of the enterprises. The whole of the problem is that the process seems to be strange to Western legal practice.

To be continued

Pavel Poluyan, Krasnoyarsk
Special to PRAVDA.Ru