The Kremlin has also initiated the takeover of private assets by energy giant Gazprom, the establishment of a new aluminum giant, and reforms in aircraft manufacturing that will result in the creation of a state oligopoly (an oligopoly is a market form in which a market or industry is dominated by a small number of sellers, or oligopolists).
"Russian chebolism," or a reliance on private conglomerates involved in multiple industries, is an energetic, well thought out and tough policy. There are good reasons to believe that it will be carried on in 2007, the last year before the presidential election in 2008.
There is not enough data to correctly evaluate this process, but the state's share in oil production is an indicative figure: it decreased from 14.83% in 2000 to 7.32% in 2004 (due to the privatization of Slavneft) and soared to 28.3% in 2005, when Yuganskneftegaz was sold to state-controlled oil company Rosneft. The figure is expected to overcome the psychological barrier of 35% in 2006 (primarily because of the transformation of Sibneft into Gazprom Neft, an oil division of Gazprom) and may reach 40% by the end of 2007, taking into account the revaluation of assets and the possibility of major share issues.
What relations should the state have with business now that the public sector in the economy is growing stronger? And is there a safe limit to the growth of the public sector?
The new public/private agreement must not, cannot and will not be modeled after the peace treaty Putin signed with the oligarchs in 2000. The influence of major business groups, comparable to the influence of oil companies on Mikhail Kasyanov (when he was prime minister) and the lower house of parliament, which outraged the government officials in charge of macroeconomic development, will be neutralized. The state has become the senior partner dictating the terms.
Such dictating is expedient when it comes to basic conditions, but state policy regarding different economic sectors, industry groups, and agents of influence must not be uniform.
The full-scale influence of the state on natural monopolies is logical and exercised through state representatives in major corporations where the state holds a considerable amount of shares, but other mechanisms can be established only through constant, and very intense, dialogue. The effective limits of public sector growth depend not on the market situation but on the control of the sector, which must never be lost.
Therefore, raising the efficiency of state property management should be the main goal of economic policy in 2007.
The search for an "efficient owner" in the 1990s through loans-for-shares auctions did not succeed. Major players on the oil market paid peanuts for their assets. Yukos and Sibneft increased their capitalization by lobbying for symbolic taxes and using prohibitive production methods that plundered the land, such as highly destructive hydraulic fracturing (which allows oil or natural gas to move more freely from the rock pores, where they are trapped, to a producing well that can bring oil or gas to the surface).
The rapid development of natural monopolies and corporations with state capital in the 1990s set into motion highly dangerous trends, such as latent corruption.
Alexander Braverman, Ph.D., a professor of economics, past president of the Russian Marketing Association and former first deputy property minister, described the conversion to market methods in the early 1990s as "marketization," a dangerous trend that continued the plunder set in motion by the "red directors."
The liberalization of prices without control by antimonopoly bodies, and the transfer of financial responsibility for the operation to the public and of social responsibility to the government were the foundations of that process. Such "marketization" provoked permanent inflation and threatened economic growth.
Vladimir Putin proposed an obvious format for relations with the authorities, saying that natural monopolies and corporations with state capital could have only state interests (in non-commercial areas of operation).
The state's policy in this sphere is set by three groups of officials: government officials responsible for macroeconomic development, high-level officials of branch departments, and the upper management of the corporations involved. State representatives are appointed to company boards to ensure that corporate policy complies with the interests of the state. The situation has radically improved in the past few years.
State representatives on boards of directors (such as Dmitry Medvedev at Gazprom and Igor Sechin at Rosneft) have a crucial role to play, and their responsibility will grow in 2007. They are in charge of decision-making and vote with state shares on key issues. But the growth of their influence is limited by institutional restrictions.
To begin with, they act not as paid employees [on the boards of directors] but as representatives of the state, so they cannot propose important decisions without the approval of the state. In addition, they sit on the board by virtue of their government office. If they leave their government posts, they also lose their temporary control of the state's shares in the companies they oversee. This is how it is done in all countries, and therefore the widespread view of the Russian economy as a corrupt clan system where the rules of the game are determined by a score of bureaucrats with connections to the Kremlin is not true.
John Stuart Mill, an English philosopher and political economist of the 19th century, wrote in his essay "On Liberty": "The only freedom which deserves the name, is that of pursuing our own good in our own way."
The two parties to the negotiations - the government and business - will comply with this notion of economic freedom in 2007, provided business respects the clearly outlined format of national interests and state priorities, primarily social, tax and domestic political ones. These priorities must be formulated, upheld and kept within the natural boundaries of effective governance (entrusted to specified officials), or else they will soon become a meaningless combination of sounds, or a black hole into which huge sums of money will be tossed in a sly, typically Soviet manner.
