Due West: Windfall Tax on Russian Privatization

© Photo : KommersantKonstantin von Eggert
Konstantin von Eggert - Sputnik International
When he heard about this, Russia’s former Prime Minister Mikhail Kasyanov tweeted bitterly: “Khodorkovsky and I suggested this. His reaction: I was sacked, Khodorkovsky sent jail.” But will Vladimir Putin try to heal one of the deepest wounds of the post-Soviet Russian psyche?

When he heard about this, Russia’s former Prime Minister Mikhail Kasyanov tweeted bitterly: “Khodorkovsky and I suggested this. His reaction: I was sacked, Khodorkovsky sent jail.” But will Vladimir Putin try to heal one of the deepest wounds of the post-Soviet Russian psyche?

In a speech to the Russian Chamber of Industrialists and Entrepreneurs he suggested that beneficiaries of the 1990s privatization pay a “windfall tax” on their acquisitions. This, in his view, would help close the debates about what he himself described as “unfair privatization.”
The sell-off of the former Soviet state property, especially the oil and gas industry, effectuated during the presidency of Boris Yeltsin, was the biggest privatization project in the history of mankind. It included distribution of the so-called privatization vouchers to the population, so that it could buy shares in the privatized enterprises. In reality these vouchers were bought at dirt-cheap price by those who already had financial resources. They were used to buy large numbers of shares in the former state companies – but for the select few. Later the Russian state, suffering from near collapse of industrial production, large foreign debt and low oil prices sold its shares in large oil companies, like Sibneft and Yukos, to commercial banks that many now consider, well, peanuts. This was when those who later were called “oligarchs” by Anatoly Chubais first emerged as power brokers whose capacities frequently equalled that of the Russian state. This period in Russian history is still seen by the majority of the Russian public as a time of injustice, during which a few lucky ones swindled the whole country out of possession of what was officially considered in the Soviet days “people’s property.”  In view of most Russians it was during the mid-1990s that enormous disparities between the rich and the poor, the two capitals and the rest of the country emerged.
Putin’s own popular success during his two terms as president to a significant extent stemmed from his positioning himself as an “anti-oligarch crusader” who saved Russia from their rapacious appetites, made them lie low and even imprisoned one: Mikhail Khodorkovsky, the owner of Yukos. Had Putin made his windfall tax offer ten years ago it would have been a revolutionary gesture, settling Russia’s account with its recent history and allowing it to move forward. Today it looks differently.  

The Russian prime minister is expected to return to the Kremlin after the March 4th presidential elections. But despite everyone’s certainty that he will indeed become president for a third time, Putin’s popularity has been falling since 2010 and after the scandalous elections to the State Duma, he faces a mounting wave of protest in Moscow and increasingly in other major cities. Today his suggestion to close the privatization chapter sounds more like an attempt to woo the nation’s wealthiest people at a time when their loyalties (mixed at best of times) could be shifting towards neutrality or, possibly, even surreptitious support for some of the opposition leaders. It’s not for nothing that Andrei Kostin, head of the state-controlled VTB bank implored the billionaire audience at the same event to support the authorities. “Remember what happened to Savva Morozov? He supported the revolutionaries, but went mad and died!” the banker exclaimed in an uncharacteristic emotional outburst. Savva Morozov was a super-rich late 19th-early 20th century industrialist who indeed gave money to lots of left wing causes and many revolutionaries. He died in suspicious circumstances in his villa in the south of France.

Invoking Morozov’s miserable fate was probably not a very bright idea because it confirmed, if indirectly, that Putin and his team consider the threat of losing support of the big businessmen a reality in new political circumstances.

Putin’s “peaceful sleep” offer will no doubt come with strings attached – an understanding that Russia’s “billionaire class” will not only continue to support him but, what is even more important, will not involve itself with the opposition leaders and parties that already have gained a much wider political maneuvering space that they could dream of even a couple of months ago. Envisaging “Russia without Putin,” the opposition’s main slogan, is much less difficult today than it used to be in September last year when the prime minister’s decision to run for the president again was announced. The choice would have been simple for Russia’s oligarchs had Putin’s offer arrived in 2011. But now they are probably deliberating whether putting their eggs in one (Putin’s) basket is such a great idea. In this sense he is reaping the results of the mistrust and fear he himself helped to foster during his years in power.
This casts an unfortunate shadow over the historical deal, which is long overdue and which could indeed help Russia move on and away from the post-Soviet complexes. 


The views expressed in this article are the author’s and may not necessarily represent those of RIA Novosti.

What is Russia's place in this world? Unashamed and unreconstructed Atlanticist, Konstantin von Eggert believes his country to be part and parcel of the "global West." And while this is a minority view in Russia, the author is prepared to fight from his corner.

Konstantin Eggert is a commentator and host for radio Kommersant FM, Russia's first 24-hour news station. In the 1990s he was Diplomatic Correspondent for “Izvestia” and later the BBC Russian Service Moscow Bureau Editor. Konstantin has also spent some time working as ExxonMobil Vice-President in Russia. He was made Honorary Member of the Order of the British Empire by Queen Elizabeth II.


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