Unpremeditated Nationalization
October 9, 2023
  • Maxim Blant
    Economic commentator, Radio Free Europe/Radio Liberty
RFE/RL economic commentator Maxim Blant writes that, at the behest of the siloviki and contrary to the position of the government’s economic bloc, Russia is seeing a massive de-privatization across various sectors. The siloviki believe that they are thus carrying out the wishes of Putin.
Vladimir Putin’s address at the plenary session of the 8th Eastern Economic Forum.
Source: Wiki Commons
After the interview of Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, to RBC on September 11, 2023, on the sidelines of the Eastern Economic Forum, people began talking about nationalization as a systemic phenomenon in Russia. When asked how business was responding to increasingly frequent cases brought by the Prosecutor General, followed by the enterprises being seized to the state, Shokhin replied: “not well. No one here knows who might be next in line.”

In the same interview, he said that law enforcement is focusing their efforts on three areas. First, they are heavily scrutinizing the privatization deals of the 1990s, especially the privatization of infrastructure facilities. Second, they have begun to actively apply legislation on strategic industries and enterprises, especially when there are investors from “unfriendly countries” among the shareholders. Third, prosecutors are actively looking into corruption, though, according to Shokhin, in a number of cases the basis was not so much corruption itself as violations of anti-corruption legislation – in other words, whether a particular official or government body had the right to make a decision on the sale of an asset.

In Shokhin’s words (he usually expresses the consensus opinion of all big businesses), “in the current conditions, stability is more important than minor reasons for taking away assets from the current owners.” Especially when it comes to the mistakes of privatization in the 1990s. Since then, many enterprises have had several owners. The losses are being borne by the current owners, who often had nothing to do with the privatization, while those who managed to cash out in time are left sitting pretty.

The very next day after the interview was published, at the same Eastern Economic Forum, Vladimir Putin commented on Shokhin’s remarks. He praised Russian entrepreneurs, who “in general” have demonstrated responsible behavior, and offered assurance that no “de-privatization” is “planned” in Russia, and that no one’s life would be “made a nightmare.” As for the Prosecutor General, which has been very actively working on specific areas, that’s why it is the Prosecutor General – to fight violations of the law. And everyone must obey the law.
Andrei Melnichenko. Source: Wiki Commons
The scale of the issue

The attempt to present everything as if nothing is happening in the country beyond usual business practices sounded unconvincing. By the end of August, the Russian business press had written about dozens of criminal cases brought by the Prosecutor General to return private enterprises to the fold of the state, including, for example, a case filed on August 17 against Andrei Melnichenko, the richest man in Russia as estimated by Forbes. The goal is to nationalize SIBECO (Siberian Energy Company), the largest supplier of heat and electricity in Siberia. (In early October, it came out that the prosecutor's office had withdrawn the case against Melnichenko, though this only further confused those trying to find the logic in the actions of the state.)

Various publications and nongovernmental organizations (for example, Transparency International) have tried to compile a register of nationalized companies and find at least some logic in the actions of prosecutors.
But enterprises are being taken away from foreign investors and Russian citizens alike; both from former MPs and officials, and from those without formal ties to the state.
The sectoral breakdown is also extremely diverse, ranging from sea ports and energy companies to wineries, meat processing plants and even a large producer of napkins and toilet paper.

After Prosecutor General Igor Krasnov summed up the interim results of his office’s work at a meeting with Putin on September 25, it became obvious why it was impossible to find the logic in these actions: “as part of the deoffshorization of the Russian economy, as well as the protection of the interests of state property,” Krasnov said, “over 24,000 of our claims relating to illegal loss state property, valued at more than RUB 187 billion, have been satisfied by the courts. By taking supervisory measures, we also managed to release from foreign control a number of key strategic enterprises that are essential to Russia’s economy and security.”

Thus, the real scale of private property seizures is 24,000 claims satisfied by the courts, while the dozens of cases of nationalization written up in the press are nothing more than the tip of the iceberg. Moreover, Krasnov and his subordinates are clearly not going to stop there.

It would not be an exaggeration to say, therefore, that Russia is seeing the very revision of the results of privatization that Putin promised not to allow back in 2000, when he first came to power as president. In addition, Krasnov is confident that he is acting exactly in line with Putin’s instructions received in March 2023 at a meeting of the collegium of the prosecutor’s office.

The state’s position

Economic bloc officials had claimed that the state was not taking a course toward nationalization. In fact, as recently as June, at the St Petersburg Economic Forum, Minister of Economic Development Maxim Reshetnikov, Minister of Finance Anton Siluanov and Central Bank Chair Elvira Nabiullina actively discussed the opposite process – privatization. The fact that less than three months later, following Shokhin’s remarks, they now had to discuss nationalization and the consequences of revising 90s privatization deals came as an unpleasant surprise. Unpleasant because they are the ones responsible for the Russian economy and socio-economic (and subsequently political) stability, and must ensure, in conditions of war, that the economy can provide the army fighting in Ukraine with everything it needs.

None of them believes in the effectiveness of state management, even in “strategic” industries. Reshetnikov is at a loss: like business, he does not understand where the “red lines” are and considers revising the results of privatization “a road to nowhere.” Putin adviser Maxim Oreshkin, who spent four years as minister of economic development before moving over to the Presidential Administration, pointed out at the Eastern Economic Forum that the state, represented by a bureaucrat, is a bad owner: “the enterprise is located in some region, is going about its business; the bureaucrat is in Moscow, he reads a report once a quarter. The main thing for him is not to take any risk, remove himself from everything, and so on. It is clear that such management does not lead to good results.”

The problem is that Krasnov does not report to the minister of economic development, or Putin’s adviser, or even the prime minister. He has his own tasks, his own area of responsibility and his own ideas about what is good for the state and what is not.
And, unlike the economic bloc of the government, the idea of nationalization is quite popular among the siloviki.
Back in May, Krasnov’s colleague, Investigative Committee Chair Alexander Bastrykin proposed nationalizing the “main sectors” of the Russian economy, since what is at stake is no less than “the economic security of the country in conditions of war.” For the siloviki, nationalization is a definite plus and the ultimate goal. The more the state takes for itself, the better. After that, how the ministers from the economic bloc will manage all that “wealth” is their business. If they are poorly managed, other ministers can be found. It is the same logic that supporters of the war implicitly proceed from: the more territories the country manages to capture, the better for the country.

It follows from this that there is no unified state policy or even position regarding property, its owners, the share of the state in the economy and industries that should be controlled by the state. However, it never existed. Under Putin – over the last 23 years – the Kremlin has always had at least two “towers:” the siloviki and the liberals. Each had its own area of responsibility and its own “red lines.” It’s just that with the start of the war, the “silovik tower” now considers compliance with any lines optional.
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