Graham Stack for Russia Profile (www.russiaprofile.org)
Medvedev Asks State Prosecutor General to Inquire into the Activity of Seven Major State Corporations
The much-anticipated shift toward more liberalism in Russia marked by Dmitry Medvedev’s election as president in March of 2008 but delayed by last year’s war with Georgia and this year’s economic crisis looks to be slowly getting started. Under the Kremlin’s patronage, an alliance appears to be forming against the state corporation juggernaut.
In December of 2007, a key Medvedev friend and confidante, university friend and law faculty colleague Anton Ivanov, now chairman of the Supreme Arbitrage Court and as such the chief of Russia’s system of commercial courts, said that “relations between state and business are like a seesaw – they tip to one side and then to another. There was a time when the state had lost influence over business to the extent that it practically handed out indulgences for the non-payment of taxes. Now we are in tougher times. Perhaps the seesaw has even tipped too far in the other direction, and it is time to re-determine the correct balance between business interests and state authority.”
Anton Ivanov plays a similar role for Dmitry Medvedev to the one that Sergei Ivanov played for former-President and now Prime Minister Vladimir Putin – a trusted friend and a top official. And whereas Sergei Ivanov counted as a key member of Putin’s hawkish network of former St. Petersburg KGB agents known as the “siloviki,” Anton Ivanov is a key figure in Medvedev’s liberal network of the St. Petersburg civil law scholars, nicknamed the “civiliki.”
However, the shift from statism back toward liberalism has been slow in coming. Cynics argue that Medvedev is merely a placeman until Putin resumes the presidency in 2012. Optimists say a planned policy shift has been derailed by the Georgian war in 2008 and the economic collapse in 2009.
Until now the cynics seemed to have the better arguments. However, in what is seen as Medvedev’s first real independent initiative, on August 10 he requested the State Prosecutor General Yuri Chaika to audit the activity of the seven state corporations set up in 2007 to manage various fields of the economy, from the defense sector production and export to the construction of facilities for the 2014 Sochi winter Olympics.
With their wide-ranging powers and little room for oversight and accountability, the state corporations seem to adhere to a state-dominated model of bureaucratic capitalism that could crowd out private enterprise and increase corruption. Moreover, over the previous eight years their anomalous legal form – neither truly state-owned nor private, neither truly non-commercial nor solely profit-oriented – has outright contradicted much of the progress in creating a unified legal space in Russia.
In speeches and interviews in the run-up to his election as president, Medvedev frequently repudiated “state capitalism,” calling it a dead end and declaring that he is on the side of private enterprise and innovation. His failure to back words with deeds until now only reinforced the impression that he was a puppet of his Prime Minister Vladimir Putin.
Collective discontent
Medvedev’s move comes just after a number of different bodies raised a chorus of criticism of state corporations in June and July. This points to a carefully orchestrated campaign to discredit state corporations and to the fact that the president has enough political backing across state bureaucracies to get his way.
The first blow was dealt by the “civilik” Anton Ivanov. In early June, in an interview to the Vedomosti business daily, Ivanov publicly reprimanded state corporations, calling for a moratorium on their creation and for the enforcement of “generally-binding norms for all legal entities.” “It is not for nothing that legal scholars criticize state corporations,” he said. “Because their assets are private, but you can’t call them private in essence. And if the decision was to be taken to liquidate a state corporation, who would get the stakes in the companies owned by them? We need to stop calling old structures by new names, when they in fact remain the same in essence.”
In June, the Presidential Council on Legal Codification went even further, calling for the elimination of state corporations as a legal form altogether, since they have no place in Russia’s civil code.
Then in July and August, the powerful Audit Chamber and the Anti-Monopoly Service joined in the chorus. Both are headed by former members of the liberal Yabloko party, Sergei Stepashin and Igor Artemev, respectively. Perhaps more importantly, they both have little jurisdiction over state corporations and would like to change this.
Thus, a report prepared by the Federal Anti-Monopoly Service (FAS) and leaked to the Kommersant daily named state corporations as one of the main threats to competition in the Russian economy. Writing in Vedomosti about the correct way to go about modernizing the Russian economy, the Head of the Audit Chamber Sergei Stepashin argued that this had to be done by changing legal norms to support and reward innovations, not by Soviet-style “sectoral” corporations, which he said “had failed to justify themselves.”
Finally, Valentin Zavadnikov, the chairman of the Federation Council’s industry committee, put up bitter resistance to a draft bill setting up a state corporation to run Russia’s roads. Back in February of 2008, Zavadnikov authored a damning Federation Council report on state corporations, calling them “the perfect chance to transfer state property to the non-state sector with no financial benefit for the state and at the risk of uncontrolled use and alienation of assets.”
Civiliki vs. siloviki
The Kremlin’s move against state corporations has two targets: the “civiliki’s” concern about the disastrous implications for Russia’s developing civil code of the state corporation anomaly and the desire to eradicate it by converting state corporations into other legal forms provided for in the civil code – such as joint stock companies or government agencies.
Ironically, this might be the easier part. A number of state corporations themselves are headed by liberals who are likely to tow the Kremlin’s new line. Liberal Anatoly Chubais, the head of Rosnanotech, the state corporation for developing nanotechnologies, declared in August that changing the legal form would make no real difference in Rosnanotech’s activities. Sergei Kirienko, a former liberal party colleague of Chubais and now the head of atomic power state corporation Rosatom, is also unlikely to object to a change in form. Nor is Dmitry Kozak, the head of the Olimpstroi State Corporation for constructing the facilities for the Sochi 2014 Olympics and a liberal colleague of Medvedev’s at the St. Petersburg law faculty, likely to kick up a fuss. In fact, Vedomosti recently reported that Olimpstroi is likely to be transformed from a state corporation into a federal target program.
As a sign of the tide turning against state corporations, one planned state corporation to own and run Russia’s roads was scaled down to a state company in July, thanks to the efforts of the above-mentioned Valentin Zavadnikov in the Federation Council. Likewise, there apparently will be no state corporations in the space and rocket industry, Deputy Prime Minister Sergei Ivanov told journalists yesterday. Instead, the country will resort to forming vertically integrated public joint-stock companies.
And in August, Russia’s Finance Ministry abandoned the project of a state corporation for managing Russia’s financial assets. Deputy Prime Minister and Finance Minister Alexei Kudrin, who in 2007 criticized state corporations for de facto privatizing state assets free of charge, said that the state corporation form “was no longer deemed suitable” and another legal form would be found instead to do the same job.
But the big stumbling block will be what to do with the mother of all state corporations – Russian Technologies (RT) – the very first state corporation established in December of 2007. RT was originally based on defense sector exporters and their suppliers, but rapidly snowballed to include companies ranging from metallurgy to carmakers. The corporation is headed by the influential friend of Putin’s Sergei Chemezov. He is the man who single-handedly tailored the state corporation legislation to suit his personal goals, and is not likely to surrender his huge privileges without a major struggle.
Suspicion of Russian Technologies’ activity runs even deeper than suspicion of the legal form of state corporations. Chemezov’s activity as head of RT seems not just to threaten the integrity of the civil code, but the overall primacy of private property in the Russian economy. In contrast to the other state corporations that operate in specific fields of activity, Russian Technologies has acted as a cross-sectoral “Ministry of Deprivatization,” acquiring privately-owned companies and often prompting accusations of behaving semi-legally as a “corporate raider.” RT’s latest major hostile acquisition was the fairly successful engine and turbine producer Saturn, which, as a private company owned by CEO Yuri Lastochkin, developed engines for the Superjet aircraft and a new generation of turbines for gas-fuelled power stations.
According to Kirill Rogov of the Institute of Economy in Transition, “Medvedev’s target is not only state corporations in general, but also one certain corporation in particular: Russian Technologies. Whereas for other state corporations the consequences will be limited to adjusting their status to conform with the Constitution and Russia’s laws, for Russian Technologies this is the beginning of the end of the project itself.”
Halting the Russian Technologies juggernaut would thus finally mark a modest beginning to the project announced by Anton Ivanov in December of 2007 of re-tipping the scales away from the state, and back toward private enterprise.
