Many people in the West and also in Russia criticise the statisation (or nationalisation) of the Russian energy industry under Putin. Putin reversed Yeltsin’s policy and in doing so has followed world trends. Due to mismanagement and asset stripping of private firms, Putin nationalised many private companies.
Many people in the West and also in Russia criticise the statisation (or nationalisation) of the Russian energy industry under Putin. Let’s go deeper and analyse state’s involvement in energy industry in Russia and in the West.
Putin’s critics contend that his strategy is not that of an economic actor (as would be that of a profit maximizing private company) but that of a politician. There is an unstated ideological assumption here derived from economists like Hayek and Kornai that state corporations cannot act like business firms. They divert economic resources to the advantage of self-interested politicians or higher civil servants (
chinovniki
in Russia), and ‘corruption’ is a major characteristic of such ownership forms. This is a widely shared supposition of neo-liberals, rather than an established empirical fact. By defining corruption as endemic to public servants as a major consequence of state activity, according to neo-liberals, the lesson for public policy is to minimise the activity of the state in its administrative and ownership relations and to replace public ownership with private.
This is at least contentious and probably an erroneous view. Joseph Stiglitz (former chief economist at the World Bank), basing his observations on Norway’s nationalised oil industry, contends that the Norwegian example, ‘… destroys the shibboleth that efficiency and welfare maximisation can only be obtained through privatisation’.
Defining exactly the ‘state share’ in oil production involves complicated calculations of ownership. We have some good estimates. According to Heiko Pleines, state ownership of oil resources in Russia rose from 13 per cent in 2004 to 40 per cent in 2011. Nat Moser, on the basis of oil production and company reports on ownership, has calculated that after the TNK-BP purchase by Rosneft the state’s share will rise to 50 per cent in 2013. These figures show a remarkable rise in state ownership of oil production under Putin. But they are not exceptionally high: estimates of state ownership of oil production on a world basis range from 66 per cent to over eighty per cent.
As a ‘world threat’ Russia’s actual and potential foreign economic interest is again grossly exaggerated by critics. If we consider state-owned transnational corporations, through which government policy might most effectively be channeled, Russia is a small player. Such companies are defined as the government (national or regional) having a controlling interest (full, majority or significant minority shareholding) in the parent (home based) company. Russia’s share is only 2.1 per cent of the world total (only 14 companies). European countries have far more: Denmark has 36 (5.5%), Norway has 4.1 per cent, France 3.2 per cent. China is a much more important player with 50 companies – 7.7 per cent of the world total. In the top 30 (non-financial) transnational companies, Russia has only Lukoil, in which the Russian Federation owns 13.4 per cent of equity, whereas Norway’s Statoil is 67 per cent state owned. By comparison, China has three companies (CITIC group, China Ocean Shipping and the China National Petroleum Corporation) all being 100 per cent government owned. The states of the European Union have ownership stakes in 223 TNCs, 34.2 per cent of the total. (France has around 900 state owned companies, and China had 154,000 in 2008).
The view of ‘state-owned’ companies lacking in economic virtues is strongly coloured by American exceptionalism. In 2011, the USA only had three state-owned transnational corporations. Moreover, its government is a reluctant owner; in the case of General Motors, state ownership was a consequence of its bankruptcy during the financial economic crisis. Russia is quite unexceptional with respect to the extent of ownership of state-owned TNCs.
To return to the policy implications, state-owned companies are not exclusively subject to corruption; private companies also are subject to corruption and fraud. What is needed is a policy and an economic culture which defeat corruption and fraud rather than the privatisation of public assets. Russia should be able to achieve this.
