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"Throughout recorded time, and probably since the end of the Neolithic Age, there have been three kinds of people in the world, the High, the Middle, and the Low. ... The aims of these three groups are entirely irreconcilable. The aim of the High is to remain where they are. The aim of the Middle is to change places with the High. The aim of the Low, when they have an aim -- for it is an abiding characteristic of the Low that they are too much crushed by drudgery to be more than intermittently conscious of anything outside their daily lives -- is to abolish all distinctions and create a society in which all men shall be equal.

" ... as early as the beginning of the twentieth century, human equality had become technically possible. It was still true that men were not equal in their native talents and that functions had to be specialized in ways that favoured some individuals against others; but there was no longer any real need for class distinctions or for large differences of wealth.... in the general hardening of outlook that set in round about 1930, practices which had been long abandoned, in some cases for hundreds of years -- imprisonment without trial, the use of war prisoners as slaves, public executions, torture to extract confessions, the use of hostages, and the deportation of whole populations-not only became common again, but were tolerated and even defended by people who considered themselves enlightened and progressive.... By comparison with that existing today, all the tyrannies of the past were half-hearted and inefficient.

"It had long been realized that the only secure basis for oligarchy is collectivism. Wealth and privilege are most easily defended when they are possessed jointly. The so-called 'abolition of private property' which took place in the middle years of the century meant, in effect, the concentration of property in far fewer hands than before: but with this difference, that the new owners were a group instead of a mass of individuals. Individually, no member of the Party owns anything, except petty personal belongings. Collectively, the Party owns everything in Oceania..."

The Theory and Practice of Oligarchical Collectivism
Emmanuel Goldstein

Putin - State Capitalism

State capitalism features elements of markets liberalization and elements of state control. State capitalism takes advantage of open free markets while protecting key aspects of domestic production. It mobilizes resources of the state, forces joint ventures between foreign and local companies to transfer knowledge. It exerts control over key enterprises and subsidizes their expansion and growth overseas.

The rise of corporate statism in Russia was significant. From 2004 to 2007, the government had taken over the world's largest titanium business, consolidated its position in Gazprom, merged 10 aviation businesses into a state-owned conglomerate, and taken controlling positions in other firms. No less fascinating was the mix of greed, politics, and business behind the expansion of the state into the economy.

The march of the state into parts of the Russian economy over the years 2004-2007 was significant, with control of swaths of the natural resource, defense, and select other sectors consolidated in state hands. Annual revenues of Russia's ten largest state-owned or controlled companies reached an estimated 20 percent of GDP in 2006. State-owned or controlled companies account for one-third of the Russian stock market's capitalization.

Greed in Russia shocks no one, but the rising value of Russia, Inc. (on the back of high energy prices) has made the current grab particularly profitable for some. Power considerations -- both geopolitical (as in the case of Gazprom) and in the context of Russia's domestic succession process -- are evident as well. New to this paradigm is the surprisingly strong role business considerations seem to be playing -- as the Russian Government tries to salvage a select few decrepit remains of Soviet industrial prowess before it is too late.

The Kremlin leadership in the economy was in no small part about money, and the Sibneft takeover by Gazprom is perhaps the most blatant example of this (only about a quarter of the $12b selling price for the firm was said to have actually gone to owner Abramovich). In general, the insider offtake from M&A deal flows was said to be so large now that Swiss banks have told Kremlin cutouts (like gas-trader Timchenko) that they cannot accept further deposits without knowing the source of the money. The most lucrative transfers to the state (usually involving natural resources) may be wrapped in patriotic rhetoric, but include a healthy dose of financial opportunism.

Creating national champions and projecting a strong image for Russia abroad was a leading factor in many state-connected takeovers and consolidations, including the removal of the Gazprom ring fence, the Rosoboronexport makeover, the RUSAL-SUAL deal, and the anticipated takeover of Norilsk Nickel by Alrosa. Some of this was also part of the ongoing succession process, putting individuals into deal flows and thus providing campaign finance and enhancing their public profile.

Portfolio changes were seen by some as giving First Deputy Prime Minister Sergey Ivanov a cash-laden institutional base like that enjoyed by his chief rival for the presidency, First Deputy Head of the Presidential Administration and Gazprom Chairman of the Board of Directors Dmitriy Medvedev.

Putin and those around him were also driven by a sincere desire to right the excesses of the 1990s, or oligarchic plundering of once-proud, though ruinously inefficient, Soviet companies. The examples here are truly varied. In the case of Avtovaz, Rosoboronexport's move to take over the firm last year may be the only thing saving the car-giant from complete collapse in the face of global competition. The emerging Norilsk Nickel story is said to be as much about saving Alrosa (which experts say will run out of diamonds in ten years' time) as it is about keeping Norilsk's palladium and nickel output in Russian hands.

As driven by national security concerns as the formation of the United Aircraft Company might be, also at play is a long-overdue consolidation of an industry largely on the verge of collapse. These examples are more about saving jobs and communities and creating viable competitive companies than personal enrichment. Although making money is not precluded here, both Avtovaz and UAC, not to mention plans to create a new shipbuilding national champion, sounded more like cash sinks than cash cows.

If every firm in the natural resources sector ended up in state hands, as significant as that would be, it would account for around 12% of the Russian economy. Add in state monopolies in the transport and communications sector, defense industries, and space, and state control over the economy rings in around 25% of GDP. As disturbing as this figure might seem, it is not wildly out of line with other market economies rich in natural resources.

In Mexico, the state fully controls the oil, gas, and nuclear power industries and has reserved for the state in whole or part the telecommunications, air travel, and postal sectors. As recently as 2005, the Norwegian state owned approximately 32% of the companies listed on the Oslo Stock Exchange.

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Page last modified: 23-07-2018 13:38:28 ZULU