The financial crisis and Russia’s capitalism

Keskiviikkona, 15. lokakuuta 2008     1 kommentti(a)
Vadim Kononenko
tutkija - EU:n itäinen naapurusto ja Venäjä -tutkimusohjelma

It is interesting how in some current analyses Russia is seen as part of the group of states challenging the Western liberal order such as for example China, the Gulf states or Venezuela. For example, Ian Bremmer, president of the prestigious consultancy firm Eurasia Group, writes in a recent article that “state capitalism” is returning heavily armed with sovereign wealth funds, state-controlled corporations and national champions. Furthermore, the ongoing global financial crisis is also seen as evidence that the turmoil in the US and European markets signifies the decline of the global economic order as we have known it since the end of the Cold war. Finally, the governments of the “challenger” states do not miss a chance to criticize the Anglo-Saxon model of capitalism and its main proponent, the US and, global financial institutions such the World Bank and IMF.       

 In reality, Russia has prospered greatly from being part of precisely the kind of political and economic system that it now distances itself from. Since the end of communism Russia’s oligarchs have made full use of the elements of the liberal economic system, including putting their tax-evaded profits in international offshore zones and reinvesting them at home or abroad, organizing mergers and acquisitions with Western companies, acquiring assets and property in Europe, and taking loans from international financial institutions. And this applies not to just the business elite but the state as well, although the line between the two is impossible to draw. Recently, Russian government decided to put some of its energy revenues into investment funds, to invest into foreign stocks and bonds. Even though, according to Ministry of Finance officials, no major investments into private foreign companies have been made, the decision reflects the degree of involvement of Russia in the current system despite the image of a staunch critic of the US.   

The current crisis has made Russian companies and stock markets react in almost the same way as everywhere in the West by causing them to put future investment plans on hold and streamlining their assets in order to cut down costs. A major telecom company has announced the suspension of its plans to expand in India, whereas a big industry holding company has sold part of its shares in a foreign company to a third party, reportedly, due to the difficulties cased by the credit crisis. At the same time, the government announced the rescue plan for Russia’s financial system which was labeled as the Putin-Paulson plan, for it resembled the US plan – albeit with Russia’s specifics such as poor accountability, lack of transparency and support to favored companies and banks.      

Thus the question is not whether Russia really represents a challenge for the current economic order – Russia is relatively small part of it and in this position it is as affected by the global crisis  as everyone else. The question is what happens in the future when the crisis is over and the big players – the US, Europe, China – re-emerge with renewed strategies and new economic policies. It can well be that many in Russia will look at the years preceding the crisis with nostalgia, the time when it was possible to reap the benefits of global capitalist system yet at the same time criticize it and build “state capitalism” at home.    


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Keskustelu (1 kommenttia)

17.10.2008, Yegor

Good attempt to look at the current financial crisis and Russia's place in it. But it will be even more interesting to analyse what model or mixture of models Russia might adopt once the current crisis are over. It is obvious, for example, that the longer the crises, the smaller the Stabilization Fund gets, the less stable Russia becomes.

Also the socialist ideas are regaining their ground worldwide, at least it would be natural and understandable. Will the leftist wave touch upon Russia and in what form or way, if any?

All in all, it would be great if UPI could look more deeply into possible scenarios of Russia's economic & political development in the light of the current financial crisis.

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