Are Russian Reforms a Bluff?

Western capitalists have no place to remove their capitals to – their economies are the best. The situation is different for Russian capitalists
Discussions about the Russian reforms of natural monopolies has become one of the most favorite subjects of publicists and politicians. However, these debates omit the key question, whether reforms planned in this form will be effective at all. All publications on the problem assume that they will be effective, it is actually very important to carry out the reforms as quickly as possible.

There are two objectives of reforms’ realization that are traditionally mentioned: the first is creation of competitive environment as an instrument for reduction of prices for services, and the second is that investments must be attracted in order to develop Russian industries. However, as analysis of the reforms’ essence revealed, both outlined objectives of the reforms cannot be achieved with those methods that are suggested for realization of the reforms.

The most important fact is that no competition environment won’t be created. This environment is possible when a client can go to some other salesman if he fails to bargain about the price with the previous salesman, when the client can buy any goods from another salesman without obstacles. However, all suggested reforms suppose that consumers are served with only one exact feeder (RAO UES of Russia, the energy monopoly), or only one railway line (the RF Railway Ministry), or a gas pipeline (Gazprom), or an exact water-pipe (communal and housing economy); which certainly means that clients have no free opportunity to choose any supplier. Reforms that are suggested for realization in Russia offer to replace natural monopolists partially regulated by the government with completely private monopolists, with capitalists whose greed can be unlimited. No doubt that when monopolies spend much efforts and money to get ownership of a pipe (or a knife-switch or a railway switch), they will then centre out on consumers when they become rightful owners of these pipes and switches. What is more, precedents of this kind have been already registered. This is the key problem of prospective reforms in Russia, but unfortunately, it hasn’t been yet touched upon.

Besides, another fundamental problem concerning investments attraction is still unanswered. There are whole sectors of private capital in Russia, however, removal of the Russian capital from the country is all the same higher than incoming of capital. As the RF Statistics Committee reported, over the nine months of 2002 Russian proprietors invested 16.3 billion dollars in establishments situated abroad, but the sum of attracted investments in Russia made up only 12.9 billion. And this is just information provided by the official statistics. Besides, all financiers admit that illegal capital outflow makes up between 20 or 30 billion dollars per year; the sum considerably increased when the authorities passed a decision to liberalize the regulations on obligatory sales of currency proceeds. And the explanation to this course of things is clear: foreign economy is already stabilized, which means that dividends can be received in the nearest three months already; and it is problematic to predict when a newly built enterprise in Russia will return interest. It is necessary to buy equipment for this new enterprise and recruit workers, which certainly creates too many problems. For Russia, it is also important to have such management that won’t steal.

By the way, this is the principal difference between developed and developing countries; however, this fact is always ignored by Russian macroeconomic theorists when they appeal to us “to have patience to go through the period of wild capitalism.” Any proprietor in any country is motivated by the wish to increase earnings and standards of his own life. Proprietors in developed countries have one way to follow: they increase labor productivity at their enterprises, optimize the business structure, develop technical equipment and increase sales volume. In order to sale products that they produce, purchasing capacity of the population in developed countries must be increased, which means that remuneration of labor must be about 55% of GDP.

And Russian proprietors think they don’t have to take care about such problems. Instead, they prefer to collect some sum of money (at that, workers are paid only 25% of surplus value; depreciation, R and D work and other investment activities are ignored at that) and then to invest this money in some stabilized foreign economy. And that’s all: there is only sheer calculation, no particular misanthropy of Russian proprietors. To tell the truth, western proprietors would do the same if they had some other stabilized economy at hand, but currently they have only their own economy. A question arises: do economic reforms provide for any measures that would make Russian proprietors focus more on investments in their own enterprises? Until now, they eagerly ignored such investments.

Thus, the economic reforms that are suggested for realization in Russia provide no solution for the problem of investment attraction and for creation of favorable conditions for consumers. On the contrary, these reforms resemble the idee fixe on speeded total privatization that was declared to be a panacea for all economic and social problems. But although it is often said that “private property is more effective”, nobody has ever presented any proof of this thesis. For this very reason, it would be nice for Russian deputies of all levels, before they take decision concerning realization of reforms, to demand for more substantial arguments proving that suggested reforms won’t aggravate the unfavorable situation in the basic Russian industries.

Alexander Artyomov Candidate of technical science Special to PRAVDA.Ru

Translated by Maria Gousseva

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