Russian scholar told West on the anatomy of Russian capitalism

12 years ago professor of Moscow State University Stanislav Menshikov came to the Netherlands to deliver lections on the economy of the post-Socialist countries.
All this time he has been watching closely the situation in Russia, and his observations resulted in the book “Anatomy of Russian capitalism”.

Trud reporter interviewed Stanislav Menshikov.

Reporter How do you like Russian capitalism?

Stanislav Menshikov It has national features.  Lenin believed that it would be sufficient to replace the property ownership from private the state owned, and socialism will arise. The contemporary proponents of reforms in Russia accepted the Lenin’s ideas, but they pursuit capitalism instead of socialism. They claimed that after making private ownership for the state property, capitalism and financial well-being will appear instantly. In reality, a sharp decrease of the living standards was the pay for the experiments in both the cases.

After the revolution of 1917, it took Bolsheviks 9 years to reach the country’s GDP of 1913 – in 1929 GDP reached 102.6 percent of 1913. In contemporary Russia, 9 years after the reforms were started, GDP was only 55 percent of the GDP of 1990. They promise to double the current GDP by 2010, in 18 years after the start of the reforms. If it is true that market economy is more efficient than artificially introduced socialism, as many people claim, why it is harder to turn socialism into capitalism?

Reporter Maybe, because the Russian market is not healthy, it constantly has pitfalls? Now the unpaid taxes are requested from YUKOS, and the rate of shares of all the companies is falling...

Stanislav Menshikov As an economist, I prefer to discuss the YUKOS issue in economic terms. In 2003 YUKOS profit was 36 percent of the overall sum of its sold products. To compare, the successful companies of the US are proud with 10 percent of profit. Meanwhile, Americans pay income tax of 40 percent while YUKOS pays about 20 percent. In addition, YUKOS managers do their best to pay minimum of taxes to the state.

Reporter The question arises: where is the state watching? Why did the government gave the oil industry for benefit of the few, and allows them to make huge profit on oil?

Stanislav Menshikov Neo-liberal economists are ruling Russian economy, such people as Kudrin, Gref, Illarionov. They think that the state’s task is about stimulating economy and reducing taxes on business. The idea is that the businessmen can use the extra money wisely by investing them in production.

Reporter Isn’t this reasonable?

Stanislav Menshikov The new economic system inherited huge industrial potential from socialism. This financial foundation became the ground for personal enrichment. The class of new Russian capitalists originated from the socialist economy – the dealers of shadow economy and regenerated Soviet elite. This explains the features of the new Russian capitalists who got used to hiding their incomes, or steal, saying in other words.

Reporter But all big capitals, both in Russia and in the West, made in dishonest way.

Stanislav Menshikov In the West, this was long time ago. The descendants of the wild capitalism era work on different rules.

Reporter Will we have these rules?

Stanislav Menshikov Probably. But today the oligarch capitalism makes huge damage because it gets all the revenue and deprives other industries of resources for development.
Unfortunately, the government does not have different approach to the poor and the rich industries, it does not take the surplus profit for the needs of the state. We will not be able to improve our economy until the government does not take measures to change the huge disproportion in the norm of profit of different industries.

Reporter Our President is concerned about this as well. He said many times that the surplus profit should be taken by the state, and hi-tech industries should be developed on this money.

Stanislav Menshikov The problem is, we found ourselves in the backyard of the global economy. We will get stuck there if our government will pursue the policy of equal taxation.

Reporter Recently the book “Russian Economy. 2003” has been published. Its authors write that flat scale taxation, “equal taxation” saying in your words, is our main achievement.

Stanislav Menshikov Speaking of the 13-percent scale of taxation, I see no achievement in it. This is just allocating national income from the poor to the rich. Of course, the rich people think this is fair. But from the point of view of economic science, taxes are fair when they are charged according to level of income. The “most capitalist country” of the world, the USA, has a progressive taxation scale.

Reporter You have always depict the USA as an example. Why should Russia and the USA be compared?

Stanislav Menshikov Because they built the most effective model of capitalism, and under it the majority of people live not bad at all. In our country, a fraction of people live well. Certainly, corruption is everywhere. But in the USA the state protects the interestsof society, while in Russia it stands for the interests of this fraction of society. I will tell you more – Russia has no clear industrial policy. And under these conditions, the state bureaucracy is working against the business which tries to develop non-raw material-based industries.

Reporter What do you mean?

Stanislav Menshikov The tycoon in aluminum industry Oleg Deripaska wanted to develop automobile plants, but was turned down. Tycoon Mordashov purchased Ulyunovsk automobile plant – no prospects. With the same result Alexander Lebedev tried to invest in Voronezh TV sets and aviation industry. Capitalism will be completed, if it works not for 10-15 percent of population, like in Russia, but for 90 percent of the population, like in the USA. Sooner or later, we will run out of oil. What will we have after this? What will our government do?

Reporter No doubts, Russian capitalism is not perfect. Does different form of capitalism exist?

Stanislav Menshikov Yes, it does. Percentage of revenues in Russia is 60 percent higher than in the leading capitalist country of the world. Taking into account the hidden revenues of our oligarchs, it is minimum 2.2 times higher. Percentage of salary in Russia’s GDP is 27 smaller than in the USA where the salary is 60 percent of GDP. In Russia, the salary is about 40 percent from GDP. This is the “pirate nature” of Russian capitalism.

However, the USA had time when the percentage of salary was decreased up to 40 percent of GDP – in 1929, during the Great Depression. However, Ford said at that point, “I should pay the workers the sum sufficient for them to purchase the vehicles they produce”. Low consumer demand is the problem not only of the state having limited resources. Our oligarchs cannot comprehend this. Our capitalism is cruel as it is being built at the expense of impoverishing of the majority of population. For this reason, Russian capitalism cannot be effective.

Anatoly Alshits