The hunt for funding to implement the decrees on social spending that President Vladimir Putin passed in May following his reelection has offered something of a peek behind the curtains of Russian state capitalism. “You have to share,” Russian business is once again being told: not under the law as such, but at the state’s request. 

Presidential aide Andrei Belousov has proposed a windfall tax on metals and mining companies on the grounds that prices for their products have been unusually high. That idea was opposed by Finance Minister Anton Siluanov, but although the prevailing position at a meeting attended by the latter on September 7 seemed to be a move away from enforced “voluntary” payouts, nobody has rescinded the idea of business offering episodic aid to the nation.

On the contrary, both sides in the debate agree that business should provide more active assistance to the state, which acts, as Belousov put it, as “the public agenda.” Siluanov went even further, adding that the state would “give pointers” to entrepreneurs by identifying investment targets for them. After that, with the participation of the “oligarchs’ trade-union”—the Russian Union of Industrialists and Entrepreneurs—government officials and big business representatives convened a special commission for finding proper spheres for investments, and decided to concentrate efforts on digital economy development

Previously, such cooperation mechanisms between the state and businesses that depend on it were called social responsibility, and also entailed the voluntary-compulsory confiscation of excessive income, which was given to the state budget or to infrastructure sites or projects that were particularly dear to senior officials. Now this phenomenon has acquired a new pseudonym: “the public agenda.”

Obviously, this agenda has nothing to do with the public. There’s no money, and in light of the clumsily unveiled pension reform plan, it’s not appropriate to ask the population to “hang in there,” as Prime Minister Dmitry Medvedev once did, so new social programs are required. Taking resources away from the military and special services is politically unwise, so it’s time to shake down the oligarchs. 

Russian big business is, of course, keenly aware of its close ties to the state: the umbilical cord was never cut and has only strengthened, if not petrified. If the well-being of major business owners and prominent managers depends on their connections to state bureaucracy, then that bureaucracy—in a difficult moment, when it needs to find the funds to buy the electorate’s loyalty for, as Belousov put it, “the upcoming six-year cycle”—is also within its rights to seek money from business. The problem lies in the principle and fallacies of this logic. 

This logic fails to take into account the state-centric economy. Everything is done for the state and nothing but the state; all the money goes to the state. The state is the smartest, and it decides where to spend and instructs whomever necessary on what to invest in: essentially giving companies privileged positions on the market in exchange for buyouts. 

The Belousov meeting lacked the key presence of Economic Development Minister Maxim Oreshkin. But the discussion isn’t about development: it’s about how to extract money from the economy, and then spend it based on the state’s desires, not the economy’s needs. The economy needs a simple tax regimen, a supportive regulatory environment, friendly—not gangster-like—monitoring and oversight, and the conditions for competition. A state that wouldn’t confiscate money any time it likes—or even, just as importantly, dole out money—would also be nice. But for those things to happen, the economy would have to be far less state-controlled.

Perhaps appropriation systems and taxes in kind on oligarchs are economically preferable to raising VAT. It’s possible, however, to avoid raising or confiscating anything by giving more freedom to private business: specifically, small and medium-sized businesses, which are what make an economy. In an economic system that wasn’t focused on solving government problems or fulfilling “the public agenda,” it wouldn’t be necessary to spend so much state money on social support.

The meeting on September 7 ended with a substitution of terms. Everybody understood that the discussion was about appropriating funds and redirecting them toward social spending that is personally important to the president. But on their way out, they pretended they had been discussing the revitalization of investment activity. 

Ownership rights are relative in Russia, and the major players know this only too well. The Roman poet Horace, after receiving a villa from his patron Augustus for his achievements in lauding the emperor, preferred to return it before his death so that his property would not be requisitioned once he was gone. The property of many Russian oligarchs is like government dachas or Horace’s villa: as long as you’re serving as a business heavyweight, everything is fine, you have your dacha—but as soon as you mess up or forget to share, you’re evicted from the dacha, and you end up with nothing, or in jail, or in forced emigration.

The story also has a political angle. Belousov, who is not a deputy prime minister like Siluanov, has come out as an independent political player for the first time, and managed to force serious, influential businessmen into a conversation they could not refuse. The presidential aide is, it turns out, one of the levels of authority that is able to demand additional spending in the context of “public” support, and also showed that he is able to play on equal ground with Siluanov. Both men adhere to state capitalistic positions, but approach solving the problem from slightly different angles. 

It’s typical that Prime Minister Medvedev has removed himself from the decision of whether it’s better to just appropriate the money or give it the status of “investments,” “taxes,” or “public agenda.” It’s hard to deny that this is a Kremlin affair. The president was involved, after all, by writing “I agree” on Belousov’s initial letter proposing the windfall tax. Significantly, the prime minister is absent from the process of making political decisions. 

The problem is that the head of state has also removed himself from the discussion, rather like he did over the government’s controversial plan to raise the retirement age. In the case of Belousov versus the metals magnates and chemists, Putin has remained an observer who is not willing to suggest moves to either side of the debate. The rules of the game are determined by the players themselves during the course of the argument. 

This is a situation that is occurring more and more frequently in the Russian political system: a competition among loyalists for the attention of the patron, who doesn’t show a preference for either side, and doesn’t even make a final decision. The competing sides make it themselves, understanding that they will have to continue to do so more frequently. They will have to compare their weight within the party apparatus (in this case, presidential aide versus first deputy prime minister), and come to a compromise or a victory without the involvement of a referee. 

This means the possibility of new influential players emerging: a sudden discovery of political weight on someone who was officially considered a lightweight, and intensified competition among institutions and personnel.

This article was originally published in Russian on RBC.

By:
  • Andrei Kolesnikov