Economical And Political Situation In Russia Politics Essay

Economical And Political Situation In Russia Politics EssayThe purpose of this news report is to investigate and to shed light on the nature of the birth mingled with big transaction and the democracy in contemporary Russia. It is commonly assumed that a relatively small number of Russian industrial tycoons, or oligarchs, control a substantial sh be of Russias economy and arrive the capacity to de stipulationine insurance policy in the atomic number 18as that are fundamental to the running of the country. I propose to challenge these assumptions and to argue that amidst 1996 and 2003 frugal power ward offs in Russia could never aspire to give out the ruling class, as well as to enjoy access to the development of verbalise policy. In contemporary Russia the atomic number 82 entrepreneurs are no wideer in the position to make significant claims on the semi politicsal power using their economic resources. Fortescue argues that the use of the term oligarch is questionabl e because as an economic power block they never managed to actually run the country and that their policy role even in the economic sphere was minor. This paper argues that the oligarchs took advantage of, rather than stoold, the big craft strategy of mass privatization and shares-for-credit scheme. I in that respectfore prefer, when dealing with the subject, to speak of industrial tycoons, economic power blocks or big transactiones.The coincidenceship between Russian care and the terra firma swung between two extremes. Under the conditions of a weak secernate in the early to late 1990s there was a advanced level of state set out by Russian patronage. State capture or privatization of the state is best understood in terms of economic resources being apply to influence the policy making process of federal and regional authorities to the social welfare of the economic and governmental agents involved in these collusive agreements. State capture denotes a note where a narrow set of busys, such as a firm, uses corruption or relies on informal agreements to shape the political and well-grounded environment to its own advantage. This paper explores how the strategy of close integration with the state paved the focal point for the regional and federal authorities to gradually channelize, relationship wise, from state capture to informal submission of private line of work to the state. In raising critical questions and relying on empirical evidence I attempt to channelize a clear picture of the policies pursued by the Kremlin administration to establish an effective political mechanism to control and benefit from the economic performance of the industrial tycoons. I assess the risks taken by Putin in launching a frontal attack on the selected oligarchs and determine whether Putin has been successful in creating a new political order that aims at using economic power blocks as a tool of effective state politics.The first chapter analyzes the sta te-business relations in the mid-late 1990s. I facet at the privatization of the state and the nature of collusive agreements between leading economic and political power blocks.The second chapter looks at the consolidation of the state and its changing relationship with the big business community. I look at the way the nature of several(prenominal) relations with political power was re-assessed and how the consolidation of power contributed to big businesses go under the command of state bureaucratic interests. This chapter demonstrates how the changing relationship, attributed to the consolidation of the state, created favorable conditions for the development of large-scale financial industrial groups, with the capacity to stimulate the growth of Russian economy and to serve as a strategicalally classical factor in the pursuit of broader political interests.1 STATE CAPTUREstate-business relations in the mid-late 1990sIn the early stages of democratic transition and state cons olidation between 1993 and 1996 the concept of rent seeking was widely used to describe business behavior in Russia. Characteristically, those who were able to accumulate large capital and property relied on a strategy of close integration with the state and maximized their profits by means of with(predicate) privileges, such as subsidies and benefits obtainable from the state. The relationship between business and governance was determined by differences in access to rent and its distribution. Those who were closely connected to the state were able to use the changing political and economic system to their advantage. When political and economic systems go through a rapid and challenging change they create a range of opportunities to take over business, using formerly state-owned property, and to make money on the structural disorders of a state in transition. Andrei Yakovlev in assessing the situation in Russia as compared to other Eastern European countries notes that weakened and half-destroyed public institutions in Russia were unable to build an effective resistance to the attempts of various private interest groups to capture and privatize rent.In the first half of the 1990s Russian political authorities made a strategic choice on the pop out of foreign ownership and gave preference to the younger generation of Russian entrepreneurs. The Russian political authorities were faced with a choice-to put their money on all their business or on foreign investors. The active lobbying of big capital led to the adaptation of the first scenario. Such a situation created the ideal set for the growth not only of the economic, but excessively the political influence of big capital.Most of these entrepreneurs got control of their most valuable assets by shares-for-credit scheme through which Boris Yeltsin funded his successful 1996 election campaign. Yeltsin offered assets of existing state-owned enterprises at a bargain basement price in exchange for loans to the Russian government that could be redeemed for march on sharesThe assets were to be put up for auction, the winner of each auction being the bidder who offered the highest amount of credit to the state. The winner would hold the states shares as security on the loan and have the right of operational control.The main beneficiaries of the auction were the ONESKIMbank, Menatep, Lukoil and Surgutneftegaz Pension Fund. It is important to understand that the shares-for-credit scheme involved a strong element of long term strategic thinking among a powerful group of reform oriented policy makers headed by Chubais. Fortescue notes that it was designed to achieve a strategic goal, laying the tail end for a privately owned big business able to operate competitively in global markets. This period is best characterized by the creation of government assisted financial-industrial groups with the capacity to improve their economic efficiency and global competitiveness. The inevitable result w as high concentration of property ownership and economic power.The president and fan tan that Russian businesses helped elect created the legal environment that their businesses needed to prosper. Yeltsins daughter, Tatiana Diachenko served as a political channel through which the oligarchs could influence the decisions made by the presidents political suite in their favour. Shevtsova writes that informal political channels helped to hasten the merging of business with the state authorities at the top, and this blending of power and business spread just to other levels of the system. Oligarchy became a political reality in its true definition of the term when Vladimir Potanin was appointed first surrogate prime minister and Boris Berezovskii was made deputy secretary of the Security Council. These appointments legitimized interference by big business in the inter-group communications of the state and in m either miscues restricted the playing field for everyone else. The leadin g tycoons not only restricted the market to other firms but also successfully lobbied for exclusion of foreigners from their fields of activity.In 1996-97 they fell out with one another(prenominal) and began fighting among themselves for economic resources. It is argued by leading economists and political theorists that lack of corporate spirit and organized action among the oligarchs sharply reduced their influence on political authorities. They were unable or unwilling to defend each other when the common enemy arose. For example for Bunin and Pete Duncan their inability to influence the Kirienko government and his attempt to rein them in by taxationing their companies and to proceed with the devaluation which brought them enormous losses in August 1998, demonstrates their lack of power. Minister of Finance Fedorov in mid 1998 stated the following You guys are not paying taxes. Well arrest you, well take your property, well make your companies bankrupt. After the August 1998 cra sh Berezovskii attempted to have Kirienko replaced by Chernomyrdin. with informal agreements he persuaded Yeltsin to nominate him for the post twice but the State Duma rejected his nomination. Even Chubais who was instrumental in the privatization process and managed to intervene on their behalf with Yeltsin on a number of crucial occasions was not going to grant them control of the political process So in 1996, using the newly created Russian business, we resolved the problem of communism in Russia. But then that very big business decided that at last everything was in place and straightway decided to run the country. The government is working hard to get the message across to business that it is not its job to run the country. Anatolii Chubais, the architect of Russian privatization, in 2004 admitted to having underestimated the deep feeling of injustice that shares-for-credit would create, although he still maintained that given the choice between bandit communism and bandit c apitalism, then the choice he made in favour of the latter was the right one.The oligarchs were able, on the whole, to withstand the attacks on them from the reformers but it signaled an end to the era of political domination. Pete Duncan notes that the organs of the state, the security services, the police, the build up forces and the courts remained loyal to the president, and already in the Yeltsin period looked with suspicion and jealousy on them. In the true sense of the term, the Russian oligarchs never really exercised any high degree of political power and have shown no capacity to determine policy in the areas that are fundamental to the running of the country. First, they took advantage rather than created the major economic transformation policies. Second, their policy role in the state system creating sense was minor. Third, having regained the instruments for the resolution of conflict and determining the rules of the game, the authorities grew stronger than the busin esses that had assisted them by change their power and providing financial support to specific officials. The use of the term oligarch in its traditional sense is therefore questionable. As according to Pete Duncan, they were lobbyists rather than decision-makers, on the whole. The shift of balance began to be evident after the August 1998 crisis.2 Consolidation of the Statere-assessment of individual relations with political powerLocal and regional authorities began to undermine the power of the federals (who were largely dependent on oligarchs) by supervising the territories within their jurisdiction for tax evasion. In exchange for ensuring electoral support local and regional authorities bargained for more power and resource regulation in strategically important regions. As we have already noted, the conflicts between the leading industrial tycoons (along with their revereive sponsors in the federal administration) over sources of rent extraction eventually produced the finan cial crisis which ended with the breakdown of the largest banks and a radical replacement of the federal government. reverse to the situation before the 1996 presidential election (when powers of the oligarchs, regional and federal authorities were united to preserve the nature of the political political science), the 1998 crisis, stimulated by the political tensions between leading industrial groups and authorities produced a deep split in the ruling elite. The split in the ruling elite is well documented. Yakovlev writes that influential regional governors, together with their business associates, attempted to use the crisis to make the federal government even weaker. Narrow circle of politicians and top bureaucrats, financed by the economic power of the JSFC Sistema created by the Moscow government and Yuri Luzhkov attempted to undermine the position of the federal elite and Boris Yeltsins associate business group. In order to ensure succession of power in a deeply discredited f ederal government the federal elite had to resolve their conflicts with the powerful governors gathered around fatherland-Russia and to win the support of the federal bureaucracy. It was important for the super elite not to ignore the strategic interests of the nation otherwise they would run the risk of the complete loss of their personal authority and influence. Measures were taken to (1) extend financial support to the army, the FSB and to other law enforcement agencies (2) to strengthen the status of federal bureaucrats (3) to win the support of non oligarchic business by revising tax legislation and alleviating the tax burden. Actors involved in the process of power consolidation used the new image of a strong and responsible leader personified in Vladimir Putin to increase the public support of society that has grown tired of chronic state weakness, corruption and looked with suspicion on the close contacts of the presidential administration to the business tycoons. The first steps that Putin took as the prime minister, particularly his initiative to work out a long term policy for the strategic development of Russian economy, boosted the Social Sentiment Index from 85 points to almost 140 points. The index shows that trends in public opinion, based on how people assess the political, social and economic situation in the country, were in favor of the newly established political order. With social support and federal bureaucracy under the control, the newly emerging federal elite strengthened their position by limiting the powers of the governors through the creation of a system of federal districts and through a delimitation of statutory powers between the federal government and the regions. Yakovlev notes that these steps sufficiently diminished the rights and fiscal resources of regional authorities and paved way for a consolidation of a new political system with rules of the game changed in favor of the state rather than private interests of individu al political and economic agents.Federal authorities and economic power blocks of the Yeltsin regime failed to introduce effective means of state regulation and economic and social development. These failures should be attributed to the politics of favoritism and informal collusive agreements between political agents and industrial tycoons. The political and legal environment was shaped by a set of narrow interests that undermined the development of the strategic interests of the nation. The new super elite of the Putin era took into line an important factor in order to consolidate personal authority and influence it is essential to take into account not only the interests of the groups they arose from, but also strategic interests of the nation. This is an objective condition which places this narrow group above the other groups of the elite. What the oligarchs of the 1990s could not do and that is to serve the common purpose and enjoy a common set of principles and rules, the new emerging elite consolidated their power and influence by promoting the strategic interests of the nation. This strategy did not only win them usual support but also guaranteed loyalty from federal agencies that have already in late 1990s have been critical of public officials operating for the benefit of individual market players connected to the highest echelons of political power.Curbing the oligarchs political influence was an essential part of Vladimir Putins state politics. He promised to treat the oligarchs in the same way as other entrepreneurs and announced that all interest groups would be kept at an equal distance from his government. The much quoted term equidistance refers to a situation when the state no longer plays favorites and refuses to promote special interests. In the first meeting with the leading oligarchs Putin made it clear that it is not their business to get involved in politics and that they should concentrate purely on running their businesses. It is do cumented in some literature that there was a pact between Putin and the leading industrial tycoons As long as the oligarchs paid taxes and did not use their political power to undermine the development of a new political order, the state would respect their property rights and refrain from revisiting shady privatization schemes. The nature of the meeting cannot be disputed leading businessmen and Putin met to discuss possible patterns of action between business and the state. However, I am inclined to argue that because big business in Russia never developed a corporate interest that it could defend collectively, backed both by the population and the state apparatus which outweighed any special interests that oligarchs could have attempted to lobby for. Tompson, for example, describes the agreement as something akin to a foundational political myth and Pete Duncan argues that there is little evidence that Putin promised them anything. Putins priority was not to arrange a true hypo thetical agreement between the oligarchs. (If Russian politics of the Putin era would be interpret in these terms it would imply that the state was not in the position to use its bureaucratic means to restrict the political influence of the leading business tycoons.) The opposite was true big businesses were increasingly subjected to searches, summonses and charges from various government agencies, usually related to tax and privatization issues.The owners of big business who found themselves under federal investigating were no longer in the position to use direct informal contacts with the authorities (that they relied on in the Yeltsin era) to resolve their problems through some form of stipend or favor. The change in the situation should be understood in the following terms individual public officials who operated for the benefit of individual market players in the 1990s were integrated into a larger system of a consolidated state. Consolidated state and its administrative app aratus is interested in the pursuit of long term strategic objectives rather than short term private gains and in order to secure and strengthen its position it will suppress any opportunist behavior of its members whose private interests are in conflict with the interests of the state. Hence, the term equidistance is characteristic of policies pursued by the consolidated regime oligarchs could no longer rely on the support of state institutions or individuals working within these institutions if their interests were in conflict with the strategic interest of the state.Putins priority was to rebuild the central state and to establish the presidential administration as the dominant political institution. State consolidation was a priority for two reasons (A) consolidated government institutions recognize their collective interests (state policy) and abilities much conk out (B) consolidated governmental organizations can influence the rules of the game and are much stronger than any individual player in the political and economic system. With consolidation of the state there is a consequent informal submission of business to the command of state bureaucratic interests. If under the Yeltsin regime chronic weakness of the state meant that individual public officials operated for the benefit of individual market players, under the consolidated government it is either the organization as a whole that operates in favor of certain actors or the organization plays in favor of itself. The relative weakness of the industrial tycoons in the new institutional order was confirmed by the exile of Berezovskii and Gusinskii and the Yukos case.During the Yukos case selective justice was used in means to consolidate power. The case is well documented and it shows that financial-industrial groups that pursue strategic economic and political interests independent of the collective bureaucratic interest of the state would be persecuted and would fall under the control of the state . Yukos dared to take direct action against the authorities by openly funding Putins opponents ( Khodorkovskii was adult financial support to the Communist Party and other deputies to influence their votes on legislation related to taxes in the oil industry) and the announcement of a merger of Yukos and Sibneft, with a possible further sale of a large block of shares to ExxonMobil or Chevron corporations, carried the implication that the state could actually lose control over strategic assets in the oil industry. In 2003 Yukos became the victim of a crippling tax demand which led to its bankruptcy and sale of its assets to government assisted financial-industrial group Rosneft. The Yukos affair has clarified the rules of the game between oligarchs and Kremlin (A) they should pay their taxes (B) they should not interfere in topic politics (C) they should not attempt to undermine the strategic interests of the state in the pursuit of its energy policy. It can be argued that the Yuko s affair had limited but generally positive implications for the development of Russia into eventually a normal market economy. capital of Minnesota Khlebnikov wrote in 2003The arrest of the oligarch is indeed an example of selective justice. But that is rectify than no justice at all. Put yourself in the place of the oligarchs. What conclusions will you draw from the Khodorkovskii case? What will you do as not to find yourself behind bars. Obviously, you will prefer always to be on the side of the president, and even better to keep your distance from politics. But you will also direct all your energies to remaining within the boundaries of the law.What befell the oligarchs under Putin shows that as a class they cannot aspire to establish the dominant force in Russian politics. The regime may exploit big business and at times share power with them, but the settlement of the state on the capital of economic power blocks is purely temporary Even though the oligarchs remain economic ally powerful, they have no longer any weight in politics. Shevtsova notes that once the state has re-established itself and gained the support of other forces, the master of the Kremlin can shake off oligarchic influence.Where does this leave the other oligarchs in relation to the state? Consolidated state bureaucracy brings advantages to the development of big business and the economy. For the oligarchs who accepted the new political structure, rebuilding the state meant more security and guarantees for business. Businesses interact with monopolistic departments instead of individual bureaucrats and their relationship to the state is, therefore, more stable, predictable and effective. Putin and the countrys most prominent business leaders are working to convince western sandwich investors that the Russian government and business can create law-abiding and right-down market economy. Leading Russian firms are moving towards corporate transparency and are trying to observe internati onal accounting standards, pay regular dividends and protect minority stockholders rights. Russias industrial tycoons are becoming global players with the support and encouragement from their government Lukoil CEO Alekperov stated in a 2001 interview that for the past two years we sense support of the Russian leadership, which now understands the importance of creating a transparent business environment that can serve to facilitate not only political ties but also strategic interests. The relationship between the state and business in Russia is one of mutual strategic interest that largely depends on the powers inherent in the presidency. It is in the interest of Russian big business to have behind it the support of the state and its guarantee of property rights, but at the same time it has to accept that the state operates on the basis of informal rules and agreements and places national strategic interests above market mechanisms.