Kagarlitsky: “Nationalize Everything!”
By Sean at 17 October, 2009, 9:01 am
I rather like Boris Kagarlitsky. And his retelling of his recent appearance on a Russian political talk show makes me like him even more.
Kagarlitsky was invited to participate as the “expert” in a discussion on the relationship between Russian business and the state. Clearly, they didn’t read his resume carefully. The panel featured a self-described “patriotic economist,” an “aggressive” former publisher of a well-known newspaper, a brewer cum financier, and a token “small businessman” gas station owner. The topic centered around “yet another report of the patriotic economists” that pointed the finger at Russia’s oligarchs for the nation’s economic woes.
I actually wonder about this. Not in regard to the veracity of the claim, but what the “oligarchs” as blame means politically. After all these oligarchs are now Putin’s oligarchs. Their screw up can double back as his screw up. As Marx once remarked, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” But then again, this maxim doesn’t always fit Russia. The elite has a tendency toward cannibalization, and the vozhd has historically shown to have no problem making an example of his underlings. So are the oligarchs merely lambs to the slaughter in waiting? Maybe. Let’s hope. If the Russians really want to adopt the Chinese model, then they should really adopt it. The economic crisis has revealed the oligarchs for what they really are: “billionaire-bolsheviks” who run to the state hat in hand to cover their debts, or worse continually fleece it and its people while the former use their ownership over the culture industry to propagate the lies that say that “crisis” is merely a aberrant tick in an otherwise socio-economic ubermensch.
Predictably, Russia isn’t the only place where such creatures reside. As Mark Ames recently put it in his own eloquent way: “[The Russians] had their bolsheviks; we [Americans] have our billionaire-bolsheviks. The effect of these two rapacious ruling elites is the same: the state and the people serve the tiny ruling class; and when we’re not serving them, we can fuck off and die. Literally. Because that serves them too.”
But back to Kagarlitsky. Unsurprisingly the “greedy oligarchs as guilty” meme prompted a fiery discussion, or one could say, a performance where each “shouted, squealed, called one another abusive names – almost seized the other by the hair.” Kagarlitsky continues:
The intellectual and theoretical level of discussion matched this display of tact and delicacy. The publisher said that oligarchs generate the ongoing blessings of efficiency. The others, united for a moment, condemned him; however, they then plunged into confusion and disarray as the topic devolved towards economic policy. It seems that it is necessary both to strengthen the state and give more freedom to business; at the same time, not interfere with market processes yet to provide appropriate regulation down the corporate line. Credits, which once again the government has given to corporations, will be once again plundered.. Everybody, even the publisher, took this as axiomatic. But, in the future, they all agreed, very radical steps are necessary. The system of “guaranteed loans” has to be changed . Big companies now get credit from the state against the “security” of future profits, which – it is very clear – will not be forthcoming. More tangible guarantees are necessary though the deep-thinking patriotic economist has no constructive suggestions as to what these might be.
How to disentangle this mess of rhetoric and contradictions? Instead of trying to grasp on and untie its tangled threads, Kagarlitsky simply chose to blow them apart:
Because time is running out, I have to limit myself to a very short summary: Nationalize everything, and confiscate without any indemnification. We – the people of Russia – have already paid for this property twice. The first time, when all these factories were built and then, for symbolical pennies, were given to the present owners; and now, the second time, when the owners of the companies led their businesses into bankruptcy and the state promptly bought out their debts out and, again, has left the companies with the owners.
The billionaire-bolsheviks were out bolsheviked. But Kargarlitsky’s broadside reveled something much deeper. His use of the N-word, not that N-word, but the one that throws any capitalist into a tizzy, nationalization, proved that when push comes to shove the the business class displays a uncanny measure of class unity. But there is more. And for that more, I will let Kagarlitsky speak for himself (with me adding emphasis):
The Russian businessmen and their liberal intellectuals adore complaining about the state and officials, and simultaneously about rackets, the mafia and corruption, dumping the responsibility for these phenomena on this same state. However, on a closer look, it is easy to understand that they have exactly the state they want. If you underpay taxes (which are rather low anyway), it is quite clear that the vacuum generated by the weakness of the government will be filled by corruption. You complain about bribes, but – using those bribes – you receive contracts and public funds. And all time you ask for new privileges, grants, help and indulgences. Certainly, business would prefer to not pay either taxes to the state treasury or bribes to racketeers and officials. But if you would choose between taxes and bribes, between the strong state and systematic corruption, most likely, your business without hesitation would choose the latter. And anyway the choice has long since been made. Our state – as it exists today – entirely corresponds to that that choice of our domestic bourgeoisie. As the saying goes, “two boots are a pair,” not only are they ideally similar to each other, but they are unable to function without each other.
And what about loud quarrels, with breaking of dishes? The same can happen, even in families. The falling out of lovers is the renewal of love.
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Comments
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I support nationalizing the commanding heights of the Russian economy, with the exception of the dynamic sectors like mobile telephony, etc. Certainly the hydrocarbons sector should be brought under full state ownership.
The oligarchs can be retained for their managerial talent, but there’s no point in them keeping their billions.
Certainly the hydrocarbons sector should be brought under full state ownership.
It mostly already is, and is suffering massively because of it. Even the Natural Resources minister has admitted that handing all development to Rosneft and Gazprom has resulted in huge underinvestment over the past 2 years, and they’re now having to rethink their position. The Russian government is even thinking of selling its stake in Rosneft. The Russian government has failed to develop a single decent sized oil or gas field since Soviet times. For all the blubbering about Shell stealing Russia’s resource on the Sakhalin II project, what has been stopping Russia developing any of the other several dozen major prospects in Russia? Incompetence. As any glance around the oil industry will show, with the exception of Norway, governments are utterly hopeless at oil and gas developments.
Incidentally, the only oil company which could have been in with a chance of developing Russia’s hydrocarbon reserves domestically was Yukos, which was exceptionally well run. Sakhalin Energy inherited a lot of ex-Yukos personnel once Rosneft acquired them, and they praised the management, work practices, and salaries. I’m not defending Khordorkovsky here, but there were probably better ways to deal with him than destroying Russia’s best performing company and condemning its employees to state-run bureaucracy.
By the way, I think Kagarlitsky makes some very good points, especially in that last piece quoted.
The difference between us isn’t that I’m not aware of the points you raise about the “ills” of nationalization, but that I don’t see them as ills.
Private companies focused on making profits have an incentive to drill aggressively and extract quickly (which tends to damage long-term recovery potential), especially in a state like Russia where their property rights are not secure. Increasing private ownership of energy companies will benefit the individuals connected with them, but will hurt the state which will a) deplete its oil reserves quicker (particularly harmful given peaking global oil production, which will make it an extremely valuable and strategic commodity – more than it already is), and b) form powerful economic players whose interests are internationalist, not aligned with Russia’s (which is what happened with Khodorkovsky’s attempted takeover of the state).
Also, the reason Russia didn’t open any “decent sized oil or gas field” since the Soviet Union was because all its supergiants, both oil and gas, were discovered and brought online by the 1970’s. The only ones left are small remote ones and moderately-sized but extremely challenging ones like the Arctic gas fields. That is not incompetence but geological reality.
I for one would prefer that Russia leave more of its resources in the ground (which is a form of saving), NOT waste capital on developing projects that will only ever see a low rate of return to the state, and intentionally scale back oil exports in order to draw out the time it will take to deplete its oil sources. As a bonus, this would aid domestic industry instead of reinforcing its status as a resource appendage of Europe, and slow down global warming.
Private companies focused on making profits have an incentive to drill aggressively and extract quickly
No they don’t. They have an incentive to maximise the overall production of the reservoir, which is usually not compatible with drilling agressively and extracting quickly.
The only ones left are small remote ones and moderately-sized but extremely challenging ones like the Arctic gas fields. That is not incompetence but geological reality.
This is not true either. The Kovykta field is huge and not technically challenging, yet took TNK-BP to develop it. The Salym field is pretty big and even though is in the arctic region, not particularly challenging. I’d even go as far to say the Sakhalin I project was not exceptionally challenging once you’d removed the obstacles installed by the government.
I support nationalizing the commanding heights of the Russian economy, with the exception of the dynamic sectors like mobile telephony, etc.
Why? If state is so efficient at running things, why preserve a token private industry? Let the state run it as well.
It seems to me there are two kinds of people: those that fear the all-powerful private individual, and those that fear the all-powerful government official. Arguments about economics is pointless between these two types of people, as they simply will talk past each other.
That said, profits are what allow a company to grow by investing in new equipment and personnel. Any company that isn’t interesting in growing is going to die. Likewise, you don’t kill the goose that is laying the golden eggs, otherwise you will be out of a job down the road. I think every company that has been around for more than a few years is more interested in sustaining the viability of their firm for perpetuity than making a quick buck. There is this thing called bankruptcy that weeds out the stupid and greedy. Well, there was before all the bailouts.
As for leaving oil in the ground as a form of savings. I suppose their is some truth to that over the short term. However, oil is a valued commodity right now because it is prevalent and cheap. As it gets more expensive, other forms of energy will become more feasible, making oil obsolete as an energy source. Such that there could be day where haveing oil in the ground does you nothing. For instance, who cares about what the price is for whale oil right now?
@Tim,
OK, I suppose the private overproduction thing was amiss. However, re-gas – 1) it is undeniable that the new fields are still more technically challenging and expensive than the Siberian, and the pace of discovery has certainly plummeted since the mid 1970’s, and 2) there is no point in increasing gas production beyond the amounts demanded by Russian and European consumers. (Indeed, I would use part of the taxes on Gazprom to increase Russia’s low energy efficiency).
@Cyrill,
The state was central to the development of today’s developed nations (http://www.paecon.net/PAEtexts/Chang1.htm) through tariffs and industrial policy. Your flippant remark is ideologized and ahistorical.
@Jason,
1. That assumes it is in Russia’s national interests to have powerful, highly-capitalized private oil companies. I do not consider that to be the case because their managers’ interests will be transnational, not national (see Khodorkovsky).
2. In reality, due to the challenging nature of the remaining oil deposits they face diminishing returns on any investment which they might make (be the oil companies private or public), and I believe there are better uses for those funds.
3. Oil exports appreciate the ruble and hurt Russia’s manufacturing, which harms attempts to move beyond resource dependency in international trade.
4. There is an assumption that something will feasibly replace oil on the same scale and in all its capacities. Given the energy and pollution costs of possible alternatives like biofuels, hydrogen, etc, it is a questionable one.
The state was central to the development of today’s developed nations (http://www.paecon.net/PAEtexts/Chang1.htm) through tariffs and industrial policy. Your flippant remark is ideologized and ahistorical.
It is flippant alright, but it is hardly a-historical. You and the article you site confuse two distinct stages in development of nations: formation of national states and national economies and further industrializations (Marxian “initial accumulation of capital) with post-industrialization development fueled by technologically advanced trade infrastructure.
Although true regarding very early stages of development of European capitalism – protectionism was nothing but a roll-over from mercantilism. Lumping Edward III and Alexander Hamilton in one group is quite silly and what might be appropriate and reasonable for, say, contemporary Nigeria, is hardly appropriate for contemporary Russia that had already went through pre-industrialization and industrialization long time ago.
It is hardly appropriate to make a flippant and ignorantly a-historical comparison the author of this internet posting makes: between a world with a handful of nations going through initial development of capitalism while the rest of the world barely entered feudal stage with contemporary world of major developed market economies trying to pull the rest of the world up.
Tim,
“The Russian government has failed to develop a single decent sized oil or gas field since Soviet times.”
So? I can’t think of a time when it would have been to Russia’s advantage to do so. All that would have done is deplete Russia’s oil reserves faster, and at a lower price. Now, I can see why Western governments might be upset that Russia hasn’t done so, but it is not clear why the RF government should make decisions based on what Western governments want.
So? I can’t think of a time when it would have been to Russia’s advantage to do so. All that would have done is deplete Russia’s oil reserves faster, and at a lower price.
Firstly, it would have been advantageous to do so because Russia’s overall production is falling and the government needs the revenues from the exports (hence all these grand development plans in the first place).
Secondly, talking of depleting Russia’s existing oil reserves by increasing production now is like worrying about the water in a lake when a camper drinks some of it: Russia’s reserves are so enormous, depleting them won’t be a worry for another century or so.
Thirdly, Russia increasing its production would not influence the global price of oil, so the price would be at whatever it was at the time, hence not necessarily lower.
It is not clear why the RF government should make decisions based on what Western governments want.
Actually, it is the Russian government who wants to increase production. This has been the constant refrain for the past 10 years. Only the Russian government has recently insisted that only Russian state-owned companies can be allowed to do the bulk of this, hence production rates have fallen. As I said earlier: incompetence.
it is undeniable that the new fields are still more technically challenging and expensive than the Siberian, and the pace of discovery has certainly plummeted since the mid 1970’s,
Indeed. But were the competent oil companies allowed in, the pace of discovery would not have plummeted; and yes the new fields are challenging, but not unachieveable for a western supermajor. Gazprom and Rosneft, on the other hand, are not competent to develop them.
@Tim,
Re-2. Oh dear, you’re one of those cornucopians. http://www.theoildrum.com/node/3626
Re-3. Global oil supplies are very constrained from the mid-2000’s, so I’m not so sure about that.
Actually, it is the Russian government who wants to increase production.
And they are idiots or the West’s ideological slaves for that.
Gazprom and Rosneft, on the other hand, are not competent to develop them.
If they really want to develop them and don’t have the domestic Russian capability to (which is true), they can hire Western oil service companies to do that – as they have on many other fields. The supermajors aren’t necessary.
I have no idea what a cornucopian is, but the fact remains that premature depletion of Russia’s reserves is not a rational concern..
The combined Opec efforts and world demand is what generally sets the oil price, Russia increasing its production would have negligible effect..
.
And the oil service providers are okay for running operations, they are not much good for developing new fields. No service provider can design and build an LNG plant, offshore platform, and supporting infrastructure. Which is why Russia is once again courting the majors.
1. A cornucopian is a futurist who believes that continued progress and provision of material items for mankind can be met by similarly continued advances in technology. Fundamentally they believe that there is enough matter and energy on the Earth to provide for the estimated peak population of about 9.5 billion in 2050. (http://en.wikipedia.org/wiki/Cornucopian)
2. Since Russia accounts for about 12% (+/- 2%) of world oil production, dropping its production by, say, two-thirds (which would still more than cover domestic consumption), will have an extremely big effect on world oil prices. (Not that I favor such a drastic cut).
3. All the more reason for Russia to develop, buy or steal its own oil-extraction technologies instead of depending on foreigners.
The oil and gas business is international. We all rely on foreigners. The reason why Russia is making a hash of their industry is because they think they can develop all by themselves. They can’t, and they’re slowly realising this. It is not simply a matter of buying technology.
“Why? If state is so efficient at running things, why preserve a token private industry? Let the state run it as well.”
Point missed as usual.
“Firstly, it would have been advantageous to do so because Russia’s overall production is falling and the government needs the revenues from the exports (hence all these grand development plans in the first place).”
The revenue from the oil goes mostly into RF foreign currency reserves and various “rainy day” funds. Using the revenues for domestic spending is nothing more than a recipe for even higher inflation. In other words, the RF government dosen’t need the money, because all they really do with it is by US Treasuries.
“Secondly, talking of depleting Russia’s existing oil reserves by increasing production now is like worrying about the water in a lake when a camper drinks some of it: Russia’s reserves are so enormous, depleting them won’t be a worry for another century or so.”
Not so. It’s about 25 years at present production rates. Consider the Brits. They went from peak production and exports (at $10/barrel) in 1999 to net imports by 2004. And now they’re paying almost $80/barrel for their imports like the rest of us. Seems to me that pumping so enthusiastically back in the ’80s and ’90s was a pretty dumb thing for the Brits to do.
“Thirdly, Russia increasing its production would not influence the global price of oil, so the price would be at whatever it was at the time, hence not necessarily lower.”
LOL!! So if Russia had fed another, say, million bpd into the oil glut this Spring, it would have had no impact on prices? Pull the other one, it’s got bells on.
Russia is not Saudi. It cannot just produce another
million barrels overnight, in fact it is doubtful whether they can increase production at all. To do so they’d need a new development which would be recognised by the market and considered in the oil price accordingly, which really wouldn’t be much of a factor. And a million barrels is not a huge quantity, not enough to influence the oil price in any great way.
The oil and gas business is international. We all rely on foreigners.
Assertion not supported by the facts. No, in Russia, the largest oil and gas producer in the world, oil and gas business is not international.
The reason why Russia is making a hash of their industry is because they think they can develop all by themselves.
Not only “think”, but perfectly managed to do that for the last 90 years and became the largest oil and gas producer in the world.
They can’t, and they’re slowly realising this. It is not simply a matter of buying technology.
You mean it is a matter of buying “technology” and allowing corrupt western oil majors in? Thanks, but no.
Moreover, Russia currently extracts 5 m bbl/day it does not use and bury into useless US treasuries, so looks like some production cuts are in order.
Assertion not supported by the facts. No, in Russia, the largest oil and gas producer in the world, oil and gas business is not international.
The facts are there, all right. Shell, BP, Exxon, Total, StatOil, Mitsui, Mitsubishi, SODECO and ONGC are all major operators in Russia. Oilfield services and drilling is usually provided by KCA Deutag, Schlumberger, Parker Drilling, BJ Services, Champion Technologies, Halliburton, Baker Hughes, and many many others. Engineering and construction companies working in Russia include Fluor, WorleyParsons, CTSD, Bechtel, Enka, ABB Luminus, PSN, Amec, Samsung, Daewoo, Aker, CH2MHill, Veco, and a whole heap of others, without going into the subcontractors such as Kentz, Kentech, and Cape who provide specialist services. Anybody who thinks the Russian oil and gas projects represent a domestic effort only hasn’t been paying attention to who is actually doing the work.
Not only “think”, but perfectly managed to do that for the last 90 years and became the largest oil and gas producer in the world.
Perfectly managed? Hmm. I wouldn’t call reinjecting water into the reservoirs to the point that they become unviable well before their time is an example of perfect management. Now would I call the appalling pollution which is evident around any Russian-run wellsite, nor the atrocious HSE statistics, or the overall declining production rates the result of perfect management.
You mean it is a matter of buying “technology” and allowing corrupt western oil majors in? Thanks, but no.
I have heard several reasons why Russians don’t want the western oil companies involved in Russia’s oil and gas development plans; that they are corrupt, at least by Russian stanards, is a new one to me, it’s rareity probably having something to do with the high degree to which it is laughable.
Moreover, Russia currently extracts 5 m bbl/day it does not use and bury into useless US treasuries, so looks like some production cuts are in order.
I like this. Russia’s internet champions have switched from “We’re gonna embark on massive oil and gas developments plans and the whole world will depend on us to function” to “Developing our oil and gas reserves is not in our interests in the space of the one year it has taken them to realise that their development plans were not realistic! It’s a valiant effort, but I suspect convinces few outside of Russia.
The facts are there, all right. Shell, BP, Exxon, Total, StatOil, Mitsui, Mitsubishi, SODECO and ONGC are all major operators in Russia.
Well, mistakes were made in Yeltsin times and too bad that oil enterprises were stolen from Russians. Transfers of oil properties to Western companies were never seen as legitimate. Let’s hope that once Putin is gone they will be nationalized back.
Still, the majority of extraction and reserves are owned by domestic concerns.
Anybody who thinks the Russian oil and gas projects represent a domestic effort only hasn’t been paying attention to who is actually doing the work.
Did anyone say only? For work, it’s mostly domestic with a bit of Halliburton and Central Asian migrants in a mix. Domestic only period lasted 70 years and ended 20 years ago.
I have heard several reasons why Russians don’t want the western oil companies involved in Russia’s oil and gas development plans; that they are corrupt, at least by Russian stanards, is a new one to me
Not so Western, but primarily Naglo-Saxon companies which are known for corruption, mismanagement and blatant disregard for the law and environment. A pity that BP is not kicked out of Russia. Others, say, French, Norwegians or Chinese, have better reputations.
I like this. Russia’s internet champions have switched from “We’re gonna embark on massive oil and gas developments plans and the whole world will depend on us to function” to “Developing our oil and gas reserves is not in our interests …
Setup when gas and oil are extracted for export and proceeds are buried in Treasuries is definitely not in Russian interests. Close 2/3 of the oil wells, send expats and Exxons home and leave Treasuries for China. Sounds sensible to me, not going to happen with Putin in power, though.