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Whither Russia Inc.?


Dmitry Medvedev speaks during a meeting on preparations for the 2014 Sochi Winter Olympics

Dmitry Medvedev speaks during a meeting on preparations for the 2014 Sochi Winter Olympics


It appears there is more trouble on the horizon for Russia's mammoth state corporations.

The daily "Vedomosti" reports that Prime Minister Vladimir Putin is proposing that oversight of construction work for the 2014 Winter Olympic Games in Sochi be taken out of the hands of the state corporation Olimpstroi (you can read an English-language version of the story, courtesy of The Moscow Times, here).

The report came shortly after the Investigative Committee of the Prosecutor-General's Office announced that it was setting up a special unit to look into possible corruption associated with construction projects for the Sochi Olympics.

And it came just weeks after Russian President Dmitry Medvedev instructed Prosecutor-General Yury Chaika to open an investigation into Russia's state corporations to determine how effectively they work, how efficiently they use their assets, and the degree to which they are complying with the law.

As I wrote here, the first target of the probe appeared to be Russian Technologies, which is run by close Putin ally Sergei Chemezov.

So are the state corporations, a key cornerstone of the authoritarian modernization at the heart of "Putinism," really on the way out?

The state corporations -- Russian Technologies, the bank VEB, the nanotechnology firm Rosnano, the nuclear agency Rosatom, the Olympic construction firm Olympstroi, the Housing Maintenance Fund, and the Deposit Insurance Agency -- were given access to massive funds, were allowed to operate with little oversight, and were exempt from disclosure requirements.

As Kirill Rogov of the Institute of Economy In Transition wrote recently in Russky Newsweek, this suited the needs of Russia's ruling elite just fine during the flush years of Putin's presidency:

By and large, the state corporation is an ideal economic form for a bureaucratic and oligarchic state. It lays the legal foundations of bureaucratic absolutism and breathes new life into Louis XIV's famous formula 'The state is me.' It also brings the principle of a ' controllable market' to life: authorized bureaucrats (the new oligarchs) can manage state property almost like private property, whereas private owners (the old oligarchs) must coordinate their actions with the state.

Today, of course, money is getting tighter and the state corporations have proven themselves to be anything but frugal and efficient. Rogov says this is causing a fundamental rethink of the whole ideology behind what just a couple years ago was known as "Russia Inc.":

There is no doubt that the Russian authorities will have to revise decisions taken in the last years of Putin's presidency. At first, these steps will be half-hearted and clumsy and aimed at saving of at least a part of assets and positions in the economy that were taken by bureaucratic oligarchy. It will later be clear that the ideology of state corporations itself is in deep crisis and the only way out is searching for a new economic ideology.

In an article in Russian Profile, Graham Stack writes that August offensive against the state corporations was preceded by a deluge of criticism directed against them earlier in the summer -- from Supreme Arbitration Court Chairman Anton Ivanov, from the Presidential Council on Legal Codification, and from the Audit Chamber and Anti-Monopoly Service:

Medvedev’s move comes just after a number of different bodies raised a chorus of criticism of state corporations in June and July. This points to a carefully orchestrated campaign to discredit state corporations and to the fact that the president has enough political backing across state bureaucracies to get his way.

Underlying this campaign, Stack writes, is a struggle in the halls of power between the "siloviki" clan of security service veterans who rose to prominence under Putin and "Medvedev’s liberal network of the St. Petersburg civil law scholars, nicknamed the 'civiliki.'"

The siloviki, most notably Chemezov and Deputy Prime Minister Igor Sechin, want to preserve the state corporations and statist the economic model that supports them. The civiliki want them brought to heel.

And the key battleground, Stack writes, will be over the fate of Russian Technologies:

The big stumbling block will be what to do with the mother of all state corporations – Russian Technologies (RT) – the very first state corporation established in December of 2007. RT was originally based on defense sector exporters and their suppliers, but rapidly snowballed to include companies ranging from metallurgy to carmakers. The corporation is headed by the influential friend of Putin’s Sergei Chemezov. He is the man who single-handedly tailored the state corporation legislation to suit his personal goals, and is not likely to surrender his huge privileges without a major struggle.

But if the "Vedomosti" report about Olimpstroi is correct, it suggests that Putin is at least somewhat on board for Medvedev's campaign.

-- Brian Whitmore

About This Blog

The Power Vertical
The Power Vertical

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It offers Brian's personal take on emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or

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