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Russia: Analysis from Washington -- Global Economy Permits Concentration Of Economic Power

Washington, 21 January 1998 (RFE/RL) -- Two events -- one in Moscow and one in Washington -- highlight how economic globalization is leading to the formation of firms so large that they may be beyond the ability of any national government to regulate.

In Moscow on Monday, the leaders of two of the largest petroleum enterprises, Yukos and Sibneft, announced that they were merging their companies so as to be in a better position to attract foreign investment and compete with the largest international oil concerns.

And in Washington on the same day, Robert Pitofsky, the chairman of the Federal Trade Commission, the U.S. agency charged with preventing the emergence of monopolies, said that "size alone" could no longer be the only basis to "challenge a merger transaction."

The recombination of two enterprises in Russia creates a firm that may indeed be able to compete against the world's largest oil companies but which will certainly present a series of challenges for the Russian government.

On the one hand, the very size of the new firm, to be called Yuksi, means that the government will have even greater difficulty in regulating what that firm does, whether it pays taxes, and whether its policies reflect those of the Russian government.

But on the other, precisely because of the enormous power of such a firm in the marketplace, government officials may want to form an alliance with it to push their own agendas or even to try to convert this private, but very large firm into an arm of state policy.

To the extent that Yuksi is in a position to dictate to the government, it will only complicate Moscow's efforts to improve tax collection and create the conditions needed for competition in this sphere of the economy.

And to the extent that Yuksi either willingly or otherwise tends to become an arm of government policy, such a development would also have the effect of limiting Russia's transformation toward a genuine market economy.

Many commentators on this latest twist in Russian economic development have discussed it solely in terms of the transition that country is going through from the socialist economy of the past toward a market economy in the future.

But the statement by U.S. FTC chairman Pitofsky suggests that there is another, broader force at work here as well.

For most of this century, the American government has been committed to preventing the emergence of monopolies in major industries or breaking them up when they do appear. But that effort was largely undertaken within the context of the American economy.

As American companies have ventured into the world market and as they have had to compete with the firms of other countries, the U.S. government has been forced to reconsider its position on monopolies at home.

A U.S. company that would be a monopoly or a near monopoly in the American context alone is inevitably something very different when it is viewed in the context of international competition.

In a global economy, foreign competition inevitably undermines or even destroys the power of domestic monopolies to set prices.

But more than that, under such global competitions, national governments may be forced or even willing to permit increasing concentration of economic power to allow their own firms to compete abroad and thus maintain jobs for workers at home.

And in that situation, national governments can do much less than they did in the past to prevent the concentration of economic power and hence of political influence as well.

The situation in Moscow is obviously more severe because of the specific characteristics of the Russian political and economic systems.

But on the question of economic concentration, the contrast with the situations in other countries around the world is far less than many may assume.