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Can state bureaucrats ever beat private managers?

This year has seen the creation of five new state corporations which, the government says, will help boost strategically important industries where the private sector hasn't been able to perform.

The five new state corporations cover housing, development banking, nanotechnology, nuclear power plant construction and Sochi's Olympic preparations.

With them comes the argument about whether they give the State value for money.  

State Duma Deputy Evgeny Fedorov, member of the government- assigned supervisory board of one of the newly created state companies, says that their structure underlines their transparency.

“You see where every rouble goes. It was here in budget – now into the corporation. We see who made a decision where to send it. We have a tender; we see who’s the contractor and the result,”  Fedorov said.

The State corporations will utilise budget money thus giving Russia’s Audit Chamber the power to regulate them. Fedorov adds that board members will be personally be responsible for where the money goes.

But analyst Sergey Guryev, Head of the New Economic School, says there are dangers with the structure.

“It’s good only if you have 200 honest competent bureaucrats you can appoint to the board of corporation. If you don’t, it’s actually a very dangerous tool – you can spend money in a less than transparent and effective way,” Guryev said.

Investors can see the creation of State corporations as a positive step, but generally as a temporary measure to reform industries prior to moving them to the private sector. Otherwise there is the danger that business interests for the corporations will be replaced by political ones.

President Putin has recently emphasised that the government was not in the process of creating State capitalism and would not allow state corporations to monopolize sectors of the economy.

“That’s not our way. But it’s not possible to restore some industries without State support. We shall be careful to ensure that the State corporations do not stifle other businesses,” he said.

The President’s comments offer private investors, including foreign ones, some insight on what exactly is Russia's way.

Chief Strategist at Uralsib, Chris Weafer, says investors can take some comfort in the Russian approach.

“What we hope is that this Chinese model which Putin has referred to will be pursued. In this model when the State keeps at least 51% level it makes another 49% available for foreign investors, for partnership partners, in many cases those companies may take the lead in managing the projects,” Weafer said.

If that happens, the state corporations could mimic major successful public-private partnerships such as the Power Machines’ co-operation with Siemens or the Sakhalin 2 and Shtokman energy projects.