State-run corporations: politics vs business?

On Thursday, Russia’s President sent a draft law to establish a state-run atomic energy corporation to the State Duma, the Lower House of Parliament. Creating national champions in various sectors is a clear trend in Russia. However, it faces strong criti

Speaking at a business forum on Wednesday, President Vladimir Putin’s top economic adviser Arkady Dvorkovich said creating state corporations as a way of boosting economic growth is dangerous.

State giants already dominate sectors from oil and gas, aircraft manufacturing, and shipbuilding to nanotechnology and the fishing industry.  

The Russian Transport Ministry is busy creating another state conglomerate – RosAvtodor, Federal Highway Agency that will monitor the federal road system.  

Some argue a heavy dose of state control will help Russia compete on the world markets.

“First of all, the idea that a monopoly is always bad proved itself wrong, not only in Russia but also in the West. Secondly, in practice we see that the government in the period of economic transition is faced with tasks it cannot solve without concentrating its resources under a state-owned conglomerate,” stated Vladimir Yakunin, the head of Russian railways.  

Nevertheless, many economists are less than thrilled about the state’s latest fad.  

The head of New Economic School, Sergey Guriev, believes, “whatever you do with a government-owned company is going to be politically motivated. Our politicians and bureaucrats will always use it for political rather than economic means. And that’s why it’s clear that these corporations would pursue different goals – not the productivity goals, not job creation, not contribution into economic growth.”

The oil sector best illustrates the state’s rapid expansion. In half a decade, it has moved from having minority stakes in a few companies to controlling over 40% of Russia's oil production, according to a recent survey by Alfa Bank.

In other sectors, state companies are the biggest infrastructure investors. But, according to Arkady Dvorkovich from presidential expert department, that’s about to change.

“It’s already changing. And one example is the RAO UES reform. Over the past several months tens of billions of roubles in private investments from both foreign and Russian companies were directed into the sector,” he said.

Under President Putin, Russia’s GDP mushroomed to $ US 1.2 trillion, making it the world’s ninth largest economy and the fastest developing behind China. Some say Putin's found a formula for economic success. And suggestions that he intends to stay in power mean the trend for creating national champions is likely to continue.  

But Mr Guriev is not so sure of that: “We don’t really know where we are going. And I think much will be known in, let’s say, half a year from now, when we have a different president or maybe a different government,” he says.   

Russia may see its state-owned corporations as a shortcut to competing with multinationals.

But comments from European leaders have already made it clear that Russia’s state-owned giants, which many see as pursuing national policies, are not welcome in the West.