Back to the Future? Thoughts on the Political Economy of Expanding State Ownership in Russia

Abstract

The period since early 2004 has seen a significant expansion of the direct role of the Russian state in owning and managing industrial assets, particularly in ‘strategic sectors’ of the economy, such as power-generation machines, aviation, oil and finance. Increasingly, policy seems to have been focused less on market reforms than on tightening the state’s grip on the ‘commanding heights’ of the economy. Many factors have contributed to this shift – factional, ideological, geopolitical and conjunctural – and, as will be argued below, there is not one single process at work, but several. This paper seeks to understand what has been driving the expansion of state ownership in Russia over the recent past and what that expansion might imply for the future. Its central conclusion is that a great deal of the explanation for this trend is in fact structural. While press coverage and public discussion have largely focused on factional politics and the political conjuncture – particularly conflicts between the Kremlin and big business and rivalry among Kremlin ‘clans’ ahead of the Putin succession in 2008 – a deeper understanding of the growth of the state requires an examination of the interaction between state capacities and Russia’s industrial structure.

The paper begins with a look at the scale and scope of the recent expansion of state ownership. This is followed by an analysis of the interaction between Russia’s economic structure and its political institutions, which highlights the role that the characteristics of specific branches of industry may play in Russia’s political economy. The oil industry receives particular attention in this context. Finally, the paper looks briefly at the implications of recent trends for Russia’s future.