Insider Rent Makes Russian Capitalism: A Rejoinder to Simon Pirani

Abstract

The paper provides a rejoinder to Simon Pirani's critique of the insider rent model of the modern Russian capitalism. It is argued that the notion of insider rent as a concrete form of surplus value allows one to grasp the historical dynamics of the Russian society in the 1990s–2000s. The author makes a point that under the favorable conditions of the last decade the strategies of Russian big business largely moved from short-term to medium-term time horizon. However, the system is still based on insider rent extraction. As a result, state functionaries often became large insiders themselves, intra-firm conflicts continue, the country's semi-peripheral status is entrenched, and authoritarianism strengthens. The paper concludes that analysis of the modern Russian society in insider rent perspective demonstrates continuity, rather than disruption, in development of the country s nascent capitalism in the 1990s and the 2000s.

Notes

1. See S Pirani ‘What Makes Russian Capitalism: A Response to Ruslan Dzarasov’, Debatte: Journal of Contemporary Central and Eastern Europe vol 19 no.1–2 April–August 2011 499–506. This paper responds to my paper ‘Werewolves of Stalinism: Russia's Capitalists and their System’ in the same issue of Debatte. Page references in the text here are to Pirani's paper. I would like to take this opportunity to express my gratitude to Dmitry Novozhenov and Dr Frederic Lee (UMKC, USA) for their valuable remarks on the first draft of this work, and to Stephen Holland-Wempe (UMKC, USA) for his help in editing my English writing.

2. One may object to the above on the grounds that insider rent is treated as a semi-feudal phenomenon assuming extra-economic coercion, which contradicts the Marxian assumption of the personal judicial freedom of the workforce under capitalism. However, here the methodology of ascent from abstract to concrete comes into play. In Das Capital Marx analyses capitalism in its abstract form, while nowhere in the real world such pure capitalism exists. Any empirically given capitalism contains some non-capitalist elements, predetermined by its individual history, culture, and geography. This fact gives rise to varieties of capitalism. Since insider rent is a concrete form of income it not only can but also should diverge in some respects from its abstract essence. Insider rent and surplus value are related as the form and the essence. (See more on this in Dzarasov “Le capitalisme”).

3. “On one level, this was a battle between power and money, but it is more accurately described as a reordering of their relationship. The state disciplined the oligarchs in the interests of the property-owning class as a whole, and restored to itself the functions it lost in the chaos of the 1990s. Its power is not an end in itself, but a means of managing post-Soviet Russian capitalism and integrating it into the world system” (Pirani “Change in Putin's Russia” 1).

4. “The owners can extract a large income stream even from an unprofitable enterprise… . Shifting to a developmental state approach, although potentially better for the long-run prospects of most of Russian industry, would inevitably limit the freedom of the new owning class to steal (italics are mine – R.D.) from their enterprises and send the money abroad. In developmental states such as that of South Korea or even China, the state sets policies that direct most of the social surplus into productive investment, not luxury consumption.” (Kotz and Weir “Russia's Path” 284).

5. GK “Rosnanotech” was established by the government ostensibly to finance innovations of Russian enterprises. According to the Attorney-General of 130 bln. rubles, invested in GK by the state in 2007, only 10 bln. rubles were really put in operation, and 5 bln. rubles of this sum were spent on managerial expenditures. Other money was deposited in the banking system at low interest rates (one may well guess that this was done in the interests of organizations connected with decision-makers). Of 1200 applications to finance innovations, only 36 were approved of which only eight were really financed. (Kremlin.ru “General’naya Prokuratuta”). What is all this if not an overt insider rent extraction?

6. Commenting on Putin's decision to participate in the presidential elections in 2012, Luke Harding from “The Guardian” notes that the Kremlin is not only a prestigious place and gives an international platform, but it “allows Putin to protect his own alleged secret assets and those of his team, US diplomats believe. It also allows him to avoid potential law enforcement prosecution – inevitable, once he steps down from power” (Harding “Vladimir Putin's”).

7. Again, this is not unique to Russia. According to research by the Boston Consulting Group while the rich people of the core keep their personal wealth in their countries, the peripheral elite prefer to save their riches abroad (Aerni “Tapping Human” 14).

8. Figures from Pirani's comment prove that about 60% of this inflow in 2008 came from Western countries taken together. Still, at the eve of the world crisis “up to 40 per cent of the flows registered as inward foreign direct investment arrived from Cyprus, the Virgin Islands, Luxemburg and other havens of Russian flight capital in 1990s.” (Pirani “Change in Putin's Russia” 99). The fact that the list of foreign investors is led by such an economic “superpower” as Cyprus still means that Russian large insiders comprise the biggest single national group of “foreigners” investing in Russia.

9. To this I may add that the current age of financialisation has witnessed a marked deterioration in the quality of corporate governance in the West. A number of corporate scandals revealed large scale expropriations of shareholders by CEOs in collusion with the largest auditor companies. This testifies that “packs of hyenas” increasingly lose their sense of smell even under the habitual Western conditions let alone the much more complicated and opaque Russian business environment.

10. In an impressive, but nearly single example of decisive action, workers of the JSC “Vyborgski TsBK” in St. Petersburg rebelled in the late 1990s against the power of a typical large insider – a local criminal tycoon – who decided to close the plant. They seized the enterprise, declared it had passed to collective ownership, hired new managers and started running production on their own. The local authorities took the side of the owner and used a task force, trained to put down uprisings among convicts to storm the plant (showing once again the bitter taste of Russian ‘democracy’). The workers, some of them wounded, still withstood and persevered. In a rare act of solidarity for modern Russia workers from a few other big local plants declared the creation of self-defense teams which would join the defenders of the enterprises under violent attacks. This invoked familiar images of the Russian revolution, frightened authorities and compelled them to move to what proved to be more efficient tactics – they simply stopped providing railway cargo services to the maverick enterprise. Eventually, after they nearly went bankrupt and received virtually no support from the wider public the workers gave up. (Rudyk et al. “Rabotchiy Protest”).