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The formation of a double standard and various rules of the market game for different classes of the participants is a specific feature of the institutional de velopment in 1990es and 2000es. Such double standard for private owners at the Equally serious problems exist in other areas of land relations. In Moscow, for instance, in spite of the provided by the Housing Code rights of owners to the residential premises, it is so far unrealistic to form a land plot under a multi storey building (with the privatized housing stock, not for a new development)in order to implement further the right of land common ownership. One of the formal invented reason to refuse to do this is the need to preliminary delineate Moscow territorial units. The city development plans of the Moscow administrative areas are not approved by the law in detail and for a long term period which gives rise to current updates and amendments depending on the market situation and specific interests. In both cases this may lead to spontaneous development of lands including those that are currently under apartment houses. Well known are the conflicts in the 2000es connected with enforced removal of residents from the buildings in the central zone of Moscow pretending these buildings are in the state of emergency.

Section Institutional Problems federal and regional levels creates very serious obstacles on the way of the estab lishment of the favorable institutional environment and local institutional changes in the area of property rights protection, corporate governance, financial markets, budget limitations, etc.

In other words the existence of this double standard results in that the mar ket mechanisms work well in the limited space which has a trend to reduce itself in the context of the concept of the formation in Russia of the state capitalism model (see section 5.2). Though the long term objectives of creating sustainable and flexible institutional environment (applied to the market mechanisms) remain un changed, an undisputable priority is the formation of basic pre requisites for their implementation legislative, judicial, procedural and regulatory framework to as sure the unified market rules. It should be stressed that the only relatively effective limitation in application of various rules in the double standard system may be an independent institution of courts that would have to take over the function of unifi cation of the rules for all market players. Therefore the prospect of the develop ment of economic institutions encouraging economic growth in Russia to a great extent depends on the adequate functioning of the existing political institutions.

An ideal illustration of the double standard and of what is private property in Russia and how valuable is its relation with the supreme political power like in the ancient oriental countries (unlike in the modern Western world) may be two radi cally different alternatives of ending a business established by almost equal meth ods (though not always legitimate) during one and the same period (about years) provided this business is quite solid and profitable. The first alternative is that the company gets destroyed and its assets are nationalized, with no discussion of the market price of the transaction and possible ways of moving the proceeds outside the country (like in Yukos case). The second alternative is the transaction of acquisition of Sibneft by Gazprom where the beneficiary received $13 billion together with the opportunity to legitimately dispose the acquired assets both in Russia and abroad including new asset acquisitions in Russia in 2006. Between these two extreme options there is a wide range of possible compromises that are traditionally considered in Russia as proposals which one can hardly decline. The said transactions can not be called market ones since they had only an illusion of a fair market price, and the government still keeps its arguments from the Yukos case.

Finally, one should mention corruption as a systematic factor that affected in stitutional changes during 1990 2000es. As mentioned before, the higher level of corruption is in the government authorities, the least opportunities remain to strengthen market institutions and competition mechanisms.

These dependencies creating a vicious circle result from potential changes in the distribution network when the establishment of new political and economic in stitutions is opposed (directly or indirectly) by those officials who usually generate benefits (illegitimate) from the current norms and provisions. In certain cases ef fective market relations are substituted for competition at the political markets.

Naturally the players do not manifest their real aims. Therefore certain regulators RUSSIAN ECONOMY IN trends and outlooks keep appealing to the interests of various groups while pursuing their own interests and aspirations.23.

One citation seems to be relevant here: In characterizing the Russian eco nomic and political system it is hardly enough to apply the neutral term corrup tion. This term is senseless. One should describe the system as a mechanism functioning on the principles of corruptive loyalty..

Presently there are various estimates of the corruption scale in Russia; and all the analysts speak of the corruption growth in the 2000es. According to A.

Buksman, Deputy, General Attorney of Russia, the corruption amounts to about $240 billion per year (the method of assessment is unknown). Indem Foundation believes that the intensity of business corruption in 2001 1005 dropped by 20% however its volume increased manifold (in 2001 2005 the gross amount of bribes was up to 90%); this is explained by the increasing involvement of the government in the economics and redistribution of rent.

5.1.5. State capitalism versus de nationalization The problem of interference of the government in the property relations is as old as the property itself. John Lock believed that political power represents the right to create laws for regulation and maintenance of property26. According to E. Furuboten and R. Richter, an economic institution must recognize a key fact that the transfer of individual property rights should be made voluntarily. The basic con stitutional rules therefore should be based on the principle of inviolability of the pri vate property rights. The state, however, has the power which may be directed not only at the protection of private property but also at its withdrawal27. Therefore, the basic condition of the functioning of a market based economy in addition to the constitutional framework is a valid commitment of the government to respect pri vate property28. A successful market requires, in addition to the adequate system of property rights, a politically safe foundation that sets up rigid constraints to possi ble confiscation of wealth by the state29.

In the modern world the neoclassical (neo liberal) approach to the state as a main source of economic instability becomes more and more exotic both in the See: A. A. Yakovlev. Possible strategies of economic agents regarding corporate governance insti tutions. / Development of demand for legal regulation of the corporate governance in the private sector. Research Papers, MONF, 148, 2003, p. 51.

K. Rogov. Loyalty mechanisms // Kommersant, 2006, 13 of November.

In D. North classification the first economic revolution took place when there was a transition from nomads to a settled way of life and when for the first time a centralized (at the level of first prototypes of the government establishment) protection (guarantees) of the property rights to land was re quired that would provide to the owners stimuli for higher productivity and efficiency. See:: North D.

Structure and Change in Economic History. New York and London: Norton, 1981, p. 81.

J. Lock. Works in three volumes. M: Thought 1988, V. 3, p. 343.

E. Furuboten, R. Richter. Institutions and economic theoty. STP 2005, p. 335337.

North D.C. Economic Performance Through Time // American Economic Review, 1994, 84, pp.


Weingast B.R. Constitution as Governance Structures: The Political Foundations of Secure Mar kets // Journal of Institutional and Theoretical Economics, 1993, 149, pp. 286311.

Section Institutional Problems English American and European research tradition. There are not many grounds to believe that the market can function in a situation with a non state economy30. A standard new constitutional set of the state functions well where the state receives, together with the right of enforcement in the respective areas including specifica tions and property right protection, minimization of the information asymmetry of the market players, provision of the material channels of the commodity and ser vices exchange, judicial (and otherwise, in the role of a third party) settlement of contractual and other relations, standardization of measures and weights and pro vision of public benefits (defense, science, education and healthcare). The gov ernment interference is reasonable even in those situations where a need arises to compensate for certain external factors and delineate worthy and negative public needs31.

By the end of 1990 early 2000es the government involvement in the corpo rate sector of Russia was quite unfocused and existed in the form of numerous scattered unitary entities with bad management or no management at all and blocks of shares of newly established joint stock companies almost in all sectors of the national economy. Integrated structures formed by the state initiative and with the state participation at the initial stage of privatization functioned mainly in the fuel and energy complex and also in natural monopolies.

The period of 20002004 was characterized by certain actions to increase ef ficiency of management of the scattered assets by integrating them into state hold ings in such sectors as nuclear energy, railways, defense industry, support to the air and marine transports and postal communications. Any increase of the gov ernment stake in the capital of individual companies outside the integration proc esses was an exception. Restructuring of natural monopolies began in parallel to this process.

In the same period the attempts to establish (expand) control over main finan cial flows of the Russian economy and to make business dependent on the state institutions became more pronounced in spite of the decisions to de regulate, ad ministrative reform and further privatization plans. The key feature of the period 20052006 was a shift in priorities in favor of direct government involvement in the economy32. The following trends may be identified in this process:

- increasing activity of the operating state holdings and companies that decided to expand their businesses and make it diversified through mergers and acquisitions (Gazprom, Rosneft);

- involvement of new players (Rosoboronoexport, RAO EES of Russia);

E. B. Atkinson, J. E. Stiglits. Lectures on economic theory of the state sector. M., Aspect Press, 1995, p. 18.

.: Eggertsson T. Economic Behavior and Institutions. Cambridge, 1990; Transaction Costs, Markets And Hierarchies. Oxford, 1993 .

For details see: A. Radygin. Russia in 20002004: on the path to the state capitalism // Issues of Economy, 2004, 4, p. 4265; A. Radygin, G. Malginov. Corporate control market and the state // Issues of Economy, 2006, 3, p. 6285.

RUSSIAN ECONOMY IN trends and outlooks - the strategy of integrating scattered assets still owned by the state into holdings becomes secondary; however the new structures begin acting, though on a se lected basis, at the corporate control market as independent entities;

- expansion goes beyond the fuel and energy sector, though it is still premature to talk about multi sector conglomerates;

- the interests shift from the assets of problematic or unfair companies (from the viewpoint of the state) towards the assets of neutral or loyal owners;

- a more extensive practices of such methods as increasing shares in the charter capitals of the companies up to the amount allowing to make a decisive impact on the companies activity;

- active participation of largest state banks (crediting, guarantees, direct pur chase of shares) in the processes of expansion of the government involvement in the companies capital;

- a need to get a political consensus regarding possible major deals inside the country and with involvement of foreign companies as a necessary component of such business decision.

Back in 2005, according to some forecasts, it was envisaged that in 2006 2007 the following companies might become the subject of nationalization by the state companies: Norilsky Nickel (51 % of shares, $8 billion), Promstroybank ($1.5 billion), the Urals Mining and Enrichment Company UGMK ($5 billion), Suirgutneftegas (62% of shares, $20 billion), Vossibneftegas ($130 million), Tomskneft, Samaraneftegas Achinsk NPZ, Angarsk Oil Petroleum Company (jointly $8.5 billion), Syzran NPZ, Kuybishev NPZ, NovoKuybishev NPZ ($0.5 bil lion), TNK BP (50% of shares owned by the Russian shareholders:$910 billion), Syloviye Mashiny ($450 million), Uralkaliy ($2 billion), Silvint ($1 billion)33.

The bigger part of those transactions has not been executed, but this does not mean that in 2006 the state expansion weakened (see also sections 5.2 and 5.4). According to Alfa Bank analysts, during one year the share of the Russian companies stock owned by the state grew from 29.6% to 35.1%34.

Gazprom activity in 2006 (against the growth of the companys external debt) is quite expressive:

- Shtockman field development was monopolized;

- Shell, Mitsubishi and Mitsui consortium bought a control block in Sakhalin 2 project under the threat to stop the project because of non compliance of the environmental law (in 2006 it was announced that the right of development of all new fields of the energy carriers at the shelf would be granted to state compa nies only);

- The companies engaged in the development of a largest in Russia Yuzhno Taibei gas field were taken over;

- Large blocks of shares of energy companies (RAO EES of Russia, Mosenergo, OGK 1, OGK 2, OGK 4, OGL 6 and others) were acquired;

Mergers and Acquisitions, 2005. 12 (34). p. 1315.

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