Putin's Conservative State Capitalism

The essence of President Vladimir Putin’s annual address to the Federal Assembly on Dec. 12 was that his enchantment with state capitalism and Soviet economics is continuing. Rather than promoting higher economic growth, he wanted to go after the remaining prominent private businessmen.

Russia’s most urgent economic concern is the disappearing economic growth, but only in the middle of his speech Putin arrived at the need for the “renewal of sustainable economic growth.” This time he did not blame the euro crisis, but he admitted that “the main causes of the slowdown are not external but internal.”

Liberal economists usually blame corruption, expanding state capitalism, red tape, decreasing competition and stalled international economic integration as the main causes of the declining growth. In a more positive language, Putin mentions four “new factors of development” — namely “high quality of professional education, a flexible labor market, good investment climate and modern technology.”

All are correct but hardly key. Putin boasts about the minor improvements in the business climate that have occurred in the last two years and calls for further improvements, which are to be welcomed.

Russia is a place of paradoxes. The ebb and flow of all varieties of organization is a fairly simple one: at times there needs to be more centralization, to heighten efficiency; but at other times their needs to be decentralization, for greater flexibility and innovation.

Importantly, both centralization and decentralization can be efficient or inefficient, but relying on one or the other for too long invariably results in inefficiency.

A superb example of efficient centralization in the US can be found with Wal-Mart. Its operations are so centralized that even individual store temperatures are determined and adjusted from their headquarters. They also have a logistical computer database that is truly amazing in its projections of supply and demand.

For example: Florida had a hurricane, and was projected to be getting another one soon. So the Wal-Mart database was used to determine projected emergency demand. Two items stood far out ahead of anything else: beer and strawberry Pop-Tarts. As bizarre as that sounded, their headquarters sent dozens of semi-trucks to their stores in the hurricane area, filled exclusively with these two items. And the projected demand was exactly right. People bought cars full of beer and strawberry Pop-Tarts.

The efficiency of centralization.

Inefficient centralization is just as telling.

When the US Army wanted a new .45 ACP pistol, they put out a request for all manufacturers, large and small, who would compete for the contract. This was very efficient, and soon everybody was making .45 ACP pistols. So the Army was able to pick and choose, and the “also-ran” pistols could still be sold on the open market.

However, when the Obama administration wanted new ‘green’ technology, it just approached single companies, owned by Obama cronies, and offered *just* them huge amounts of money to develop a *new* technology. No competition. So of course, each and every one of them failed miserably, costing taxpayers vast amounts of money, for nothing. You cannot *buy* creativity, even from your friends.

But this illustrates *inefficient* centralization.

Back to Russia. Russia is hopelessly caught up in centralization. Everything important happens in Moscow, and their government wants to control everything important.

Unfortunately, though this is terribly inefficient, whenever there is an effort to decentralize, the result is that the decentralized leaders betray the central leaders with their own ambitions. Under Yeltsin, for example, regional governors were somewhat autonomous, much like the governors of US states. But quickly they established themselves as corrupt dictators of their regions, and challenged Moscow for control across the board.

There was much complaining when Putin replaced these elected officials with appointed ones loyal to Moscow; but an argument can be made that elected governors turned a national government into a weak confederacy.

So some grace should be given Putin about centralization, because though it is inefficient, it is pretty much how Russia has long functioned, and decentralization doesn’t seem to work for long.

Not just the 70 years of communism. When Russia was ruled by Peter the Great in the 17th and 18th Centuries, he concentrated on three objectives. First to expand the realm of his empire, second to make Russia less Asian and more European, and third to modernize Russia as an industrial nation.

He decided to make a new capital city from scratch, Saint Petersburg, close to Finland, built in a swamp, to decentralize the nation from Moscow.

Second, he decided to make Russia more European, by forbidding long beards and great coats, personally cutting both short if someone had the bad judgment to show up in his royal court with either.

Then he toured Europe, dressed informally, “like a lumberjack”, but followed by the entire Imperial entourage in gilded carriages, etc. The intent of this was to steal every bit of industrial knowledge they could get their hands on, especially shipbuilding, because he wanted a modern navy. But in doing so began a love affair between Russians and Paris, France. It was like heaven to them.

But in doing so, he demonstrated how Russia worked. Because going back to Ivan the Terrible, when a Russian Czar was weak, the government would be managed by the great landowners. But this was always an uncomfortable arrangement, because many of them were ambitious men, who wanted to become Czar themselves.

While Peter was away in Europe, the landholders revolted and decided to overthrow his government. Lucky for Peter, he had a very powerful and loyal first minister, who arrested the landholders. On getting news of the revolt, Peter hastened home, and *personally* cut off the heads of the traitors with his sword. Thus letting his Asiatic side out.

But after Peter, “Slavophilism” was reborn, and Russia again returned to its Asiatic roots. They kept Saint Petersburg as a secondary capital, however, and by the time of World War I, Russia was the fourth most industrialized nation in the world.

As the German expression goes: “Russia remains Russia.”

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.