Streetwise Professor

July 7, 2013

The More Things Change, the More They Stay the Same: The Putin Purgatory Drags On

Filed under: Economics,Energy,Politics,Russia — The Professor @ 9:20 am

In St. Petersburg a couple of weeks ago, Putin surprised some by coming out in favor of a law to give amnesty to biznessmen convicted of economic crimes:

While not the headline measure in Mr. Putin’s plan, the amnesty proposal was by far the most surprising item. It was the brainchild of Mr. Putin’s business ombudsman, Boris Titov, who has championed it as a means to improve the business climate.

“The period that just passed was not the best for defenders of property rights,” Mr. Titov said last week in an interview.

. . . .

The intention of the amnesty plan is to free thousands of run-of-the-mill businessmen caught up in this turmoil, while avoiding the high-profile and politically tinged cases, like those of Mr. Khodorkovsky, who is not expected to be freed.

Mr. Titov said that 110,000 people were serving prison time for economic crimes, and that 2,500 others were in pretrial detention. The draft of the amnesty bill, Mr. Titov said, covers 13,000 of them.

“This initiative will on the whole strengthen the trust of citizens” in the business community, Mr. Putin said in his speech. “I am certain the development of the state is possible only under conditions of respect for private property, to the values of economic freedom and the work and success of entrepreneurs.”

More broadly, though, the intention of Mr. Putin’s amnesty, Mr. Titov said, is to signal to the business community an easing police pressure. It is, he said, “a very positive, a very good signal for Russia, and that is important as in Russia. We don’t often have good signals.”

Well, don’t get too excited there, Boris, because while Putin was publicizing the idea, the Duma was working quite assiduously to neuter it:

The Duma subsequently reduced the number of criminal code provisions subject to the amnesty from 53 to 27 — in part to ensure that Putin’s most prominent critics, including Mikhail Khodorkovsky and Alexei Navalny, would not fall under any official pardon.  Fraud, the most misused criminal statute, was only partially included in the list of crimes subject to the amnesty. The draft legislation also included the demand that before one could be released, the accused had to make the victim whole and pay any outstanding expenses or damages.

As a result, Titov’s blanket amnesty has been watered down to a conditional release — and it remains unclear who is, or is not, covered. What happens to those convicted on multiple counts, one commentator asked, when only some are covered by the amnesty?

In addition, the requirement to compensate victims for any alleged losses essentially means that all entrepreneurs must concede their guilt before they can be released.  Such an admission runs counter to the primary justification for the amnesty — that charges were fabricated in an overwhelming number of cases.

With the Duma’s revisions, the estimated numbers of entrepreneurs covered by the proposed amnesty dropped from 100,000 to 10,000 — to potentially as low as 5,000.  Instead of boosting Russia’s small- and medium-sized businesses, the sector will most likely continue to contract. A sharp increase in the social tax last year has already driven hundreds of thousands of small companies out of business or into the shadow economy.

. . . .

As a result, the legal harassment of Russian entrepreneurs looks likely to continue long after any amnesty has come and gone. The amnesty also does not ease concerns of foreign investors, whose negative perception of the Russian legal system is unlikely to change because a few entrepreneurs are released from jail early.

The debate over the amnesty raises a more basic question: Does Putin want to solve this problem?  Though he talks about the need to diversify the economy — with small business playing a critical role — he overwhelmingly continues to bet on state capitalism as the path forward. Moreover, as he learned during his re-election campaign, it is the emerging middle class that is most likely to come out and demonstrate against his policies.

The amnesty partially disarms the opposition, since on paper Putin has now provided some relief to Russia’s struggling entrepreneurs. Yet this reprieve comes with considerable strings attached and does not address any of the fundamental legal and institutional deficiencies that created the problem in the first place.

Amnesty provides the appearance of a solution without getting to the root causes. This may be exactly what Putin wants right now.

That last paragraph nails it.  Putin wants to create a Potemkin simulacrum of a reform, while leaving the system fundamentally unchanged.

Which means that the Putin Hamster Wheel From Hell will just keep spinning away.

In other news related to the state-business nexus in Russia, Medvedev amazingly has taken on an ally of Igor Sechin:

Russian Prime Minister Dmitry Medvedev on Friday sacked a senior resources official, believed to be a close ally of Igor Sechin, the boss of state oil firm Rosneft, in a move analysts said was a sign of growing confrontation between the two men.

In an order published on Friday Medvedev dismissed Alexander Popov, the head of Rosnedra, an agency responsible for granting licences to develop natural resources.

Popov was an aide to Sechin when Sechin oversaw Russia’s energy sector as deputy prime minister.

. . . .

Sechin’s confrontation with Medvedev’s team has grown since then as Sechin has embarked on an aggressive consolidation of assets under Rosneft’s control. Medvedev’s deputy for energy, Arkady Dvorkovich, has pushed for more privatisation and lower state interference in the strategic industry.

A more recent spat came over a decision by Rosnedra to awarded Rosneft and state gas major Gazprom licenses to tap oil and gas fields in the Arctic, which Dvorkovich has criticised.

I’m actually shocked that Medvedev screwed up his courage enough to do this, as indirect a shot at Sechin as it is.  I wonder if he listened to “American Boy” to get himself psyched up for it.

Methinks this is at most a rear guard action against Sechin’s-and Rosneft’s-growing influence.  Privatization keeps receding over the horizon, like a mirage.  Rosneft is accumulating access to an increasing portfolio of resources, and is now essentially the gatekeeper to foreign access to Russian oil.   This action is probably the most that Medvedev can do to stop that development, which he rightly perceives as malign (whether that’s because he believes that a more competitive Russian oil sector is desirable for economic reasons, or just because Sechin is a political foe, I don’t know).  And that tells you all you need to know.

These stories are illustrations of superficial attempts to address Russia’s serious institutional deficit.  But at most, they demonstrate an acknowledgement of the problem, but no real determination to fix it.  Small changes that keep things pretty much the same.  The wheel keeps spinning.  The Putin Purgatory drags on.

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  1. Putin’s new amnesty:

    Translation – its OK to be crook, as long as you are our crook, and let’s maintain the fiction of a rule by law, so we can get away with murder, and no one will be (theoretically) be able to get us.
    I think it was Thomas De Quincy who wrote that if a man murders, such and act will lead to behavior such as stealing candy, not being polite and other serious social offenses. such is the farce that is Russia, that his irony is now Putin’s reality.

    Comment by Sotos — July 7, 2013 @ 10:59 am

  2. Potemkin simulacrum? Holy crap, say that three times in a row.

    I always love Russian justice. They have to get a confession whether it’s real or not. I find it fascinating, honestly.

    Comment by Howard Roark — July 7, 2013 @ 10:56 pm

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