This is indeed a crucial
point but not the only one. No less important is agreement or lack of it
between government and business on major future directions of policy in the
economy and other spheres. In the final count this is what determines the
development of the country and the success or failure of the government.
Medvedev's first high level meeting with top leaders of big
business (so called oligarchs) occurred a few days ago in the Kremlin where
Putin used to meet them while he was president. A dozen-plus of the richest
Russian individuals from the 'Forbes' list were there controlling quite a
chunk of the nation's GDP. The tone set at the meeting is somewhat like a
barometer of current relations between government and business.
The atmosphere, to put it shortly, was neither amicable nor
tense. For all the pro-liberal-Medvedev publicity of the last few months one
could characterize the oligarchs' attitude as cautiously critical but
expectantly hopeful. The rich crowd well remembers the Khodorkovsky shock
delivered by Putin and also realises that the president-elect is a 'Putin
man'. Experience tells them that the proof of the Medvedev pudding, like any
other, is in the eating.
And so they started out with a barrage of recriminations
complaining on cases of destructive government interference in business
affairs. One case in point cited was a recent attempt to take over a private
company running airport Domodedovo. Not only small and medium business but
also large companies were allegedly being harassed by various government
agencies.
Medvedev took these recriminations calmly and even suggested
that civil servants guilty of harming private business should be taken to
court and duly prosecuted. The audience greeted this approach as a step
forward compared to the previous presidency. The president-elect also assured
the oligarchs that he would take a more lenient view of cases brought against
companies charged with breaking the law during privatization of government
properties.
So far, so good. The first sign of discord appeared when
discussing taxes. Business was adamant in demanding tax reduction,
particularly bringing down VAT from 18 to 12 percent. Medvedev was
favorable to the idea but wanted tax changes to be coordinated with his and
Putin's long-term macroeconomic development program which is centered on
maintaining fast growth, promoting innovation, investment and infrastructure.
Business was disappointed that those programs were already formulated while
government proposals on tax matters would be ready only by August. Its
representatives claimed they could not plan ahead without knowing what tax
rates would be like.
This looks like a technical disagreement on timing but the
problem lies deeper. Business wants lower VAT but has little relationship to
innovation and investment. The main beneficiary of low VAT are export
industries which in Russia are hydrocarbons and metals, not high-tech
manufacturing where innovation mainly originates. If the oligarchs have their
way, there will be very little innovation, and Russia will remain a
predominantly raw material exporter . This is, not surprisingly, were most of
the oligarchs' business interests are situated.
Not mentioned at the Kremlin meeting was also another change
prepared by the ministry of finance which would substantially cut taxes
for the petroleum industry. This, of course, is one of the most profitable
and in least need of a tax break. Not a pioneer in innovation, either. The
logic of Russian tax policies at this juncture are hard to understand,
indeed. Clearly, the finance ministry is at cross purposes with strategic
macroeconomic plans laid out by Putin and Medvedev. Are the diarchs aware of
this schism? Difficult to say.
What strikes one most is the absence at the meeting of any
substantial discussion of ways to promote innovation. No one mentioned the
need to focus on R&D making it a major item of business expenditure.
Today even large Russian private companies, unlike those in the West,
as a rule, spend very little, if anything on developing new products and
technologies. At most, they would buy foreign patents rather than spend
money on developing their own innovations.
This is going to change if the Putin-Medvedev long-term plan
has any hope of seeing the light of day. So far, there are no signs that
Russian big business is ready for this revolutionary change.
Another controversy at the meeting emerged on inflation. Once
and again, Medvedev insisted that beating double-digit inflation was a top
policy priority. But Oleg Deripaska, head and major owner of 'Rusal',
Russia's private aluminum monopoly, ventured a different view. The currently
richest man in the country said inflation was not that important. More
harmful to the economy, he stressed, was the policy of a strong ruble versus
the US dollar, which is undermining the competitive power of Russian exports.
While Deripaska is right on the exchange rate issue, he is
dead wrong on inflation. That is if one has in mind the national interest and
wellbeing of the people. For the oligarch-exporter, profit, not the national
interest, is a prime concern. He probably should not have demonstrated it in
public. But the fact that he did is significant. Higher prices mean larger
profits but lower real incomes.
The conflicting interests are obvious and the government will
find it difficult to tame inflation in such circumstances. Recently, current
prime minister Victor Zubkov sharply criticized the finance ministry calling
its anti-inflation policy ineffective. The ministry is working on a new
program but its neoliberal ideology (shared by big business) bars it from
using price markup controls, the only effective way to beat the price
spiral. Are the diarchs prepared to take on business on this point, is not
quite clear.
A war of words against government corporations has lately
intensified in Russian business related press. Apparently, it thought it
could sway Medvedev to its side against Putin on this issue. This animosity
echoed somewhat at the Kremlin meeting, as well. But the
president-elect took his usual middle of the road position: government
companies were to be used where strategic interests were concerned and where
private capital would not operate. They would be run on market principles and
would be privatized at least partly after they become competitive in world
markets. He said there was no intention of making government corporations a
general practice.
Medvedev's statement did not allay business criticism of state
capitalism. The reasons for this insistence are not quite clear. Apart from
oil, there are no industries where government companies directly compete with
private business. There are no serious reasons why the government should not
use available excess financial resources to help industries in distress but
or strategic importance to the nation. It looks like the objections from
business are largely motivated by ideology or envy, and that spells permanent
friction between the oligarchs and the diarchs. Another lasting cold war
within the Russian elite.
And certainly a bad omen for the incoming president