Has Putin rewritten the rules of business?

By Konstantin Rozhnov
Business reporter, BBC News

In public opinion, oligarchs have lost their influence under Mr Putin

With President Putin's United Russia party gaining a big majority in the new Russian parliament, it looks like the new ways of doing business in Russia are here to stay.

In recent years, under Mr Putin, the balance of power between Russia's government and businesses shifted considerably in favour of the state.

It represents a major change from the 1990s, when big business had a strong influence on the government, shaping laws to their own interests.

The major threat [to the development] could come from possible changes in domestic economic policy and reversal of economic reforms Vladimir Osakovsky, an economist at Aton Broker

Evsey Gurvich, head of the Economic Expert Group, says that now the government keeps increasing its involvement in business by owning more and more companies, and also controls all the significant decisions related to big businesses.

But Vladimir Osakovsky, an economist at Aton Broker investment company, points out that these changes are largely limited to strategic industries such as oil, gas and defence.

Most other sectors are enjoying robust growth in a rather liberal economic environment, while remaining in private hands.

Old memories

In the 1990s there was a lot of talks about "oligarchs", the wealthiest Russian entrepreneurs, whose influence, many experts argued, extended far beyond the economic area and into the political field.

Mr Abramovich is not just a billionaire but a governor as well

They managed to acquire huge interests in the energy and media sectors through privatisation.

Boris Yeltsin's opponents have suggested that the entrepreneurs helped him win the presidential elections in 1996, financing his campaign and providing support through their TV channels, in return for gaining unprecedent political and economic influence.

And these are still the image of the rich that the average Russian has in mind.

According to public opinion surveys, when Russians are asked to name the most famous oligarchs, they remember the same people they mentioned several years ago.

These names include Mikhail Khodorkovsky, the now-imprisoned ex-head of Yukos oil company, Boris Berezovsky, an exiled businessman, who has been living in London for years, and Mikhail Gusinsky, a former Russian media mogul who now also lives abroad.

The fact is though, that Forbes' list of the World's Billionaires and Russian media's ratings of Russian businessmen's political influence paint a different picture.

Experts say it happens because Russian media doesn't really publicise the fortunes of many rich entrepreneurs, who prefer to keep a low profile.

Russia's five richest Roman Abramovich, $18.7bn Suleiman Kerimov, $14.4bn Vladimir Lisin, $14.3bn Vladimir Potanin, $13.5bn Mikhail Prokhorov, $13.5bn Source: Forbes Magazine

One of the rare exceptions is Roman Abramovich, Chelsea football club owner and the governor of Chukotka, a Russian region, who is placed 16th on Forbes' 2007 billionaires list with a fortune estimated at $18.7bn (£9.7bn).

Meanwhile, the number of Russians on the rich list has gone up by 19 to 53 in a year, and the gap between rich and poor has widened.

But public opinion surveys suggest that the public is less concerned with this gap than before.

One survey suggests that 10% respect rich people, 13% are 'interested' in them and 44% have no feelings towards them at all.

'New oligarchs'

And it is even harder to identify the new oligarchs who run state-owned companies.

Among the names often mentioned are Sergei Chemezov, head of recently reformed Rosoboronexport, a corporation responsible for arms export, Alexei Miller, head of Gazprom, Vladimir Yakunin, president of Russian Railways and Vladimir Bogdanchikov, head of Rosneft oil company.

Russia's most influential businessmen Alexei Miller, Gazprom Vladimir Yakunin, Russian Railways Sergei Chemezov, Rosoboronexport Roman Abramovich, portfolio investor and governor Anatoly Chubais, RAO UES Source: Nezavisimaya Gazeta

All the mentioned companies are state-owned, which has allowed some experts to announce the arrival of "state oligarchs", though their names and their roles in the economy are almost unknown to ordinary Russians.

Mr Gurvich thinks they can not be called "oligarchs" in the full meaning of the word as their rights, incentives and responsibilities differ from those of private entrepreneurs.

Mr Osakovsky also is not ready to call the heads of state-owned corporations "oligarchs", but admits "there are indeed quite a few new people in the Russian business".

"An inflow of some new people into the political elite in early 2000s has eventually led to their integration into the existing business elite," he says.

"They joined the club without kicking all the old members out," adds Mr Osakovsky.

Mr Gurvich believes the main difference between "new oligarchs" and those of the 1990s is that the nowadays owners of big private businesses have to seek approval from government officials for all the important decisions they want to make.

Mutual interest

A lot of attention has been paid recently by businessmen, officials and experts to the need to develop a so called "public-private partnership" in the new reality of doing business in Russia to boost the country's economy.

Mr Osakovsky says that the approach helped initiate some major investment projects, as the government made infrastructure investments that were not profitable for private businesses, whereas private groups invested in production.

"I would say this is a next to optimal solution for public spending, as it minimizes crowding out of private investments, but at the same time supports an overall development of the country," he adds.

Many economists urge Russia to diversify its economy

But Mr Gurvich says that as of now the public-private partnership does not really take proper account of all the government and private businesses' mutual interests.

Some experts argue the government is not an independent referee in doing business but one of the players, and it creates rules based on its own interests.

And many Russians support the state's increasing business influence as they consider it to be a just answer to the "unfair" privatisation process of 1990s.

Different trends

A lot of factors, such as state control, corruption and lack of property rights guarantees, limit Russia's business development, Mr Gurvich says.

On the other hand, there are pro-development factors such as Russia's economy integration into the global economy that has brought inflow of foreign investment and increasing financial and corporate management transparency, and steady growth of newly-created businesses, he says.

"In general, the prospects of the Russian economic development depend on which of these trends will prevail," Mr Gurvich says.

Mr Osakovsky agrees: "The major threat [to the development] could come from possible changes in domestic economic policy, reversal of economic reforms and existing threat that the process of consolidation of the economic powers by the government will expand beyond oil and gas sector".

With many forecasts predicting difficult times ahead for Russia if it does not diversify its economy, it is for the Russian government now to define a business model of public-private cooperation that will guarantee sustainable growth of the country's economy.