A gutsy move by Russia’s wealthiest oligarch, who probably should make sure all of his upper-story windows are solidly reinforced after this. The first signs of a public split between Vladimir Putin and his big-money support edged out into the open today. Yesterday, the Russian tyrant threatened massive expropriations for Western firms that bail out of Russia over the invasion of Ukraine, a move that comes straight out of Russia’s Communist past:
President Vladimir Putin had promised a response. Speaking Thursday at a meeting with government officials, he backed a plan to introduce “external management” of foreign companies leaving Russia.
“We need to act decisively with those [companies] who are going to close their production,” Putin said according to a video posted by the Kremlin and aired on state media. “It is necessary, then … to introduce external management and then transfer these enterprises to those who want to work,” he added.
Russian Prime Minister Mikhail Mishustin said earlier that legislation had been drafted. “If foreign owners close the company unreasonably, then in such cases the government proposes to introduce external administration. Depending on the decision of the owner, it will determine the future fate of the enterprise,” Mishustin said, according to the Kremlin.
“External management” means outright seizure through expropriation. Socialist regimes almost always play this card when industrial owners refuse to play ball with their collectivist policies, if not immediately at the start of la revolucion. Hugo Chavez and Nicolas Maduro used expropriation in Venezuela in the oil industry, which had been at one time the backbone of prosperity in the country. After kicking out the oil companies and seizing their assets, the normal Hayekian sequence rapidly followed, as it did in other industries where expropriations took place.
Our study shows that until the year of the 1917, Revolution Russia’s economy was declining, but by no more than any other continental power. While wartime economic trends shed some light on the causes of the Russian Revolution, they certainly do not support an economically deterministic story; if anything, our account leaves more room for political agency than previous studies.
In the two years following the Revolution, there was an economic catastrophe. By 1919, average incomes in Soviet Russia had fallen to less than 600 international dollars at 1990 prices. Less than half that of 1913, this level is experienced today only in the very poorest countries of the world and had not been seen in Eastern Europe since the 17th century (Maddison 2001). Worse was to come. After a run of disastrous harvests, famine conditions began to appear in the summer of 1920 (in some regions perhaps as early as 1919). In Petrograd in the spring of 1919, an average worker’s daily intake was below 1,600 calories, about half the level before the war. Spreading hunger coincided with a wave of deaths from typhus, typhoid, dysentery and cholera. In 1921, the grain harvest collapsed further, particularly in the southern and eastern grain-farming regions. More than five million people may have died prematurely at this time from hunger and disease.
That brings us to Vladimir Potanin, Russia’s wealthiest oligarch with over $22 billion in assets even after the sanctions collapsed Russia’s stock market and ruble. Potanin warned that Putin’s plan to expropriate these assets would preclude any return of Western capital to Russia for a generation, a fate that Potanin doesn’t think is necessarily set. Pursuing this path would bring Russia all the way back to Lenin, and Potanin warns that Russians won’t stand for that:
“Firstly, it would take us back a hundred years, to 1917, and the consequences of such a step — global distrust of Russia on the part of investors — we would experience for many decades,” he said in a message posted on Norilsk Nickel’s Telegram account on Thursday.
“Secondly, the decision of many companies to suspend operations in Russia is, I would say, somewhat emotional in nature and may have been taken as a result of unprecedented pressure on them from public opinion abroad. So most likely they will come back. And personally, I would keep such an opportunity for them,” he added. …
Potanin said it wasn’t particularly expedient to talk about nationalizing Western assets, but the Kremlin’s proposal could allow “owners to keep property, and companies to avoid collapse, continue to produce products and pay money to employees.”
“I understand that in light of the economic restrictions directed against Russia, there may be an understandable desire to act symmetrically,” he wrote. “But on the example of Western countries, we see that the economies of these countries suffer from the imposition of sanctions against Russia. We must be wiser and avoid a scenario where retaliatory sanctions hit ourselves.”
That’s a gentle nudge toward Putin to consider the backfire potential long-term of his consequences. If Putin still needs to be reminded of that necessity after watching his Ukraine adventure blow up in his face, it seems doubtful that Putin will be encouraged to moderate his economic response to the financial lockout from the West. Putin justifies his power by acting muscularly, not intellectually, an impulse that likely has increased in Putin the more it becomes apparent that his military is actually a paper tiger when it comes to conventional forces. That makes this rare dissent from the ruling oligarchical class especially dangerous to Potanin.
It might be even more dangerous to Putin, however. It looks as though he might have exhausted his support from the oligarchical class, whose corruption has deep tentacles in Putin’s government. Putin’s not the only dangerous man at that level in Russia, and the question may arise as to whether the oligarchs might start looking for another option if Putin keeps making matters worse. Potanin had better watch his back, but maybe Putin should start worrying too — especially when Potanin seems to feel comfortable enough to publicly rebuke Tsar Vlad.