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www.yavlinsky.ru, July ,2004

It is time for Putin to make up his mind
A complete version of Grigory Yavlinsky's article published in an abbreviated version in "Forbes", No. 4, July 2004

By Grigory Yavlinsky
If you open the newspapers, what are the economic topics in the headings? Tax problems, social privileges, GNP rates. However, everybody knows that you can improve the tax system indefinitely, develop new forms of mortgages and "mop up" banks, but all other measures are pointless until you resolve once and for all, clearly and unequivocally property issues. A political and legal estimate of privatisation in the mid-1990s is the main economic issue today. President Putin should finally make up his mind. Otherwise nothing will be achieved. If you face claims and run the risk of being charged at any moment for participation in privatization, it is irrelevant whether you pay 23% or 25% profits tax.

And the danger of claims is very real. Everyone talks about Khodorkovsky simply because he is an extraordinarilyy rich man. But similar cases happen every day in the country as a whole, which is home to thousands of businessmen. The law and enforcement agencies are now used on a regular basis to manipulate business.

Unless the issue of the inviolability and stability of private property is resolved, any economic policy will always end at a dead end. Relations built on trust between business and the authorities will remain a daydream, and fights between the two will be endless. The ability for business planning will be narrowed to a minimum. The scope of long-term investments will remain at best at the present level. The judicial system will turn out to be a victim of these constant battles, as it will only follow political instruction, instead of independently managing justice. The mass media will also fall victim for the same reason.

What could be done here? First of all, it should be acknowledged that there are grounds for making accusations about the unlawful nature of privatisation. The most vivid example here concenrs the loans-for-shares auctions, which constituted an obvious fraud. Privatisation was developed not only in the wrong way, but also in a criminal manner. Many people lost their lives in the process.

Secondly, you cannot apply select justice to resolve the issue. This would mean individualization of the problem. This would be typical of Byzantine politics, involving plotting, intimidation and the settling of accounts, instead of a resolution of the problem.

Thirdly, it is necessary to understand that it is impossible to review privatization results in an administrative order, even if this would be limited to seven to ten loans-for-shares auctions, as another redistribution of property carried out in this manner will lead nowhere. Property will be simply transferred from one grouping to another. This way leads only to new battles. Such historical events must not be allowed to repeat themselves. Russia has the habit of initially making a mistake with horrifying consequences and then doing even worse things in its zealous desire to put things right.

The problem should be resolved in a way that is clear to most citizens and public consent should be obtained as far as possible here. The people believe that privatization in its current form is illegitimate. The population was deprived of everything in 1992, and then, suddenly, 30-year old billionaires appeared. Who can accept this development?

To strengthen property rights, it is essential to demonstrate to the people that the emergence of private property and privatisation can be clear and open, that fair decisions can be made in this sphere and the criminal links between business and the authorities can be brought to an end.

Therefore the resolution of the problem should not result in another collusive behind-the-scenes transactions between business and the President.. It is necessary to adopt a package of laws. In my opinion, there should be three components.

The first part of this package should acknowledge privatisation deals as legitimate (except for those involving murders and other grave crimes against individuals) and introduce a one-off tax on surplus profits, in other words a the windfall tax. Its rate can be determined by a simple formula - the difference between the purchasing price of the company and the profits obtained over the past nine or 10 years. The tax is set at this rate: how much – the amount of 25 %, 30 % or 15 % is already a point of debate.

The second part of the package consists of laws on the transparency of financing of political parties, transparency of lobbying in the State Duma and other bodies, public television and a number of anti-corruption laws, including those on restrictions imposed on officials and members of the government who took advantage of corrupt privatisation in the 1990s.

The third component implies the adoption of efficient working anti-monopoly laws and anti-trust measures.

Through these measures the state lets business know: yes, all those privatisation deals did take place, but you will pay a fair price for them and will not influence politics anymore, as you have in the past. And such a concentration of capital will never take place in the country again.

However, there is one more problem - the commanding heights of the economy. Which would the stake like to control and how? Here too the law should provide clarity. Enough of the Byzantine, let's dot the "i's" and cross the "t's".

Other solutions are possible: for example, the return of the amounts paid in the mid-1990s, replaced by a new, but transparent, market price privatisation. Or identification by experts of the real price of the privatised property and a demand that the current owners pay the difference. In my opinion such proposals in the current situation are not contestable.

The only indisputable thing is that we have to discuss different ways out of the present situation in general, rather than decide who will be next after Khodorkovsky.

* * *

The article was published in Forbes as the first in a series from Grigory Yavlinsky's regular column in the magazine, when Paul Khlebnikov, Editor-in-Chief of its Russian edition, was alive.


See also:

Human Rights

Freedom of Speech and Media Law in Russia

Privatisation in Russia

www.yavlinsky.ru, July ,2004

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