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100 Million Unemployed?
Privatizing Russia's Problems Away

The biggest event on the small screen these days is the mini-series based on Alexander Solzhenitsyn's novel "The First Circle," which concludes Thursday evening on state-owned Rossia television. The novel covers three days in the life of the Mavrino sharashka, a secret scientific research facility within the gulag labor camp system that is staffed with convicts including Gleb Nerzhin, Solzhenitsyn's alter ego.

While we have been focused on the secrets of our past, few of us have paid much attention to reports that the government plans to privatize one former sharashka -- the Kaskad scientific research complex -- along with hundreds of other facilities. Many of these are defense-related enterprises that were classified as top secret until quite recently.

The full list of federal government assets slated for privatization in 2006 boggles the mind. Buyers will be offered stock and property in the energy sector, construction, agriculture, health care, aviation, machine building, geology, the oil and gas sector, housing, the nuclear industry, transportation, road works and much, much more. The list of assets put up for sale in a single government publication in mid-2005 ran to 65 pages of fine print.

The government is planning to sell off just about everything it still owns apart from its stock in the oil and gas sector and a number of enterprises that directly support the operations of the government and the presidential administration. The big-ticket items in the aviation industry are clearly the pick of the crop.

The privatization program also contains a number of curious deals. The government plans to sell off its stock in the country's largest truckmaker, KamAZ, while simultaneously creating a new state-controlled holding by merging KamAZ and the country's largest carmaker, AvtoVAZ. In other words, the government is going to buy the KamAZ stock from itself.

Although the state will increase its holdings in selected sectors of the economy, the general trend toward off-loading assets is unmistakable. In fact, the current wave of privatization is on pace with the heyday of Yegor Gaidar and Boris Yeltsin in the early 1990s.

How does this jibe with the Kremlin's calls to strengthen the state's role in the economy? Very simple. The government and the presidential administration are convinced that the manufacturing sector in Russia is down for the count. The regime's current economic policy gives manufacturing no chance to survive in any case. It follows that the state has no interest in hanging on to its assets in this sector. A few factories might be preserved and even expanded, but the rest will be liquidated.

Selling off all these assets will be extremely profitable for those who are directly involved. The land beneath many factories is already worth far more than the factories themselves. Modernizing the economy now amounts to shutting down the plants, tearing down the buildings and cutting the workers loose.

No production is foreseen in this country apart from semi-finished products and fuel for export, as well as servicing the oil and gas industry. Some companies stand a chance of surviving in this climate, but research and development facilities will be thoroughly, methodically eliminated. No one even tries to hide the fact that these facilities are being sold because of the commercial value of their property, not of their accumulated expertise.

A country without a developed industrial sector cannot afford the luxury of specialized R&D. It doesn't need to come up with its own designs. Even the much heralded new automobile holding may well do little more than assemble vehicles that have been designed abroad.

The destruction of the bulk of Russia's industrial base is the predictable result of our bid to join the World Trade Organization, but the government has gone even further. It's doing everything possible to shed economic dead weight even before it gets into the WTO. Shutting down state-owned facilities is complicated; once they're privatized most of those complications melt away.

The regime clearly sees privatization as the height of sober economic forecasting and sound thinking. Only one unpleasant detail remains: What do you do with all the people? The government's current model of economic development will only support a population of 40 million to 50 million people. You have to wonder what they plan to do with the 100 million left over.

The government might as well take the logical next step -- "to dissolve the people and elect another," as Bertolt Brecht once sarcastically proposed. In the end it could simply declare the whole country unprofitable and close it down.

Boris Kagarlitsky is director of the Institute for Globalization Studies.


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