A few strong men

-- 18 September 2009 --
TEXT: J. Vermin
PHOTO: Dessie - Fotolia.com


We know little about this man. He was born in a small town in Siberia, the sort of place you wouldn’t easily find on a map. Graduated from a local college. Then, an engineer. In the 1980s he worked in the Eastern Germany, probably, as a Russian secret agent. And that’s basically it.

His name is Sergey Chemezov, the first among the eight who received control, almost unilaterally, of the state’s assets for USD$116bn. That is USD$8bn more than the White House considers NASA needs for its 16 years’ program to send men back to the moon.


The quango-state

In 2007, days before leaving the presidency, Vladimir Putin set up a quasi-government which de facto has become an integral part of Russian state and which, despite heated rhetoric to the contrary, is unlikely to be dismantled. It is comprised of eight state corporations, non-governmental bodies funded by the treasury and answerable to the president and to the president only.

The idea, apparently, is to devolve certain state powers to quasi-autonomous structures which are not plagued with bureaucratic hassle, can act in a business-like way and do not need to generate profit.

From a lawyer’s perspective a state corporation is a strange animal.

The fabulous eight include the Development Bank - Vnesheconombank, created to invest in infrastructure, environment and special economic zones; Russian Nanotechnology Corporation, a venture fund to support technological projects; the Fund for Housing and Public Utilities Reform, a specialised fund; Olympstroy, a developer for the Olympics 2014; Rostechnologii, which controls hundreds of enterprises, including Rosoboronexport, the arms trader; Rosatom Nuclear Energy, the regulatory body of the Russian nuclear complex; and Russian Autoroads, set up in July 2009 by president Medvedev.

From a lawyer’s perspective a state corporation is a strange animal. It is established by a specific federal law as a non-commercial organisation. Apart from that it is easier to say what it is not rather than what it is.

It is not a limited company owned by the government, nor it is a state unitary enterprise. It is exempt from corporate law, cannot be bankrupted, and is free from disclosure requirements. Unlike a unitary enterprise a state corporation owns its own property; unlike a state owned company it does not distribute profit back to the treasury.

State corporations, or quangos – quasi non-governmental organisations, are not a Russian invention. They have a long history in developed nations - and a conspicuous present. In Britain, for instance, they can be traced back to the 17th century. The expansion of quangos, however, happened mainly during the last decades. Mrs Thatcher and President Reagan both came to power on an antigovernment wave and tried to turn civil service into something as close to business as possible. Since then the emphasis has been on delegation and contracting-out of functions from traditional governmental bodies to the private sector.

It would be naïve, however, to believe that there are no country-specific constraints or that quangos work equally well everywhere. While in Denmark and the Netherlands, for example, non-government organisations lead a quiet life, in Britain they routinely become the matter of political debates and receive promises, yet unfulfilled, of a ‘bonfire of the quangos’.

In Russia - and the Soviet Union - quasi non-governmental organisations have a circumscribed but glorious past.


An efficient manager

It is a curious characteristic of our civilisation that its history, on a deeper level, seems to unfold round the same general pattern. And Russia is not an exception. Looking at those repeating themes, and situations, and people – with identical though slightly disguised faces – we can better see Russia as it is, and its archetypical heroes - or villains – who shape the country today.

Russian history books are full of stories which follow the same sequence of events. Officialdom is indecisive, dull, and corrupted. What needs to be done gets stuck in the system. And there, a hero comes, armed with the extraordinary powers. If there is a distinctive feature in the collective past of the Russian people, it is too much of heroism and too little of rule and procedure.

Lavrentiy Beria, the head of the Stalin’s secret police, is remembered not only for imprisonments and killings. He was responsible for the Soviet Union’s nuclear and space projects, and the development of modern weapons. ‘If not Beria, there would be no bomb’, said Igor Kurchatov, the science leader of the project and a Nobel laureate.

In August 1945, after the US attacks on Hiroshima and Nagasaki, a special committee was set up with Beria as the head, the first soviet quango. It spent public money, fulfilled a government function but had a substantial degree of autonomy. It controlled hundreds of companies and laboratories, had separate property and an account in the State bank.

The significance of Beria in Russian hi-tech is partially explained by the role of industrial espionage in the arms race. That, however, is only a half truth. The main reason is his outstanding organisational skills.

In the modern world he would probably be called ‘an efficient manager’.

Although the Soviet Union could hardly be called a democratic country Beria’s powers were extraordinary even to its rigorous standards. Yet, the idea rooted well. In 1952 the Presidium of the Central Committee of the Communist Party, de facto the highest state body, elected a group of five ministers, Beria included, and put them above the government, the Party, and the presidium itself.

The move was compatible with the soviet understanding of law, the law of exceptions. Contrary to widespread belief a system of definite, clear rules existed in the Soviet state even when the Stalin’s tyranny was at its height. It worked in somewhat peculiar manner, though. An engineer, for instance, who built a bad bridge which soon got broken would usually be prosecuted as a common criminal and convicted for negligence. There was, though, a possibility that the case could be pulled out the usual route, the unfortunate person would be charged with an act of wrecking or sabotage and sentenced to ridiculously long terms in Gulag.

Beria understood this dualism very well. When he was arrested, shortly after Stalin’s death, the all-powerful minister was ready to accept any charge but begged to be prosecuted as a common felon and not have political disloyalty pinned on him.

In 1949 an atomic bomb was successfully tested, and in 1961 for the first time in human history a man, Yuri Gagarin, flew to outer space. These atomic and space projects changed the country. The tantalising truth, however, is that the Soviet Union largely owed its technological breakthrough and military parity with the developed nations to a murderer and a sadist.


History which repeats itself

Vladimir Putin, himself the progeny of KGB, follows the familiar pattern. Rostechnologii, the largest state corporation headed by prime minister’s friend from Eastern Germany, Sergey Chemezov, recreates the Ministry of Medium Machine Building, successor of Beria’s special committee. As in 1945 the idea is to free management from bureaucratic hassle and give extraordinary resources to one man whom the leader personally trusts.

So far the effectiveness of the knights in shining armour has been unimpressive. Only the Russian Nanotechnology Corporation, run by the former head of United Power System, hasn’t received loud boos.

The Chemezov’s, the most important and biggest, project has been sidetracked from its stated goal in a hunt for shares in numerous companies. Rostechnologii controls about 440 companies, and is now bigger than the Ministry of Medium Machine Building, the largest government body in the USSR. Attempts to save AvtoVaz, the Russia’s largest car maker, failed - the company announced massive layoffs; over 35 thousand may be fired by the end of the year - and triggered public scorn and resentment.

The failure to deliver visible results made Dmitry Medvedev distance himself from state corporations. He ordered the general prosecutor to investigate their activities thoroughly and made it clear that their very existence was at stake.

This, however, is just rhetoric. There is no reason to think that bureaucracy is more efficient, prudent and honest than quangocracy. State corporations allow the president to duck unpopular decisions and channel public anger. And, finally, they can be used as the party’s piggy bank for economic and political power.



Quangos in Russia. Despite heated rhetoric to the contrary, they will stay.


Nice article thank you very much. I think state corporations as a means of devolving of the govermental duties is a trecherous way to go. The whole idea of quangos is based on the assumption that company legislation, and first of all on charities, is very well done and there is a lot of court practice on this matter. With Russia's undeveloped legislation, and high level of corruption, you indeed might need another Beria to succeed. Here I agree with the author.
I think Putin just got tired fighting bureaucrats. Looking back at the Russia history you can see that this part of the society has almost never been defeated. Even in the Stalin times, or Peter the Great's. So, I would support him here.
I think state corporations are a very tempting way: a whole area of state has been outsourced to private institutions. However, it is a dangerous also. It may feed corruption, not fight it.
Thanks for that. never thought of State corporations as quangos.