In Russia, the elimination of freedom began by targeting private property
The elimination of freedom in Russia began twice with the elimination of private property. The first case was crystal clear: the October Revolution of 1917, which eliminated private ownership of the means of production and land. Many nationalizations marked the beginning of the Bolshevik dictatorship.
About seven decades later, socialism collapsed. The 1990s followed, with more political and economic freedoms than ever before, although they were accompanied by chaos and the predatory appropriation of state assets by oligarchs and criminals.
Vladimir Putin, who came to power in 2000, appeared to many at the time as a politician who championed both reform and order. And indeed, his reign began positively. Swedish economist Anders Aslund, one of the most renowned experts on Russian economic development, writes in his book Russia‘s Crony Capitalism. The path from market economy to kleptocracy:
The period 2000-2003 represented the peak of the Russian market economy. It was a time of macroeconomic balance and competitive markets. The private sector has flourished like never before or since. State subsidies were minimized, and the result was a high growth rate of 7% per year on average from 1999 to 2008. Russia has never experienced such rapid growth.
But this free market phase did not last long. Economic historians consider Putin’s crackdown on Mikhail Khodorkovsky, then Russia’s richest man, as a turning point. Putin decided to take action against this powerful critic to demonstrate that no matter how rich and seemingly powerful you are, if you criticize me, you will lose everything. Khodorkovsky was arrested and served ten years in prison. His company Yukos was expropriated and its assets were largely transferred to state-owned Rosneft in closed low-cost auctions.
This state action sent an important signal and was the starting signal for the second phase of the abolition of private property in Russian history. Unlike the October Revolution, however, private property was not abolished by formal decree, but remained, at least formally, untouched. In his book Property rights in post-Soviet RussiaJordan Gans-Morse, a UC Berkeley professor and one of Russia’s leading economic experts, writes:
… after the Khodorkovsky incident, bureaucrats and law enforcement officials of all ranks increased their pressure on businesses. These threats included seizure of business assets, facilitation of illegal raids of businesses, extortion, unlawful fines and unlawful arrests of businessmen.
More and more businesses have been brought under state control, especially banks and energy companies. As early as 2016, Joshua Kurlantzick of the Council on Foreign Relations (CFR) wrote in his book State capitalism: how the return of statism is transforming the world:
In Russia, state-owned enterprises limit any potential competition from the private sector. Under Putin, the Kremlin allowed only one or two state-owned enterprises to dominate almost all high-tech industries, with each company staffed by Putin loyalists. Businesses that resisted the state takeover were laid off with huge tax bills until they sold themselves. Many of Russia’s most promising young entrepreneurs have simply fled the country.
The terms ‘state capitalism’ and ‘crony capitalism’ are, however, quite misleading. There is no more “state capitalism” than there is a square circle. Capitalism is based on the principle of private property; the elimination of private property means the elimination of capitalism. What happened in Russia is more reminiscent of the German economic system under National Socialism, where, formally, private property remained, but was gradually and aggressively eroded until only formal legal title remained. “Some of the labels of the capitalist market economy are retained,” economist Ludwig von Mises observed in 1942, “but they mean something entirely different from what they mean in a true market economy.” Just as in Russia in 1917, where the elimination of freedom began with the elimination of private property, so it has been in Russia since 2004. This development should serve as a warning to all of us.
Rainer Zitelmann is the author of The power of capitalism.