Auctions Were Loans For Buddies

The government's loans-for-shares scheme ended Thursday much as it began, in controversy. A controlling stake in the country's seventh-largest oil company passed hands in circumstances which almost exactly mirrored previous auctions: two interlinked bids, both marginally above the minimum bid price, from companies that appear to be part of the charmed circle of banks close to the government. A rival bid, from a company that was part of the banking troika that has publicly criticized the whole scheme, was rejected on a technicality.


Change the name of the company on offer, and this could have been a number of other auctions under the scheme. Any casual observer would comment that something odd was going on. The same banks won, either directly or by proxy, again and again, and a similarly small group of banks consistently bid against them and lost every time.


If anyone was ever meant to be taken in by this, it wasn't very carefully arranged. The public comments of the organizers and some of the companies whose shares were on the block have left no one in any doubt that things had been largely, if not completely, set up in advance.


Next year, the government has said, it will get it right and cut down on conflicts of interests when it goes ahead with further auctions, notably preventing a bank from both organizing and bidding in an auction.


Basically, however, it is too late. The Communist victory in the parliamentary elections, and the party's platform of renationalization, may persuade the government not to go ahead with any more auctions at all. At the same time, the government has made it clear that it does not intend to allow any reversals of the auctions which have taken place.


The tone of all this is that this government's gang of buddies got in there and grabbed their sack full of state assets while they could. (Though perhaps not quite: the loans-for-shares scheme rules allow for the government to buy back the stakes until Sept. 1 next year, that is to say after the presidential elections.)


The way to get in on the act was to be close to those who run the state. In the Soviet Union, the state controlled all industry and property. In modern Russia, it still controls a lot, and it is making sure that its friends own much of the rest.


As more than one commentator has said, this isn't capitalism as the country ought to know it. It is, as savvy investor George Soros recently said, "robber capitalism" instead. While it goes on, and there is no reason to think that it will stop, economic growth will be held back, and cronyism and cartels will prevent meritocracy and open markets.