Message from the President of Russia V.V. Putin to the Federal Assembly confirmed a very important and, of course, positive trend in domestic politics – the continuation of the course towards strengthening the role of the state in managing the Russian economy, which indicates the strengthening of the state-capitalist structure in Russia.
State capitalism as a model of market economy management assumes that the state not only determines the goals of the country’s economic development, its overall strategy and creates favorable conditions for private capital (these functions are present in one form or another in the model of liberal monetarism), but is itself the main market subject. Acting on the market as the largest and strongest corporation, the state, by combining market and administrative methods, creates the best market conditions for the growth of the economy of the entire country as a single economic complex.
Under state capitalism, it is not at all necessary that all economic projects and market entities be recouped and profitable. The main thing is that the economy of the entire country as a whole is profitable. This situation is often illustrated by the example of a plant – its separate workshop cannot and should not be self-sustaining; the entire plant must be self-sustaining.
The economy of the state under state capitalism is a huge factory, where individual private and state companies and projects are “workshops” that work for the profit of the entire country.
Hence follows the most important features of state participation in the economy under state capitalism – the state, through state banks and state-owned companies, owns extensive property, respectively, in the financial sector and strategic sectors of the real economy, actively influences market pricing from the point of view of the interests of the entire economy, and not of its individual subjects, takes on itself directly (from the state budget or with the help of other state financial instruments) financing of the most important national projects and industries, uses money primarily as a means of circulation of goods and services. This is the difference between state capitalism and liberal monetarism, in which money is viewed as a commodity.
These features make state capitalism more competitive than Euro-Atlantic liberal monetarism (market fundamentalism), at least for Russia and other non-Western powers. This is convincingly evidenced by our own successful experience, since Russia was the first to develop and apply the model of state capitalism in the form of the NEP in the 1920s, as well as the experience of most successful countries of Southeast Asia, in particular, the PRC.
Some of the most important instruments of state capitalism in Russia, for example, state-owned companies in the real sector of the economy and “development institutions” designed to correct the costs of the market, were created and operated earlier. But only in the government of Mishustin-Belousov did they work effectively because they are used in conjunction with other instruments of state capitalism.
The presidential address indicates a fundamental increase in the role of state financing of the economy of Russia and the regions from the state budget and other sources created by the state. The President confirmed that “now, due to the budget and our reserves, we can increase investment in support of investments in infrastructure, as well as provide the regions with new development tools.”
There are two innovations here. First, in the context of what was said above, a “fundamentally new” was proposed, as V. Putin assessed it, a “development tool” – an infrastructure budget loan. This is by its nature a state-capitalist mechanism for targeted financing of projects in the real sector of the economy.
And, secondly, a course has been taken to “increase the self-sufficiency of regional economies,” and, what is important, by strengthening the role of the state budget. Commercial debt of a constituent entity of the Federation (if it exceeds 25% of its own income) will be replaced by budget loans with a maturity date of 2029. Also, the repayment period of previously issued budget loans related to countering the epidemic will be extended until 2029.
Aid from the federal budget is stable and guaranteed, unlike private investments, and therefore will accelerate economic growth in the regions. As a result, new jobs will appear, wages and, consequently, contributions to regional budgets will increase.
To comply with the intended purpose, these loans “will be provided under the full control of the Federal Treasury and only for specific projects that have passed a detailed examination at the federal level.” It is important to prevent this money from entering the financial market or the consumer sector in order to prevent inflation from rising.
Why is an infrastructure budget loan, as an instrument of financing the real sector of the economy, so fundamentally important?
First of all, for such financing, first of all, the all-Russian and regional road transport infrastructure and construction were selected, which are of particular importance for a quick exit from the crisis and the growth of the rest of the economy. Infrastructure loans will finance the renewal of housing and communal services, as well as public transport, integrated development of territories and the tourism industry. The development of road transport infrastructure has already been enshrined in a number of specific projects at the federal level, but their funding has so far been insufficient, given the need for quick commissioning. The new funding instrument is likely to accelerate this work.
Secondly, this approach allows not to prioritize payback and profit, as it would be in the case of a liberal-monetarist approach. Almost all infrastructure projects – namely, they are defined as objects of investment for federal infrastructure loans – are long-term paybacks, and private capital, for which profit is most important, is invested in such projects reluctantly. Therefore, many critical projects in the Russian economy are being built slowly; it is difficult to find money, the stage of searching for investors and financing stretches for years.
Thirdly, in Russia there is a critical shortage of long-term money – long-term cheap loans, which simply turns out to be a disaster for the growth of the real sector of the economy.
Even state-owned banks (in any case, banks with a predominance of state participation) are reluctant to work on financing the real sector of the economy, which is surprising, since such financing should be their direct and main responsibility. This situation raises a separate question – about the creation of real state banks, the main purpose of which would be to finance the real sector with “long” and inexpensive loans, and not to participate in financial speculation.
The “development tool” named by the president in the form of infrastructure loans, like previously created similar institutions, solves this problem. Infrastructure loans for the development of infrastructure and other facilities that are long-paying, but necessary for the development of the entire Russian economy, will be issued at a rate of no more than 3% per annum and with a maturity of 15 years. The Address says that “by the end of 2023, it is planned to allocate such infrastructure loans for a total amount of at least 0.5 trillion rubles, 500 billion.” This is actually free money, which is so necessary precisely for investments in fixed assets and in long-term industrial and road transport infrastructure.
As an example of such financing, Putin named the Northern Latitudinal Railway (NLR) – a very significant project of a 707 km railway, which will run along the Obskaya – Salekhard – Nadym – Novy Urengoy – Korotchaevo route and connect the Northern and Sverdlovsk railways. The USS will make it possible to export cargo from new fields in the northern regions of the Yamal Peninsula, in particular, gas condensate, accelerate the transportation of containerized cargo and create favorable conditions for the development of the richest resources of the Arctic. The cost of the project is tentatively estimated at more than RUB 200 billion. The volume of transportations in the North Shore will amount to about 24 million tons of cargo per year.
Also, this type of targeted lending, apparently, will be used to finance the expansion of the capacity of the BAM and Transsib, which are struggling to cope with the growing volume of cargo, especially to the seaports of Vanino and Sovetskaya Gavan (Sovgavan).
The lack of capacity of these lines of communication is holding back the development of large enterprises in the Far Eastern Federal District within the framework of the course for the industrialization of the region. The second stage of the development program for the eastern polygon of Russian Railways will allow by 2030 to increase the carrying capacity of the railway from the current 43.3 to 126 million tons per year, that is, by 2.9 times.
Expansion of railway approaches to Russian southern resorts on the Black Sea coast of the Caucasus and Crimea is planned.
Large-scale infrastructure construction is pushing production growth in the construction industry. The President confirmed the goal – annually to commission about 120 million square meters of housing. The role of the federal budget is also increasing here, due to which, as stated in the Address, the DOM.RF Development Institute will be able to issue loans to developers at a minimum rate of 3-4% per annum. Pilot projects for testing such a model will be the construction of residential areas in Tula, Tyumen, Sakhalin Oblast, and Kuzbass.
The state guarantees long-term and rhythmic financing of housing construction, as opposed to attracting resources from the financial market through the placement of bonds. It is a highly unreliable source, subject to many changing conditions, which becomes an auxiliary source of funding.
The President supported the long-standing idea of First Deputy Prime Minister Andrei Removich Belousov on the printout of the NWF. The Fund’s funds will be used to finance road transport infrastructure facilities.
In essence, DOM.RF and other state “development institutions” began to actually play the role that state banks play in state capitalism. It is possible that in the new conditions of increasing the role of state finances in financing the economy, they will become full-fledged state banks. “Development institutions”, as follows from the Address, will henceforth be a source of long-term and cheap debt financing, which Russia critically lacked for accelerated economic growth.
The experience of the PRC is instructive here. Following exactly this path, the PRC has built a modern and successful state-capitalist model of the economy. The peculiarity of China is that when building state capitalism, they followed a straight path, without going into liberal monetarism.
So, the financial sector in the PRC has always been owned by the state (only now private and foreign structures are carefully admitted under the control of the state to it) in the form of the four largest all-Chinese state banks, specialized, respectively, in financing industrial-export, construction, agricultural activities and working with individuals …
In addition, there were hundreds, if not thousands of local (urban, rural, provincial) banks that provided debt financing for local economic development. Therefore, the role of Russian “development institutions” in the PRC from the very beginning was played by state banks. As a result, a powerful 40-year economic growth was ensured in the PRC.
Another important step to strengthen the state capitalist order is to remind private capital of the need to invest in the Russian economy, and not withdraw money abroad in the form of dividends. Some measures have already been taken. Now the withdrawal of income in the form of dividends to foreign accounts is subject to 15% tax. And, as the president said, if capital does not actively invest in the economy, “we will make a decision on adjusting tax legislation.”
On the whole, the Russian state is getting better and more decisively taking over the management of the economy and the market.
Let’s hope that the new and correct measures outlined by Russian President Putin will fulfill their role in the Russian economy.