Moving Corporate Offices Beyond the Ring Road: Another Meaningless Moscow Proposal that Could Backfire on the Kremlin

Paul Goble

            Staunton, May 18 – The Russia’s ministry for economic development has proposed that state corporations move their headquarters out of Moscow to regional centers, a shift that won’t matter at all in the short term given that in Putin’s Russia politics determines economics and all political decisions are made in the center.

            But over the longer term, it could matter a great deal – and not in the way its authors hope. Instead of boosting the Russian economy as a whole, it could lead corporate leaders to shift their loyalties from Moscow to regional elites, strengthening the latter and leading to even more demands that taxes remain in the regions rather than nearly all of them going to Moscow.

            Such an outcome is neither imminent or inevitable. For a long time even after their offices might be moved, corporate leaders will still have their heads in Moscow just as many political outsiders the center has dispatched to the regions do. But unlike regional heads the Kremlin can shift at will, corporate headquarters are likely to remain in place far longer.

            And they will form alliances with local elites in which both will come to view the center not as their ally but as their opponent or even enemy.  Because that is the case and because cooler heads in Moscow are certainly likely to see this, the ministry’s proposal is unlikely to be implemented except perhaps in some Potemkin village-like way designed to confound outsiders.

            Indeed, the first reactions to this proposal suggest as much.

            Writing in Izvestiya, commentator Dmitry Migunov notes that “practice shows that even the largest corporations can completely successfully exist and develop beyond the city limits of the capital and major metropolitan areas. Most often this happens in countries where the capital is not so dominant over the rest of the country” (iz.ru/878392/migunov-dmitrii/na-otshibe-kak-krupneishie-korporatcii-razvivaiut-ekonomiku-v-provintcii).

            “But even in other countries, the location of leading businesses in places far from major cities favorably influences the balanced development of the country and promotes the maximum use of its potential.” Migunov is right about that, but unfortunately his government continues to believe in hyper-centralization in all things even if it imposes great costs.

                As the Region.Expert portal notes, this proposal does not mean that “a regional revolution” has taken place in Russia. It only follows Vladimir Putin’s declaration that locating “centers of profit in the regions is absolutely correct,” a remark that the economic development ministry is struggling to give content to (region.expert/taxes/).

            But just how fraudulent this proposal is, the portal continues, is shown by the fact that Moscow wants to decide which regions will develop and which will not rather than allowing decentralization of economic activity to proceed naturally – and it clearly has no intention of changing its control of the companies or of the flow of tax monies collected.

            Unfortunately, it adds, “Moscow bureaucrats simply cannot think in any other way. They are accustomed to make decisions about everything for everyone.” And that is something that Russian specialists on regional affairs, however much they may say decentralization is a good thing, nonetheless continue to view as “normal or inevitable.”

            Dmitryy Zhuravlyev, the head of the Moscow Institute for Regional Problems, acknowledges that “you can shift things as much as you want, but all key things will remain in Moscow, because here is the industry ministry, the finance ministry, the economic development ministry and all the other agencies without which major companies can’t function” (club-rf.ru/detail/3180).

            And Aleksander Dergyugin, head of the Institute of Applied Economic Research at Moscow’s Russian Academy of Economics and State Service, concurs: “we have a highly centralized system of administration in the country” and therefore “many issues must be agreed to in Moscow,” wherever a company would be located.

                So why then did Putin utter words about “‘shifting centers of profit to the regions,’” Region.Expert asks. “Possibly because his advisors told him that the residents of Russian regions are ever more unhappy that Moscow takes all their resources and send them in exchange only its appointed representatives and other trash.”

            Thus Putin tries to play the part of “’the good tsar.’” But he has changed nothing, and people in the regions can see that. This is a show, and it is a show that can’t go on forever without the most negative consequences for the peoples of the Russian Federation.