Staunton, July 4 – Many have been struck by Gideon Rachman’s argument that countries can be classified as either nation states or civilization states (ft.com/content/b6bc9ac2-3e5b-11e9-9bee-efab61506f44), but Vladislav Inozemtsev says many, including Russia and a large number of other post-Soviet states, are neither. Instead, he argues, they are “business states.”
These states, the Russian economist writes on the Snob portal, are not so much like former empires as “trading corporations of Modern times, many of which fulfilled the fucntions of states like the British East India Company, for example” with one major distinction (snob.ru/entry/179441/).
That distinction is that “in the role of the denigrated and exploited are not residents of overseas territories but rather all the subjects of this or that national leader.”
According to Inozemtsev, “a business state is a system in which the formal instruments of state administration are completely subordinate to the tasks of the increase of the wealth of its leader, persons close to him, their friends and relatives and also all those whose political loyalty is needed by ‘the big boss’ for the support of his power and provision of his own security.”
In a state of this type, it is “senseless to speak about corruption in the usual sense of the word” because the personal enrichment of the members of the political elite is “the highest goal of the system and extracting profit from their positions on the hierarchy is its fundamental imperative.”
In a business state like Russia today, Inozemtsev continues, “the powers that be de facto control public wealth … but de jure only fulfill standard administrative functions – and precisely that situation defines the most important characteristics of the business state.” And over time, this state looks at the population only as “a bio resource” whose support it wants to keep to a minimum.
“This corresponds to the logic of any business corporation,” he says. The difference is only that the usual corporation has to live with the power of the state, while the state doesn’t have to be concerned about or feel limited in any way by anything. Thus, what appears from other perspectives as a violation is in fact absolutely logical and consisten.
Such systems have three basic characteristics. First, they are ineffective. Because the rulers want to extract ever more profit from the population, they do not invest in it or in its future and thus eventually find themselves in a dead end. Competition and innovation decline, and the systems themselves decay.
The only thing that acts to restrain that decay is some external source of money such as rents from the sale abroad of raw materials like oil and gas.
Second, such systems are ruthless. They do not need to satisfy the population but to exact resources from it; and in their competition among themselves, they feel no constraints either. And third, such systems are open. “The Soviet Union of the Brezhnev era could not become what Putin’s Russia or Yanukovich’s Ukraine became.”
Under Brezhnev, “immigration was almost impossible,” information was tightly controlled, and Moscow sold abroad only 17 percent of the oil it pumped, not the 62 percent it sells now. The business state has to be open in this way for the same reason a declining corporation must: it is the only way to ensure it will continue to make money.
“The business state is similar to a company whose owners are ready to sell to anyone who offers an unexpectedly high price, but if a buyer isn’t found, then the goal becomes the extraction of the maximum possible current income when there is a complete lack of any strategic goals and tasks.”
But just as corporations that land in this state eventually fail so too do business states, Inozemtsev says. Because power is invariably monetarized in these states, the siloviki integrate with the state and become wealth and try to keep it going so that they can continue to enjoy the wealth it provides them.
“A business state of course can be destroyed in the course of a popular uprising or as a result of the interference of external forces, but it is naïve to hope that its formal collapse will destroy all its structural elements.” They are likely to continue far after the founder of the business state leaves the scene as has happened in Ukraine.
According to Inozemtsev, “the most probable” way for the Russian business state to end is bankruptcy. That is because its rulers being businessmen are rational. “They will hold on to power as long as the profits of doing so exceed the risks” just as businessmen of all kinds tend to do.
That could have happened in Russia after the 1998 default, Inozemtsev said, had Boris Yeltsin not found Vladimir Putin as his successor, someone who is quite prepared to ensure the survival of his system by harsh and brutal action, something not everyone in the Russian political elite has been or is willing to do.