by Paul Craig Roberts and
February 08, 2016
Dr. Paul Craig
Roberts was Assistant Secretary of the Treasury for
Economic Policy and associate editor of the Wall Street
Journal. He was columnist for Business Week, Scripps
Howard News Service, and Creators Syndicate. He has had
many university appointments. His internet columns have
attracted a worldwide following.
Readers are asking to
know who, in addition to the Western-financed NGOs,
are the Fifth Columnists inside Russia.
Hudson and I left the description general as Atlanticist Integrationists and neoliberal
The Saker provides some
specific names. Among the Fifth Columnists are the
Russian Prime Minister, head of the Central Bank,
and the two top economics ministers.
They are springing a
privatization trap on Putin that could undo all of
his accomplishments and deliver Russia to Western
Two years ago, Russian officials discussed plans to privatize a
group of national enterprises headed by,
the oil producer Rosneft
the VTB Bank
The stated objective was to streamline
management of these companies, and also to induce oligarchs to begin
bringing their two decades of capital flight back to invest in the
Foreign participation was sought in
cases where Western technology transfer and management techniques
would be likely to help the economy.
However, the Russian economic outlook deteriorated as the United
States pushed Western governments to impose economic sanctions
against Russia and oil prices declined. This has made the
Russian economy less attractive to foreign investors.
So sale of these companies will bring
much lower prices today than would have been likely in 2014
Meanwhile, the combination of a rising domestic budget deficit and
balance-of-payments deficit has given Russian advocates of
privatization an argument to press ahead with the sell-offs. The
flaw in their logic is their neoliberal assumption that
Russia cannot simply monetize its deficit, but needs to survive by
selling off more major assets.
We warn against Russia being so gullible
as to accept this dangerous neoliberal argument.
Privatization will not help
re-industrialize Russia's economy, but will aggravate its turn into
rentier economy from which profits
are extracted for the benefit of foreign owners.
To be sure, President
Putin set a number of
conditions on February 1st
to prevent new privatizations from being like the Yeltsin
era's disastrous selloffs. This time the assets would not be
sold at knockdown prices, but would have to reflect prospective real
The firms being sold off would remain
under Russian jurisdiction, not operated by offshore owners.
Foreigners were invited to participate,
but the companies would remain subject to Russian laws and
regulations, including restrictions to keep their capital within
Also, the firms to be privatized cannot be bought with domestic
state bank credit. The aim is to draw "hard cash" into the buyouts -
ideally from the foreign currency holdings by oligarchs in London
Putin wisely ruled out selling Russia's largest bank,
Sperbank, which holds much of the
nation's retail savings accounts.
Banking evidently is to remain largely a
public utility, which it should because the ability to create credit
as money is a natural monopoly and inherently public in character.
Despite these protections that President Putin added, there are
serious reasons not to go ahead with the
newly-announced privatizations. These reasons go beyond the fact
that they would be sold under conditions of economic recession as a
result of the Western economic sanctions and falling oil prices.
The excuse being cited by Russian officials for selling these
companies at the present time is to finance the domestic budget
deficit. This excuse shows that Russia has still not recovered from
the disastrous Western Atlanticist myth that Russia must
depend on foreign banks and bondholders to create money, as if the
Russian central bank cannot do this itself by monetizing the budget
Monetization of budget deficits is precisely what the United States
government has done, and what Western central banks have been doing
in the post World War II era.
Debt monetization is common practice in
the West. Governments can help revive the economy by printing money
instead of indebting the country to private creditors which drains
the public sector of funds via interest payments to private
There is no valid reason to raise money from private banks to
provide the government with money when a central bank can create the
same money without having to pay interest on loans. However, Russian
economists have been inculcated with the Western belief that only
commercial banks should create money and that governments should
sell interest-bearing bonds in order to raise funds.
The incorrect belief that only
private banks should 'create money' by making loans is leading
the Russian government down the same path that has led the Eurozone
into a dead end economy.
By privatizing credit creation, Europe
has shifted economic planning from democratically elected
governments to the banking sector.
There is no need for Russia to accept this pro-rentier economic
philosophy that bleeds a country of public revenues. Neoliberals are
promoting it not to help Russia, but to bring Russia to its knees.
Essentially, those Russians allied with the West - "Atlanticist
Integrationists" - who want Russia to sacrifice its
sovereignty to integration with the Western empire are using
neoliberal economics to entrap Putin and breach Russia's control
over its own economy that Putin reestablished after the Yeltsin
years when Russia was looted by foreign interests.
Despite some success in reducing the power of the oligarchs who
arose from the Yeltsin privatizations, the Russian government needs
to retain national enterprises as a countervailing economic power.
The reason governments operate railways
and other basic infrastructure is to lower the cost of living and
The aim of private owners, by contrast,
is to raise the prices as high as they can. This is called "rent
extraction." Private owners put up tollbooths to raise the cost of
infrastructure services that are being privatized.
This is the opposite of what the
classical economists meant by "free market."
There is talk of a deal being made with the oligarchs. The oligarchs
will buy ownership in the Russian state companies with money they
have stashed abroad from previous privatizations, and get another
"deal of the century" when Russia's economy recovers by enough to
enable more excessive gains to be made.
The problem is that the more economic power moves from government to
private control, the less countervailing power the government has
against private interests. From this standpoint, no privatizations
should be permitted at this time.
Much less should foreigners be permitted to acquire ownership of
Russian national assets. In order to collect a one-time payment of
foreign currency, the Russian government will be turning over to
foreigners future income streams that can, and will be, extracted
from Russia and sent abroad.
This "repatriation" of dividends would
occur even if management and control remains geographically in
Selling public assets in exchange for a one-time payment is what the
city of Chicago government did when it sold the 75 year revenue
stream of its parking meters for a one-time payment. The Chicago
government got money for one year by giving up 75 years of revenues.
By sacrificing public revenues, the
Chicago government saved real estate and private wealth from being
taxed and also allowed Wall Street investment banks to make a
It also created a public outcry against the giveaway.
The new buyers sharply raised street
parking fees, and sued Chicago's government for damages when the
city closed the street for public parades or holidays, thereby
"interfering" with the rentiers' parking-meter business.
Instead of helping Chicago, it helped
push the city toward bankruptcy. No
wonder Atlanticists would like to see Russia suffer the same fate.
Using privatization to cover a short-term budget problem creates a
larger long-term problem. The profits of Russian companies would
flow out of the country, reducing the ruble's exchange rate. If the
profits are paid in rubles, the rubles can be dumped in the foreign
exchange market and exchanged for dollars.
This will depress the ruble's exchange
rate and raise the dollar's exchange value. In effect, allowing
foreigners to acquire Russia's national assets helps foreigners to
speculate against the Russian ruble.
Of course, the new Russian owners of the privatized assets also
could send their profits abroad. But at least the Russian government
realizes that owners subject to Russian jurisdiction are more easily
regulated than are owners who are able to control companies from
abroad and keep their working capital in London or other foreign
banking centers (all subject to U.S. diplomatic leverage and New
Cold War sanctions).
At the root of the privatization discussion should be the question
of what is money and why should it be created by private
banks instead of central banks.
The Russian government should finance
its budget deficit by having the central bank create the necessary
money, just as the US and UK do. It is not necessary for the Russian
government to give away future revenue streams in perpetuity merely
in order to cover one year's deficit.
That is a path to impoverishment and to
loss of economic and political independence.
Globalization was invented as a
American Empire. Russia should be
shielding itself from globalization, not opening itself to it.
Privatization is the vehicle to undercut economic sovereignty and
increase profits by raising prices.
Just as Western-financed NGOs operating in Russia are a fifth
column operating against Russian national interests, so
are Russia's neoliberal economists, whether or not they realize it.
Russia will not be safe from Western
manipulation until its economy is closed to Western attempts to
reshape Russia's economy in the interest of Washington and not in
the interest of Russia...