Monopolizing the oil and gas trade, the state separated petro-revenues from the economic life of the country. Critically analyzed by the early British economists, the experience of the mercantilist empires provided a playbook for further action: raise exports, restrain internal consumption, keep the trade balance positive, accumulate gold in the treasury and invest in colonial expansion. Between 2009 and 2019, the amount of gold in the Russian treasury increased threefold while the economy grew only by a quarter.20 The education budget was falling, the pension deficit was rising, and capital was fleeing the country. The gold reserves increased at unbelievable speed, competing only with military expenditures. Britain had seven times less gold, although its economy was larger than Russia's. The population of India possessed more personal gold than any other country, but the Indian state had three times less gold than Russia. And even China, whose economy was many times larger than Russia's, had less gold. Russia's reserves were huge, but gold did not save Putin from himself.
Norway had proven that an oil-exporting country could be peaceful and prosperous, but with a caveat. The Norwegian way consisted in locking oil and gas incomes into a special fund and forgetting about them, while developing alternative, counter-cyclical sources of revenue. In 2004, following the Norwegian model, Aleksey ICudrin created the Russian Stabilization Fund. It accumulated petrodollars according to the "budget rule." Annually, the government defined a certain price level, the so-called "cutting price." When the global price exceeded this level, the government transferred the surplus to the Stabilization Fund, which then invested in American and global securities. Close to Putin, ICudrin served as minister of finance but lost his post in 2011 because of his refusal to increase military expenditure during the "modernizing" presidency of Dmitry Medvedev. Ironically, Kudrin became the Chairman of the Accounts Chamber, the top financial control agency. An economist with the airs of a professor, Kudrin also found time to create modern educational facilities. However, acting as top auditor at a time of nationwide graft proved to be quite a challenge. His Stabilization Fund used fashionable terms such as "sterilization" but it lacked stability - and sterility too. The problem was that while the Russian people, just like the Norwegians, could probably have survived without oil, the Russian state could not. Having peaked in 2008, the Fund was restructured several times - no institution in the Russian Federation was renamed so often. By 2017, the Fund had lost a half of its assets, and in 2022 most of the money remaining in it was seized by sanctions.
The project of turning Russia into a bigger Norway failed. But Norway also had serious issues. Why did the Norwegians pump oil at all? Good for them that they did not use the profits, but would it not have been better for all if they'd left the oil and gas in the depths where they belonged? Financial engineering was no better fitted to resolving the problems of the Anthropocene than geoengineering. The German economist Felix Creutzig suggested measures that would reduce Europe's dependence on Russian energy by half every year, and would also reduce global emissions by 3 percent a year. Three sectors would be central - transport, building and food. Europeans would have to drive and fly less, switch to teleconferencing instead of commuting, reduce speed limits, turn down the heating in winter and the air-conditioning in summer, eat less meat, subsidize public transport and boost social equality.21 These policies would have resulted in negative growth. But would not it be easier to experience degrowth than to live through war? Small is beautiful, cheap is enjoyable, and the best things that people do require less energy than the worst.
Parasitic Governance
A balance between the state and civil society - the condition for inclusive progress - is possible only if the state depends on the labor of its people. The founders of political economy believed this would be always true, but it is not. If the state owns natural sources of wealth and society does not have access to those sources, no equilibrium between them is feasible. In an extractive economy, the state turns into a trader of raw materials. Bureaucracy redistributes the wealth drawn from the depths of the earth, reserving a generous helping for itself. Competence being irrelevant, the bureaucracy turns into an "elite" - a close circle of people characterized by mutual enrichment, embedded loyalty and hostility towards outsiders.
The parasitic state is a political community that maintains the attributes of a state but fails to fulfil its junctions. Instead of the old imperial 'progress' we see the triumph of archaic beliefs, demodernization and decay. Instead of being a source of national wealth, the people become recipients of state charity. Health services and education are irrelevant for the national economy. The population becomes superfluous, as Hannah Arendt observed.1 It wastes away not because of deliberate extermination but due to neglect and despair (see Chapter 6).
Imitating democratic politics and the market economy,2 the parasitic state accumulates gold, limits internal consumption, pursues domestic oppression and, sooner or later, launches a war of aggression. Money, knowledge and people flee the country. The state is caught in a vicious circle: the more it relies on natural resources, the less it invests in human capital; the lower the human capital, the more parasitic is the state and the higher its dependence on resource extraction.
Enter privatization
Russia's first answer to its inherited Soviet troubles was privatization. What had belonged to the state should go to individual citizens. Preaching and practicing privatization, Putin described it in the following words: "Give the property away to whoever wants it. In two or three years it will end up in the right hands... of the effective owner."3 But this libertarian dream would only be realized if competition was fair, property rights were secured by independent courts and the monetary system was in working order. All of these conditions were absent in post-Soviet Russia. Still, privatization worked well for the millions of Russians who lived in state-owned apartments: with a piece of paperwork, they became owners of a property that could be sold or rented. Apartments grew in value without changing hands, so the process worked very differently from that outlined in Putin's sermon. While the privatization of housing did create something like a middle class, it did so only in major cities, thereby boosting geographical inequality rather than reducing it.
A parallel scheme was the voucher campaign. Launched by Anatoly Chubais, the vouchers were special securities distributed by the government to every Russian citizen for investment in a chosen company.4 It was a bureaucratic success, but people soon found that their vouchers were showing miserable returns. Commoners compared Chubais's vouchers to Stalin's bonds, which could only be used as wallpaper. "What did you do with your voucher?," journalists once asked Putin. "I lost it," he responded.5 Running out of money, the government launched a "loan-for-shares" scheme, which gave oil fields, potash mines, steel-making factories and much else to private creditors.
Western experts had drawn up respectable blueprints for privatization. A group of Harvard Boys - high-profile academics with close ties to the Clinton administration, such as Lawrence Summers, Jeffrey Sachs and Andrei Shleifer - played a role in Russia similar to that played in Chile by the Chicago Boys, the economists who had advised the Pinochet dictatorship. Years later, Sachs reflected: "People told me how incredibly crooked the whole thing was. It seemed pretty distasteful to me. I didn't like it."6 The Russian-born Shleifer advised the Kremlin from 1992 to 1997. His Harvard mentor, Summers, was then serving as Under Secretary of the Treasury. Together, they managed the hundreds of millions that the US sent as financial aid to the Russian government, and wrote drafts of the new legislation.