Gazprom “Capitolism”

In today’s Wall Street Journal, Kyle Wingfield compares Gazprom to Airbus – pointing out that what could be an eminently great company is ruined by political intervention and abuses.

That said, the Russian energy sector is emblematic of the emerging era of “capitolism” — with an “o” — in which governments are reclaiming ground previously ceded to the private sector. So it’s useful to note what happens to a company when a government exploits it with the aim of producing national power or pride rather than simply taking pride in what the company produces.

In Airbus’s case, the British, French, German and Spanish governments that created Airbus’s corporate parent, European Aeronautic Defence and Space Co., also poured billions of dollars in subsidies into the firm. One consequence was that these governments often tried to pull the company’s strings: Make these parts here, balance the final assembly lines between this city in Country A and that one in Country B — and definitely no layoffs. It was only after an insider-trading scandal and mounting financial problems that Airbus was free to hire a CEO, Louis Gallois, who understood that the firm needed some separation between C-suite and state if it was to take off again. Before the global financial and economic crisis hit, it was doing just that.

The outlook for Gazprom is less promising. The Russian monopolist isnot new, but its extreme politicization is relatively recent. Gazpromonce was regarded as a reliable supplier that, even in the most frigidmoments of the Cold War, never turned off the taps to a wintry Europe.It has now done that a few times in the past three years, though neveras severely as this month’s total shutoff to millions of Europeancustomers downstream from Ukraine.

In Vladimir Putin’s Russia, most situations are viewed as zero-sumgames. But neither side is winning in Gazprom’s quest to force Ukraineto pay higher prices for gas. Rather, Gazprom stands to be the biggestloser from this episode.