Russia’s Acquisition Spree Continues

There exists in Russia a tension between the strong appetite of those in government to acquire control of more and more private companies, and the realities posed by the economic crisis.  As Konstantin Sonin notes in his Moscow Times column, the time is coming for the Kremlin to decide which assets are strategic to the country as opposed to which assets are strategic only to a few private bank accounts.

On the other hand, there are signs that other leaders do not understand the seriousness of the crisis. For example, the government is continuing its plans to increase the size of state holding corporations by buying up private companies that have fallen on hard times. It was announced in early May that Russian Technologies is preparing to purchase Moscow-based Depo Computers. It would seem that the government has not lost its appetite for snatching up private businesses — a common practice from 2005 to 2007 — by declaring them to be “strategically important” and gaining control of them any way it can.

Butnow, the more urgent task is to decide which of the companies the statealready controls are really of strategic importance and to dump therest. As the United States and many European countries havedemonstrated since the crisis broke out, it is sometimes necessary –as a last resort — to nationalize vital companies (for example, 80percent of AIG), but only if their failure would deliver a shatteringblow to the nation’s financial and economic foundation, spreading chaosand turmoil across all sectors both in domestic and global markets. Inthose cases, the government must act decisively. But there areindividual firms and even entire sectors whose failure would cause onlysmall, localized damage, and the government has no business acquiringcontrol of them. If a private company like Depo Computers cannotsurvive on its own, the country will have to manage without it.