Starving the Competition
I was disappointed but not surprised to read the front page story on the Financial Times today reporting that Russia is planning on forming a new state company to control more than half of grain exports – theoretically allowing the Kremlin an additional diplomatic-business weapon to drive up food prices in selectively targeted countries. The report states that the country’s Agency for the Regulation of Food Markets could be turned into a a joint stock trading company, gaining control of 28 important storage depots and export terminals, including the country’s biggest at the Black Sea port of Novorossiysk (look out, Georgia). The article speculates that this move is a reflection of Moscow’s reaction to the dramatic rise in global food prices – a panic which was underscored during the lead up to the elections when the government imposed Soviet-style price controls (lest the babushkas become angry at the price of bread and actually vote). Although the consolidation of these state assets is just being considered for the moment with no deadline, U.S. agricultural authorities are strongly critical of this move as being quite damaging to the functioning of grain markets. Others are more sanguine. Analyst Andrei Sizov of Sovecon tells the FT: “This is not a second Yukos.” I completely agree with Mr. Sizov – this is at least the fifth or sixth Yukos, after partial state thefts of Royal Dutch Shell, Russneft, BP, and the work in progress that is Mechel. But who’s counting? We could point to dozens of cases of incrementally increasing state participation in the private sector, usually characterized by an abuse of administrative and legal privilege and anti-competitive conduct. What we are seeing with this move to nationalize grain exports is just the latest expression of a long established and aggressive mercantilist pattern – bureaucrats getting richer under the guise of public interest, while the long-term economic prospects suffer.