Rosneft will reinforce Russian reform

By Mikhail Gorbachev

     This weekend, leaders of the world's largest economies will meet in St Petersburg. This is the first time Russia has hosted a Group of Eight summit. The meeting comes at a time of change for Russia. There is an increasing recognition of the growing maturity of the Russian economy, and Russian companies are beginning to make their mark internationally, many reaching out to the west for capital and to London in particular.
     And as the Russian economy develops, the benefits of that development are beginning to be shared more broadly. In the years of economic change under President Boris Yeltsin an attempt was made to leap from a totalitarian state to a free-market almost overnight. In the privatisations of the early 1990s, big state industries were transferred to a handful of individuals who became Russia's new billionaires. Russia had created a new class of super-rich industrialists before it had embedded the institutions and reforms necessary to regulate the excesses of free-market capitalism and ensure the majority of Russia's population could share in the benefits of economic change. Russia's new billionaires consolidated their wealth and paid little tax while the majority of the country's population continued to live in poverty.
     This position was never sustainable, and had become a significant barrier to further change. Many ordinary people became disillusioned with so-called democratic reform in Russia, which they came to associate with vast wealth for a few while seeing little positive impact on their daily lives. Indeed the dominant experience of many in this period was a growing sense of lawlessness and insecurity.
     The achievement of recent years is that a sense of order has returned to Russia, one that has underpinned a much more fundamental embedding of free-market reform and enabled sustained and balanced economic growth.
     The re-establishment of a proper sense of governance has been keyto that success, although its importance is not properly understood outside Russia. That citizens can participate in initial public offerings of Russian companies is also an important achievement. It is clear that it is impossible to drive forward the process of renewal and change in Russia without giving ordinary Russians a stake in that change. And that, in turn, would never be possible simply by a wholesale transfer of a centralised totalitarian state system into the hands of the market.
     The privatisation of Rosneft, Russia's state-owned oil company, is therefore an illustration of the changes taking place in Russia today. Not only does it represent Russia's growing economic confidence - an efficient, modern business with larger reserves than many of the world's supermajors performing on equal terms with the leading energy businesses in the west - Rosneft's privatisation is also in sharp contrast to the auction of state assets in the early 1990s. The Yeltsin era sell-offs were far from transparent and major state assets were transferred into the hands of a "trusted" few, without the government realising a return for the Russian people close to their true value. By contrast, the government today is managing this privatisation, learning from both past experience in Russia and best practice internationally.
     The Rosneft flotation will also mark the first time in Russia that a privatisation has had a big retail offer. Russia does not yet have the depth of popular savings to allow strong parallels to be drawn with the privatisations in Britain in the 1980s under Margaret Thatcher; however, by opening the privatisation to the Russian people, the government is crossing an important threshold, giving many more ordinary Russians the opportunity to have a direct stake in the future success of the Russian economy. Moreover, as with the early privatisations in Britain, this should begin to mark a change in the broader popular understanding of the importance of the reforms under way and make any future government's attempts to reverse those reforms almost impossible.
     On the eve of the meeting of the G8 leaders, it is important therefore to recognise that Russia is changing and that the processes of reform are becoming increasingly entrenched. It is also important for people outside Russia to understand the nature of that change and to be patient.
     The Russian people have experienced a period when the west pressed for and applauded rapid reform that left many insecure and in poverty. The economies of the major western countries took many decades, indeed centuries, to develop and mature. Russia is still less than 20 years on from a totalitarian state based on central planning, and our path to reform requires a little longer, even for us.
     Reform would also benefit from a continued and developing true partnership with the west. Russia is a proud nation looking to play a full part in the international community. Inside the country, a strong partnership between people and the government will, in its turn, contribute to Russia building strong ties with the international economy.
     The writer was the last president of the Soviet Union, and is chairman of the Gorbachev Foundation in Moscow and head of the International Green Cross.

The Financial Times, 12.07.2006