Putin Begins Busting Up the Trusts: New Economic Plan Calls For Punishing Monopolistic Behavior
The topic of the State Council meeting, held by President Putin on Thursday, was the growth of fair competition in Russia. I must say that not all governors, ministers, and parliamentarians looked inspired during the tough discussions. The is a major issue. Lack of fair competition significantly hurts the country, slowing everything down. The worst situation is at the regional and municipal levels. There, as the President has stated, government orders go to their own firms, SUEs, and MUEs. All this happens in violation of the current legislation, under which the punishment for this is a tiny fee, which doesn't discourage such nepotism. And it's not even a felony. Judging from Putin's mood and by how he asked the question, things will change here soon. It seems to me that the President can relate to the experience of countries with advanced economies, where only murder and treason resulted in a more severe punishment than the violation of antimonopoly legislation.
Aleksandr Balitsky reports on the issue.
This modern waste incineration plant completes the view from a hill in Chukotka's capital. The company that is in charge of trash pickup had gone through severe competition before they went in a different direction.
Yulia Dubina, the vice-manager of a public utility company: "They offered us better terms, which was good for our company since it allows us to cut costs. Also, two companies on the market are increasing their quality of service, because now we can't slack off, or we'll lose our jobs".
There are many entrepreneurs who work in the HUIs and work for the long run and for the people. But, there are still plenty of those who put their own interests above the consumer's best interests. This is a typical high-rise building in Ufa.
A resident: "As you can see, you can't call the elevator from the first floor".
It's bad enough that the call button rarely works, the elevator also constantly gets stuck.
A technician:"This is our elevator's gear. Just look at its condition! This is the service we get".
As the monopoly regulators have determined, the local HBI Ministry only let several companies fix the elevator. They would then divide the market between themselves. Over the past few years, 4 laws have been passed to ensure market transparency and equal conditions. But, in reality, there are a lot of violations, with 98% of them having been committed by local authorities.
Vladimir Putin: "We think this is absolutely ridiculous. They think it's no big deal that they want to take care of their own. They want to help their own firms, SUEs, and MUEs, which results in significant losses for the country's economy. The problem is in the habitual, long-standing pattern and style of the bureaucratic mindset. It's easier to work with their own SUEs and MUEs than to choose quality firms in the free market. These actions result in an increase of budget expenses. They preserve backward enterprises and low-quality products. In the end, consumers suffer from this, Russian citizens suffer".
Putin said these words at the State Council meeting, where the competition issue was of paramount importance. Without it, moving forward is impossible, as the President had said in his earlier statement. Otherwise, businesses will lose people's trust, along with their incentive to do business.
Igor Artemyev, Head of the Federal Antimonopoly Service: "These public enterprises are essentially being subsidized by the budget. Why? To ensure a low price. However, a significant part of all this in the government sector simply gets stolen. We know that fences are painted by small businesses. Small businesses also change our light bulbs and provide us plumbing services".
Besides the SUEs and the MUEs, fair competition is shut down by regional protectionism. That's when local authorities support local manufacturers. You'd think that's a good thing, but it shuts out entrepreneurs from other regions. Here, this shopping center's shelves clearly indicate that. Other industries also suffer from such protectionism, from pharmaceuticals to construction. The director of the company that manufactures drones that are used for geodesic purposes complains that he tried to get a project in a neighboring region, but he couldn't.
Evgeny Semenov, the head of an SPA: "We're ready to compete and we do so on a regular basis, but we often have to deal with regional protectionism. That's when the local authorities do anything to ensure the victory of some local company even though we can do the same job better and for less money".
Vladimir Putin: "I want all of you to look at me and hear me out. 'Local manufacturers means 'Russian manufacturers,' not some buddy of yours. This is extremely important. The prevalent business environment which favors 'your own people' subverts free market competition. I want to add that, upon getting these artificially gained advantages, in the long run, these companies definitely lose their effectiveness, and you know that. And then you'll be the ones forced to purchase overpriced, low-quality products or use low-quality services."
The local authorities spent 1.3 billion rubles on this local road in Penza. However, there was no contract by tender; the contractors just had a verbal agreement to reduce the price by 0.5% at the auction, even though contract bidding usually saves the budget as much as 20%. Even if it were only 10%, it would have saved them 130 million.
Oksana Kuznetsova, the Head of the Federal Antimonopoly Service in the Penza Region: "What is 130 million? It's another daycare center, it's road repairs, and many other things." Let's take a look at this Skolkovo school in the Tambov region. For several years, two construction companies would just split all construction contracts. They'd decide in advance who'd win the auction, and the budget would overpay.
Dmitry Polyakov, a member of the All-Russia People's Front in the Tambov Region: "These deals the cartels make aren't only in the construction business, but also in the food supply industry for schools and daycare centers as well as healthcare".
Vladimir Putin: "Usually, these cartel deals don't just happen on their own. It's not so much a deal between two business entities on the market, the government authorities are usually also involved. This is the merging of business and the government, in a bad sense of the word. This is something we have to fight, we have to prevent this in our economy, in our country".
The Mayor of Moscow shares his experience on how to save money on small things. For instance, stationery. It doesn't cost that much, but on a regional level, it's billions. In order to control expenses in the capital, an online store was created. 70,000 suppliers from all over the country have registered there.
Sergey Sobyanin, Moscow's Mayor: "All the regions have to do is fill out an application and go online with their suppliers".
Vladimir Putin: "I advise everyone to do this, it's a very good idea".
Boris Titov, Presidential Commissioner for Entrepreneurs' Rights: "We just need to give small and medium-sized businesses a chance to grow. Then, everything will change fast".
By 2020, state procurement from small and medium-sized businesses will increase twofold. This will facilitate their future growth. However, for now, it's still far from perfect. 96% of all contracts last year were made on a non-competitive basis, according to the findings of the Ministry of Finance's government procurement monitoring efforts. Entrepreneurs asked the President about possible harsher punishments.
Aleksandr Shokhin, Russia's UIE President: "We need to consider whether it's worth having prison sentences for violating these monopoly regulations when we can punish them severely using purely economic sanctions. We can impose serious fines for these violations".
Vladimir Putin: "We're well aware of how antitrust laws worked in those countries which are now being called 'countries with a developed market economy.' The only things that should be punished harsher than breaking antitrust laws should only be treason and murder. I want everyone to hear this. Sure, we can liberalize all of this, as well. But, it has nothing to do with the issue of administrative pressure on business".
Putin reminded everyone about responsibility.
Vladimir Putin: "You can't just be fly-by-night operators that only care about your own well-being. We have great tasks and great goals ahead of us. I hope that the business community realizes how important their input in the country's economy is. I want to repeat this one more time, we don't have time to sit around and wait."
The fact that the competition issue is the first one in the State Council meeting after the election shows just how seriously the administration is treating this manner. Fair competition and freedom for businesses are the ticket to economic success for the country. The national plan, suggested by the President, should really speed things up.
Aleksandr Balitsky, Konstantin Rodin, and Anton Gubanov. Vesti News of the Week.