Sochi 2014: Burden or Blessing?

What will Russia be like in 2014? This is the first thought arising, after the initial joy of learning that Sochi won its candidacy for the 2014 Winter Olympics. The next thought is what the games will do to wonderful Sochi, sprawling by the Black Sea at the foot of the Caucasus mountains. And, indeed, what will the Olympics do to Russia?

As much as one feels joy for Sochi and Russia, one is filled with apprehension of what role the Olympics might play in the development of future Russia. On the positive side, though, it is delightful that nowadays major sports' events go to Eastern Europe. Earlier this year, Kiev and Warzaw were granted the UEFA 2012 soccer championship, and one might expect similar events to take place in other East European countries in the future. This is a clear sign that Eastern Europe has come out of the shadows of the 1990s, and that these states are now on the verge of being considered equals among nations, in the very subjective eyes of the world.

Also, arranging the Olympics will bring jobs, growth, and development to the Russian Black Sea region. The downside of it is, of course, the negative side-effects of exploitation, and Greenpeace has been an ardent opponent of Sochi's Olympic bid, fearing devastating consequences to the unique and fragile natural environment of the region.

The major fear though, is what political role an Olympic game may play for an increasingly authoritarian Russia. Historically, the Olypmpics have too often been exploited for political reasons, and used as a vehicle for competition instead of cooperation between states. Starting with the Berlin 1936 Olympics, the games have at times been an instrument of propaganda, instead of the vehicle to bring nations together in the peaceful exercise of sports, as intended by the Olympic ideals. At the peak of the Cold War, the Moscow 1980 and Los Angeles 1984 summer games serve to illustrate how far from these ideals states may go - even in sports - to pursue petty propaganda interests.

The Soviet discovery of the propaganda value of sports also has a tragic history. Already in the 1950s, Stalin initiated what, by some, has been called the Soviet sports' war, as part of the growing international tension of the early Cold War period. In the 1960s, a whole generation of soviet children was screened for athletic aptitude, and thousands of potential talents were put into special sports' schools from an early age. However, far from everyone can become a champion, and the ones - the overwhelming majority - that failed in the constant competition were discarded with little education or ability else than the mere force and tenacity they had acquired through a life-long existence of training. It was simply a spoil-system beyond imagination.

The reality facing the outcasts of soviet sports was a downfall from the pinnacle of society to the bottom of the social ladder. The only alternative to the sort of menial labour, where physical strength was demanded, was to enter a life of crime. Thus, the sportsmeny formed an ideal breeding-ground for organised crime. They possessed all the qualities - cultivated from an early age - needed for success within this line of business: ambition, competitiveness, ruthlessness, discipline, resolution, loyalty, and team-spirit. As society had turned their back on them, they now turned their backs on society, and in the chaos of soviet demise achieved many of the successes in crime that they had been denied in sports.

However, what was most frightening with the development of soviet sports, was how it excacerbated the elitist ideology of the system. Sports came to epitomise the cult of strength associated with totalitarianism. It was an ideology thriving on the comtempt for weakness, in which masculinity was associated with strength and purity, and femininity with weakness and impurity. That this cult of masculine strength had homoerotic overtunes - as was the case in Nazi Germany - is still evident in current Russian society. With no intention of offence by such a comparison, it would be quite impossible to even imagine Putin's Western contemporaries - such as Schröder, Chirac, or Blair - posing for "swimsuit pictures" as a means of improving their political image. Still, this kind of pictures of Putin and other Russian politicians are easily available on the Internet. Even an upright liberal as former SPS-leader Boris Nemtsov - and incidentally also the great son of Sochi - posts "glamour pictures" on his personal website. What Putin and Nemtsov have in common is that they both belong to the generation of soviet sports, which now forms the leadership of Russia. How the élitist ideals that formed Putin's generation will express themselves in tandem with the 2014 Sochi Olympics is only for the future to see. Still, sports and politics is not a good mixture for a state in authoritarian spin.

It is true that the father of the Olympic movement, count de Coubertin, formulated the motto of the games as Citius, Altius, Fortius - Swifter, Higher, Stronger. However, this expresses an ambition for the common improvement and development of mankind through sports, instead of the competitive elimination between individuals and nations that signifies élitism. Indeed, the very symbol of the games - the olympic rings - represent the unity of the continents, and in ancient Greece, the Olympics stood out as a period of peace, even during times of turmoil and war. As count the Coubertin himself stated: "The most important thing in the Olympic Games is not to win but to take part, just as the most important thing in life is not the triumph but the struggle. The essential thing is not to have conquered but to have fought well."

As Russia has now been awarded the 2014 Winter Olympics, it is an invaluable opportunity for the country to reach recognition among nations by striving to fulfill the Olympic ideals also for its people and politics. One can thus only hope that Russia's leaders will be wise enough to embrace these ideals for the benefit of society, instead of using it for purposes of political propaganda in an era of increasing international tension. Or else it can become a burden for future Russian generations, instead of the blessing it might bring. However, nobody knows what Russia will be like in 2014.

Russia's Nationalisation Trap

Which are the common assets of a nation and who should be allowed to utilise them? This is a question of heated debate for current Russia, as the vital energy sector is gradually being nationalised. It is privatisation in reverse - for everyone to see - no matter what the Kremlin might claim. The question is: Is it good for Russia?

In terms of economics, monopolisation - in this case nationalisation - may be motivated if the sector in question constitutes a natural monopoly. This may mean one out of two things: Either the social costs of monopoly production are lower than under competitive circumstances, or if the fixed costs of entry into a sector are so high as to be predatory, it allows but one viable and effective producer. Areas associated with natural monopolies are e.g. water services, postal services, telecommunications, and so on. However, as examples in global economy show, natural monopolies are not a sine qua non. Private companies may offer such production and services, as are associated with natural monopolies, more efficiently and at a lower price, than a state monopolist may. This is not always the case, and monopoly may in some instances be preferrable to competition. However, one should not automatically rule out competition only on the basis of existing economies of scale appearing to naturally favour a monopoly situation.

So, in view of current nationalisation of the Russian energy sector, could it be argued that it constitutes a natural monopoly? Most probably not. Instead nationalisation may threaten the industry as a whole.

What an industry such as the energy sector needs is long-term engagement and development. It needs large-scale investments over a long period of time in construction and maintenance. It also needs technical skills and know-how along the entire scale from prospecting to sales. Finally, it needs means of development - the capacity to expand and extract new resources and deliver them to costumers under efficient and competitive circumstances. These are qualities that a state actor does not necessarily posses.

So, does the Russian state have the financial resources and the commitment to maintain and develop the energy sector? For obvious reasons, it is a question still to be determined. However, judging from the current situation and the way the Russian state acts, perspectives are bleak for efficient state-owned energy production in Russia. First, Russian state-owned energy companies do not fit the profile depicted above. The situation clearly needs the dynamics only attainable under competive conditions. Secondly, Russian state interests tend to come in conflict with the rational needs of the energy sector.

The 2003 Yukos scandal and its aftermath clearly indicates a conflict of interests between the state and private enterprise in the energy sector. It is often argued that Yukos founder, Mikhail Khodorkovsky, had become too mighty and did not know his place, by meddling into politics. He was considered a political threat to power. However, reviewing the case from an economic perspective is even more disastrous. What really was at stake, were the large investments into energy infrastructure that Yukos planned to make - the various pipelines the company wanted to build. If these plans had been realised, they would have made Khodorkovsky more or less politically independent from Russian state leverage. Still, economically, such investments would potentially have brought profits and prosperity to Russia's economy and, indirectly, to its people. Furthermore, they were exactly the kind of investments that were economically sound and would have developed the energy sector in a positive direction. Thus, by victimising Yukos for political reasons, Russia was rendered an economic loss that the state was unable to compensate for. Consequently, as Khodorkovsky's 2005 nine-year jail sentence serves to show, the interests of the state and private business are far from always compatible.

Since then, the tendency arising from the Yukos scandal has strengthened. Private companies in the energy sector meet with state or pseudo-state opposition. Deals once made are put into question. Pressure is brought to bear on outside actors, such as when Gazprom recently seized control over the Sakhalin offshore project, ousting a foreign consortium led by Shell. Environmental motives are given for action against foreign investors, whereas Russian companies would never meet with such demands. Also, as the Yukos case shows, expropriation has become a new method for the state to forward its own and associate interests.

The perspective becomes even more horrendous when reviewing the issue from a security point of view. In Putin's opinion, it seems that not having full control over Russia's energy resources would pose a threat to the country. Accordingly, Russia cannot depend on private, and often foreign, companies for its energy production. Furthermore, the country cannot depend on transit of oil and gas by pipelines running through foreign states. Consequently, new state-controlled pipelines are built bypassing intermediate countries, such as the Nordstream pipeline projected to run through the Baltic Sea. From an economic point of view, it is highly questionable whether this and similar pipeline projects are financially viable, especially as the costs for developing and expanding already existing pipelines over foreign territory would be much lower, as would even be the case of building new ones. Therefore, it is obvious that Putin's obsession with control is detrimental to almost any economic rationale.

So, who stands to gain from nationalisation of the Russian energy sector? Who is allowed to utilise the common assets and to what end? The obvious answer would, of course, be the Russian state. However, with lacking long-term commitment to maintenance and development, the overall GDP stands to lose from state ownership. The state will be forced to either carry the burden of investments or see energy incomes dwindle due to neglect and inefficiency. Consequential interruptions of delivery to costumers would not vouch for Russia's role as a reliable producer. So, why should Russia voluntarily assume these great costs, when private companies could freely do it with greater professionalism than the state would ever be able to do?

The other obvious answer would be that the Russian people would gain from nationalisation. However, to what extent are the energy incomes redistributed to the people, and if so, would it be in the true interest of the people? First, the Russians receive little of the energy profits. It is true, there have been some attempts at state social reform and economic support lately, but it is questionable whether this is motivated out of real concern for the people. An example is Russia's population decline, where Putin seems more worried about the decrease in the future number of conscripts for the military and similar issues, than the social malaise of the people itself. Also, if too great a proportion of the incomes would actually be distributed to the people, it might cause economic crisis due to consequential hyperinflation. Finally, a state-run energy sector would probably be less efficient than a private alternative, creating comparatively lower profits. The effect would be an overall lower GDP, negatively affecting the Russian people. Thus, it seems that the Russians have little to gain from nationalisation of the energy sector.

Then, does nationalisation of the state sector strenghten Russia in its foreign relations? Initially, it might seem that control of the energy - as a strategic resource - would strengthen Russia's international power. The threat of "turning the tap" would seem to be a constant leverage for Moscow towards foreign states, mainly the EU, dependent upon Russian energy. However, this is countered by an equal risk that foreign states would turn to other producers or seek alternative energy solutions, such as e.g. nuclear power. Still, as the example of the European Union shows, Russia is more dependent on the EU than the EU is of Russia. Also, the EU is becoming increasingly weary of Russian ambitions and the country's reliability as an energy deliverer. Moscow has declined to ratify the European Energy Charter Treaty. European initiatives to develop the energy contents in a renewed Partnership and Cooperation Agreement (PCA) have met with outright opposition from Russia. Thus, Moscow is sending an increasingly clear message to Bruxelles about its intentions: Russia is not to be trusted as a reliable partner to the European Union. Regretfully, these are exactly the sentiments beginning to grow in Bruxelles and European capitals.

Today, it is obvious that Putinist ideology is the foundation of the current nationalisation of the Russian energy sector. It is the sort of étatism that belongs to the 19th century. It is a statist view that emphasizes control over rationality. It is an antiquated geopolitical outlook that puts the map before the realities of modern society. It is a perspective where the power of a state is measured by the quantity of its population, not of its output. It is a perspective that sees foreign relations as a zero-sum game. That president Putin wants the state to assume control of Russia's energy resources is but another factor in this overall scheme. For him, that the state owns a country's resources is only the natural state of things - how it should be. Reviewing this perspective, the conclusion is apparent: Putinist ideology simply is a notion that lacks understanding of the modern world.

Still, what the modern world is about is cooperation to the common good of those who participate in it. Thus, what Putinist ideology disregards is a fact so obvious that it needs neither stating nor reiterating: Modern power derives from the relative gains of cooperation - not from conflict or absolute capabilities. Making it alone is simply not an option in the modern world, and still this is the absolutist approach that Putinist Russia is opting for. That it is no viable long-term option for any state, seems of no concern to the country's leadership. Sooner or later, Putin's path will, regretfully, come back with a vengeance to Russia and its people.

In the meantime, the common assets of Russia are utilised to the detriment of the country and its people. Nationalisation is not good for Russia, and thus the Russian people may gradually come to understand that Putinism is simply not good enough for them. Until then, Russia is caught in a nationalisation trap.