The London School of Economics and Political Science State-Led Coercive Takeovers in Putin's Russia: Explaining the Underlying
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The London School of Economics and Political Science State-led coercive takeovers in Putin’s Russia: explaining the underlying motives and ownership outcomes Andrew Yorke A thesis submitted to the Department of Government at the London School of Economics and Political Science for the degree of Doctor of Philosophy, London, April 2014 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. Abstract Since Vladimir Putin first became Russia’s President in 2000, the state has played an increasingly active and interventionist role in the economy, including through its involvement in a large number of coercive takeovers of privately-owned businesses. The best known case is the Yukos affair, but there have been many other, less prominent takeovers. These have largely been explained as predatory acts by state officials seeking to enrich themselves or increase their power. This has contributed to the perception that Putin’s Russia is a kleptocracy, with the state given free rein to engage in economically-destructive attacks on property rights. This thesis studies a number of state-led coercive takeovers in Putin’s Russia, including the Yukos affair, and argues that they cannot be explained as predatory acts initiated by rent- seeking state officials. Instead, they were the work of state officials attempting to pursue economic development while countering perceived threats to state sovereignty. The Yukos affair resulted in the company’s de facto nationalisation and heralded a broader trend of expanding state ownership in the economy. But two other coercive takeovers studied here instead resulted in the companies being transferred to new private owners. In other cases where nationalisation was the clear goal, the state-owned companies who emerged as buyers chose indirect forms of ownership over their new assets. The varying ownership outcomes are found to have been determined by institutional factors which constrained the behaviour of the state, contributing to its preference for takeovers that were negotiated rather than entirely coercive, and turning each case into a bargaining game between state and targeted business owner. Thus Russia is some way from kleptocracy, not only because of the developmental aspirations of its political leadership, but also thanks to partial progress towards institutional checks on arbitrary state coercion. Acknowledgements This thesis is dedicated to my sons Gideon and Laurence, whose arrival is the reason for it having taken longer than expected, and also to my wife Rachel, who is the reason I have nevertheless managed to complete it. She has never doubted the value of what I was doing and always ensured that I had the space and time necessary to keep making progress. I am deeply grateful to my supervisor David Woodruff, who has been immensely supportive whilst also nudging me to venture out of my comfort-zone. I could not have asked for a better mentor. I am also indebted to Archie Brown, whose encouragement and example (both during my postgraduate study at St Antony’s over a decade ago, and subsequently) are the reason I have been pulled towards academic research. I would like to acknowledge the generous financial support provided to me by the LSE in the form of a full PhD scholarship. My research trip to Moscow proved to be both productive and lots of fun, thanks largely to my friends and hosts, Dima Ganovsky, Nastya Galochkina, Lena Isen and Hugo Stolkin. I am particularly grateful to Hugo both for his hospitality and his determination to help me get to the bottom of some obscure but pertinent points of Russian law. I am greatly indebted to him, and to all the Moscow-based journalists and experts who took the time to talk to me about my work. Contents Declaration ............................................................................................................................. 2 Abstract .................................................................................................................................. 3 Acknowledgements ................................................................................................................ 4 Contents ................................................................................................................................. 5 List of figures and tables ........................................................................................................ 8 Chapter 1: State-led coercive takeovers in Putin’s Russia ................................................. 10 Specifying and naming the domain of cases ........................................................................ 13 Research question 1: what motivates state actors to instigate state-led coercive takeovers?15 Rent-seeking, kleptocracy and the “sovereign development” hypothesis ........................... 19 Research question 2: ownership outcome of state-led coercive takeovers .......................... 28 Towards a theory of the ownership outcomes ..................................................................... 30 Do institutions constrain state coercion in Russia? .............................................................. 35 Method ................................................................................................................................. 37 Data sources ......................................................................................................................... 41 Structure of the thesis ........................................................................................................... 45 Chapter 2. Yukos, Russneft’ and Bashneft’ ........................................................................ 49 Introduction .......................................................................................................................... 49 Outline case narratives ......................................................................................................... 52 Yukos ............................................................................................................................... 52 Russneft’ .......................................................................................................................... 55 Bashneft’ .......................................................................................................................... 58 Research question 1: causes of the state-led coercive takeovers ......................................... 60 Ordered from the top ........................................................................................................ 60 Yukos ............................................................................................................................... 62 Underlying causes ........................................................................................................ 65 Russneft’ .......................................................................................................................... 69 Bashneft’ .......................................................................................................................... 77 Rakhimov’s ouster ....................................................................................................... 79 The coercive takeover .................................................................................................. 84 Research question 2: explaining the ownership outcomes ................................................... 87 Factions and rent-seeking ................................................................................................ 87 Limitations of state ownership ......................................................................................... 89 Contingent nature of the outcomes .................................................................................. 90 The takeover as bargaining game .................................................................................... 91 Relating the cases to the theory ....................................................................................... 93 Yukos ........................................................................................................................... 93 Russneft’ and Bashneft’ ............................................................................................. 102 Contrasting fates of the existing owners .................................................................... 117 Conclusion ......................................................................................................................... 119 Explaining the causes of the takeovers ...................................................................... 119 Explaining the ownership outcomes .......................................................................... 121 Chapter 3. Gazprom’s campaign to re-take “lost” assets ...............................................