Effective management of state property

This report assesses the size of the public sector in Russia and proposes the ways to effectively manage state property.

The public sector plays an important role in any modern national economy. There was a definite trend in Russia during the 2000s towards the qualitative and/or quantitative expansion of the public sector in various forms. Its share in GDP rose from 39,6% in 2006 to 46% in 2016. In fact, the share of state-owned enterprises in the total revenue of the top 100 companies is around 50% in such sectors as energy, transport, finance and natural resources extraction.

Further expansion or even maintaining existing share of the public sector is fraught with negative consequences for the Russian economy.
First, market competitive mechanisms are being replaced with administrative resource and lobbyism. As a result, the economy starts to “lose traction,” which is reflected in decreased growth rate and a widening technological gap with more successful countries.

Second, the state is a less effective owner than private structures, particularly in competitive industries. This is conditioned by the peculiarities of state property, which is usually seen as a kind of collective property.

Third, we witness an informal nationalization of the private sector and the emergence of “private state companies.” Space for private initiatives narrows down while civilized property relations deteriorate.

Thus, the authorities face a major dilemma over the functioning of state property. There are two options: either Russia’s economy continues to move towards a state-controlled model or the government strikes a balance between maintaining state ownership in strategic sectors and stimulating private initiatives.

The key idea the authors of this report propose for 2018–2024 and up until 2035 is to increase the overall effectiveness of state property management: effecting an overall reduction of the excessively large presence of the state sector in the economy and optimizing the management of property, which is necessary for the state to carry out its functions and implement strategic goals of economic development.