Western-style capitalism with a Russian accent

Developments such as these have given companies such as Alcoa the confidence to invest more than $550 million to buy and modernise two formerly state-owned aluminum plants hundreds of miles from the capital.

Equally enthusiastic is General Motors, despite a somewhat rocky start with a joint venture that, at one point, was shut down over a dispute involving the cost of engines and parts supplied by its partner, state-owned AvtoVaz.

Although not known for its quality or styling, the Niva is the best-selling SUV in the booming Russian car market, turning a profit for GM. Now, GM has decided to build a $115 million plant to produce its own cars, just as Volkswagen, Ford, Nissan and Toyota have done.

Even oligarchs who may have got their start obtaining state-owned assets through unsavory means have now adopted the trappings and strategies of the multinationals, hiring Big Four auditors and Wall Street law firms, making strategic acquisitions in the West and traveling to industry conferences to tell analysts that their shares are undervalued.

One such oligarch is Vladimir Yevtushenkov, a PhD in economics and chemical engineering who parlayed his longtime association with Moscow’s powerful mayor to rank No. 14 on the list of Russian billionaires. Yevtushenkov got his start by buying the Moscow telephone monopoly after three other parties mysteriously dropped out of bidding.

But just when you think Russia has caught the free-market bug, you are confronted with another industry that has been naturalised or consolidated around a politically chosen national champion, or a state energy company that has decided to buy a bank or a newspaper, or a minority shareholder who has just been robbed of his investment.

There was always some plausible explanation for these exceptions to the global rules — the pursuit of some still-evolving industrial policy, protection of strategic industries, enforcement of tax and environmental laws, or recovery of ill-gotten gains. But the fact is that they almost always come at the direction of the Kremlin and with the connivance of the courts.

“This is still a system where you have to rely on those you know and trust, because the legal infrastructure and general business culture haven’t yet evolved,” said Pat Cloherty, who has managed three successful investment funds in Russia, including one for the US government.

There is something about this mix of East and West, corrupt and legitimate, authoritarian government and free-market, that strikes even Russians as… well, Russian. As one financier put it to me, paraphrasing an old Russian saying, “In the last five years, everything has changed. In the last 200 years, nothing has changed.”

Make no mistake that it is Russian President Vladimir Putin who has concocted this seemingly contradictory mix of instincts and policies.

The modern-day czar doesn’t hesitate to instruct his oligarchs to “invest” a billion dollars or two in Russia’s successful bid for the 2014 Winter Olympics in the resort city Sochi or order the state arms monopoly to buy up a state-owned car company rather than allow 1,00,000 employees to lose their jobs.

At the same time, Anatoly Chubais, who served in the government of Putin’s predecessor, Boris Yeltsin, assures that it was Putin who overrode the opposition of every governor, every party leader, every oligarch and virtually the entire bureaucracy and backed Chubais’ controversial plan to break up and privatise the massive state electric monopoly and deregulate prices. The process has created dozens of private companies competing to produce and distribute power, with no dominant player.

If Putin steps down next March, the odds are that the next president will not be so clever at balancing these two economic policies.