Bloomberg Sensationalism and Inaccuracies Regarding "Forced Nationalization of Crimea"

A few days ago a friend emailed the Bloomberg article Russia Delivers a New Shock to Crimean Business: Forced Nationalization.

I replied something along the lines of "interesting, but I am going to bounce this off Jacob Dreizin", a US citizen who provides frequent updates to me regarding Ukraine.

I also bounced the article off Pater Tenebrarum at the Acting Man blog. Pater commented ...

Russian oligarchs stealing stuff back from Ukrainian oligarchs would be my guess. I should add, the arbitrariness of this process is of course quite disturbing (regardless of the fact that Ukraine's oligarchs are a bunch of corrupt thieves). But this strikes me mainly as a case of politically motivated payback. The oligarchs all aligned themselves with Kiev as soon as it was clear that Yanukovich had lost power (many/most were aligned with Yanukovich as long as he ruled the roost). The separatists mainly lost Mariupol because Ukraine's richest oligarch ordered the 7,000 workers of his steel works to oust them. There have been horror stories from Mariupol about the treatment of ethnic Russians there, although it is difficult to know what is and what isn't true (independent information is spotty). But we know since Odessa that the right-wing goons in Kiev's employment are not to be trifled with (the videos of the event speak for themselves).

Reader Jacob Dreizin commented

Hello Mish

First off, that was some really sloppy reporting or editing by Bloomberg. "Crimean prime minister Kolomoyskiy" should actually be written as "Dnepropetrovsk governor Kolomoiskii."

But there's a lot more to it than that. You see, the Ukrainian economic model is a post-Soviet feudal model. Thus, most Crimean business (like most Ukrainian business) belongs either to one of about 8 or 10 leading oligarchs, or to various corrupt officials or former officials or their relatives or thugs or scam artists of various stripes, all of whom either bought it for pennies on the dollar from the state, or seized it from someone who bought it for pennies on the dollar from the state.

For example, the "Krymkhleb" bakery concern mentioned at the beginning of the article was ultimately controlled by a one-time politician from overthrown president Yanukovich's now-defunct party who went from being a young machinist in a coal mine in 1989 to owning or controlling tens of food processing plants and other concerns, mostly in the Donbass, by around 1999.

I'm not saying that his holding company's 2012 purchase of Krymkhleb was necessarily illegitimate; what I'm saying is that the story of his rise is common to post-Soviet robber barons, who would bribe officials to let them buy state-owned factories and other concerns for a few thousand bucks. In my view, taking from these dirtbags and giving back to "da people" is not such a bad thing, though in practice, it usually goes to some other dirtbag. In short, you can't compare these people to real American businessmen and value-creators like Steve Jobs. It's a different planet.

Also, the Yanukovich clan was heavily involved in Crimea. Yanukovich is said to have used the national customs authority as his own personal bank account. And Yanukovich's son, one of Ukraine's 10 or so richest men thanks to his dad's political connections, was involved in Crimean real estate among many other things. So there are plenty of deserving targets for nationalization.

Also, the new crowd in Kiev may not be any better. Parliament recently passed a law that would require state-owned enterprises to hold large accounts at a bank controlled by a childhood friend of Prime Minister Yatseniuk. And former oligarch and prime minister Yulia Timoshenko, a one-time darling of our neocons and leader of the U.S.-funded "Orange Revolution" in 2004, was named by U.S. Federal prosecutors as an unindicted co-conspirator in a huge money laundering conspiracy involving former Ukrainian prime minister Pavel Lazarenko, who ultimately spent 6 years in U.S. Federal prison. See "Tymoshenko implicated in crimes by USA Federal Prosecutor".

As for Kolomoiskii the governor of Dnepropetrovsk, he is one of three shareholders of what is probably Ukraine's largest business conglomerate, and has been funding paramilitary militias to fight for Kiev in the Donbass.  More to the point, "Privatbank", Ukraine's largest bank which falls within his group's portfolio, left Russia holding the bag for hundreds of millions of dollars worth of deposits after the Crimea takeover. So you can be sure the Russians will be seizing anything they can of Kolomoiskii's, including four hotel complexes that were just now taken from him in Crimea.

What will ultimately happen is that once the Russian half of Ukraine fully breaks off, any large concern that was owned by any pro-Kiev oligarch, or by anyone who has fallen out of Moscow's favor or has been deemed too corrupt, will be seized and either transferred to someone more favorable, or will be sold off to Russian or other foreign interests.

The bottom line here is that when you have hundreds of millions or even billions of dollars in real assets--entire factories, gas lines, TV stations, and so forth--that are majority- or wholly-owned by just one man, it is very easy to "change ownership." You just seize that one man's shares and transfer them to someone else's holding company, or to the state. This is not a new story, nor is it specific to Russia. This is how they roll in Ukraine, Kazakhstan, Georgia, Azerbaijan, etc.

The successor to communism is feudalism.
Jacob

Pot Calls Kettle Black

Neither Pater, nor Jacob, nor myself likes this enterprise model, but Bloomberg made it appear as if this is somehow a new thing in Crimea following the Russian takeover.

In fact, the same corrupt model exists in Ukraine. Is either set of thieves better than the other?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com