MOSCOW – Among courtiers, courage of conviction is rarely a qualification for the job. It can, however, help in dealing with insults, the occupational hazard that comes with paying court to most sovereigns.
By this standard, Dmitri Kozak, deputy head of President Vladimir Putin’s administration, is no Vauban Le Prestre, Marshal of France at the start of the 18th century. The difference between them I’m coming to. Their similarity is that both tried to change the way in which land and the resources are taxed in a state reduced to poverty by the folly and greed of its leadership.
Vauban was a siege engineer, a military profession that was crucial in the wars of King Louis XIV. Vauban was so good at this that the king decided to promote him to marshal in 1703. What Vauban didn’t reveal until four years later was that, while he had been laying sieges against France’s enemies, he had also been conducting secret research into every form of taxation in the country. From this Vauban produced a book in which he explained how the system had impoverished France’s producers, enriched the privileged few, weakened the army and shorted the king and treasury of what an uncorrupt and equitable system could provide. The book then recommended a new, simpler tax regime, based on encouraging higher yields from production in land and industry.
It isn’t known for certain that King Louis read Vauban’s book, but he left no doubt what he thought of it. He told Vauban to his face that he was a lunatic and a scoundrel. Historians of the time record that lobbying by everyone who derived wealth from the system of tax-farming and privileges Louis had created was so intense, and the king’s reaction so implacable, it led to Vauban’s premature death after a few months. That was in 1707.
At the end of July this year, Kozak made a brief announcement of a proposal as radical, and almost as comprehensive as Vauban’s.
At present, Russian law provides that subsoil resources belong to the state, which grants licenses for their exploitation by competitive tenders. The federal and regional governments share control of the licensing system, while they, along with local governments, tax the proceeds of mining. Once licensed, the resources extracted – oil, gas, minerals, precious metals, gemstones – are the property of the companies that produce them. As everyone realizes, since the collapse of the Soviet system, Russia’s economy and trade depend inordinately on this type of primary production, while the burden of government revenue collection falls elsewhere. The vast profit of mining and oil and gas extraction is stripped from the country, and deposited in safe havens, beyond reach.
Kozak’s proposal calls for amending Russian legislation so that the resources in land remain the property of the state until sold, with mining and producing companies granted concessions by the state on a cost-plus basis. Plainly, this proposal threatens not the new private and corporate ownership of Russian capital, but the flow of income from that capital which the corporate oligarchs consider their preserve.
The idea didn’t come from Kozak. One of the strongest critics of the existing license system for miners and oil and gas producers is Vladimir Litvinenko, rector of the St Petersburg Mining Institute. He is an advisor to Putin; he supervised Putin’s doctoral thesis on resource policy in Russia. Litvinenko has said in the past that he favors bringing Russian resource policy into closer alignment with South African, Australian and Canadian standards, and tougher implementation of their use-or-lose requirements. Litvinenko and a group of like-minded academics were behind the proposal Kozak released. They know it isn’t more radical than South Africa’s new mining legislation, which orders an unprecedented transfer of assets to the black population of the country in compensation for their exclusion from the benefits of ownership under exclusive white rule.
Notwithstanding this and other foreign precedents, and apparent backing from Putin’s circle, Kozak’s proposal came under an attack no less than withering than the one Vauban encountered. The oilmen declared the proposal ridiculous, with no chance of acceptance. The miners said it was unconstitutional. If implemented, they chorused, the proposal would destroy the Russian stock market. There were even hints that the proposal was nothing more than Kremlin blackmail to extract financial contributions for the upcoming national election campaigns.
Kozak didn’t defend the proposal, and the government ministries responsible for natural resource policy and taxation declined to announce their interest in evaluating, let alone supporting it.
Encouraged by the Kremlin’s silence, the Russian business press opened its pages to manifestoes from a handful of oil and banking executives, who visited Kozak, and then announced on his behalf that he had changed his mind. Within days, Kozak’s proposal seemed as dead as Vauban’s.
Never in the brief history of modem Russia has such a matter been banished from court with such swiftness and ridicule.