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A Fairy Tale of Russian Forest Reforms
The forest business in Russia is like the taiga: there are no laws there, and the treetops create excellent conditions for a shadow business. Vlast correspondent Dmitry Butrin believes that only the natives, i.e., Baba Yaga, bears, leshies (forest spirits), and foresters, can understand the forest industry.
Large-scale buyers of forest products from Finland, Sweden, Japan, and China played the role of Baba Yaga in the forest business. Governors of the major timber-producing regions were the bears. Businessmen who privatized large pulp and paper complexes in the mid-1990s successfully played the role of leshies. Finally, the Russian authorities designated foresters as the “lookouts” in large forest industry structures. The management of still-existing Soviet foreign economic associations (VEO) and the Ministry of the Forest Industry (Minlesprom) quickly privatized this role.
The Russian government got burned rather quickly on contact with Baba Yaga back in the early 1990s. When large numbers of Korean and Japanese businessmen presented it with plans to log in the Far East, it became clear that they did not need the latest processing technologies in Russia, but raw timber. The leshies (aka pulp and cardboard manufacturers) first tried to get the bears (governors) under control (without success: like the foreigners, the governors were mainly interested in round timber exports), then the foresters.
However, all attempts to create a state “natural monopoly” in Russia in the persons of AO Roslesprom and its chairman Miron Tatsyun resulted only in a scandal involving its subsidiary Posexportles and the National Forestry Bank (Natsionalny lesnoi bank). As a result, Baba Yaga, the bears, and the leshies were given relatively free rein, tempered by the crisis situation on the world timber market; and it was in a state close to armed anarchy that the market met the year 2000.
It stands to reason that Mikhail Kasyanov's government had big plans for the forest industry as early as spring 2000. However, a cautious attitude towards forests with consideration for the failure of all previous experiments demanded very large-scale, drastic reforms, and the Ministry of Economic Development took a responsible approach to the matter. It extended the players' relative freedom in the self-organizing forest industry for another three years (even longer, as it turned out later). And it appeared that this reform standby mode was the main component of the industry's relatively successful development in Russia between 2000 and 2004.
Of course, the industry obviously needed changes. There was not much left from the USSR. The forest industry was not a strong part of the Soviet economy, despite the fact that Russia had always been one of the world's three largest holders of timber reserves along with Brazil and Indonesia. But the question of which reforms were necessary was not so simple.
In 2002-2003, forest reform plans were looking more and more like a hybrid between corporate projects and a memorable food program. They described in considerable detail when and at what average interest rates the industry (completely abstract) would receive investments; when and by how much processing capacity would increase; and what production volumes of kraft liner, medium-density fiberboard (MDF), lumber, and high-grade paper would be in 2012 or 2025. The government's passion for detailed plans is easily explained. State authority was vitally important for the bears and foresters among the fairy tale characters in the Russian forest industry. But investors did not need direct state control over the forests; rather they needed the state as a guarantor of observance of the law in competition. In a planned economy, pulp production was only one of the possible indicators of competition among private companies.
Therefore, it is not surprising that the part of forest reform closest to being realized was legislative reform, particularly reform of the Forestry Codex. And it was this reform that provoked the most criticism in state structures that had not taken part in developing it. The new codex was a de facto declaration of the state's withdrawal from the industry; discussion and passage of it was postponed until President Putin's second term. However, three years in standby mode made the proposed reforms even more conservative than expected. Thus, private ownership of forests, which was not discussed at all in 2001, became an actual (but not legal) reality in 2003; and the draft Forestry Codex for 2004 attached so many conditions that it was taken as an insult.
If the Russian government carries out the same style of reform activity in the forest industry in future, it could be even better than any actual reform. In the end, the forester, Baba Yaga, the leshy, and the bear will come to understand the forestry business far better than a dozen reformers. If it is absolutely impossible to do without government reform, then let it be purely theoretical.
All the Article in Russian as of July 05, 2004
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