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State Capitalism, Russian Style

putingazprom.jpg
One of the simmering fears provoked by the rise of emerging market economies is that the race for critical resources is being won by states that are not afraid to bend the laws of capitalism to advance strategic interests. (The Eurasia Group's Ian Bremmer wrote a nice primer on the rise of "state capitalism" which we reviewed here.)

Russia's state-run energy giant Gazprom shows us how it's done:

Bloomberg has estimated that Russia's Gazprom will beat Exxon Mobil this year to become the most profitable company in the world, and yet its shares are down 18 percent. Why? As well as being the most profitable, it is also the biggest spender, using its cash to finance large infrastructure projects that are also priorities of Russian President Vladimir Putin.

Last year Gazprom spent $53 billion on capital expenditure projects, more than PetroChina's $46 billion or Exxon's $36.8 billion. The huge expenditure meant that just 7 percent of earnings remained to be paid out as dividends, the least amount of the top 10 largest energy companies in the world.

Anaylsts at IFC Metropol and Sberbank CIB have suggested that Gazprom's shareholders are basically paying for Putin's political priorities: building a pipeline to bypass Ukraine, and developing Russia's poor Eastern regions.

While the U.S. certainly puts a lot of diplomatic and military effort into making the word safe for U.S. firms to operate and win contracts, this kind of direct state control isn't yet the norm. Yet as the race heats up for strategic minerals and other resources, we'll likely see a sharper debate over which approach best secures a nation's interest. Will Chinese and Russian firms ultimately implode under the weight of state interference (or be propped up at a loss indefinitely) or will the U.S. begin to mirror their approach in bending (to an even greater degree than it already does) the operation of private firms?

(AP Photo)