Banking, Shipbuilding & Russia's Economy
Meeting with VTB CEO Andrei Kostin
The Baltic Shipyard
Interesting facts are often discovered/revealed in the conversations Putin has with Russia’s bankers. VTB is a majority publicly owned asset as are many of Russia’s key economic assets; its shares are broken into these three major holdings:
12.13% of (capital) shares – Federal Agency for State Property Management (Russia)
32.88% of (capital) shares – Ministry of Finance (Russia)
47.22% of (capital) shares – Deposit Insurance Agency of Russia
The conversation revolves around the condition of Russia’s United Shipbuilding Corporation, that’s another 100% public utility, and the condition of VTB Bank, which is Russia’s second largest whose CEO is also Chairman of United Shipbuilding having been given that additional portfolio by Putin in August 2023 as part of the reorganization of Russia’s entire shipbuilding industry. So, Kostin’s report comes after only three months, although VTB had worked closely over the years with the company and thus was aware of its more important issues. So, we have the state-owned shares of United Shipbuilding transferred to state-owned VTB. In a recent interview, Dr. Hudson was asked for his description of Russia’s economy, to which he answered “ad-hoc” as he hasn’t really taken the time needed to figure it out; but, he knows it’s not Neoliberal. As you read the conversation’s transcript, there are several key clues to inform the reader that Russia is actually quite a lot like the Soviet Union and a little like China. As with the USSR, most of the key industries are public utilities or state-owned as the West likes to call them for propaganda reasons as if the state is automatically a bad thing. And then there’s the subordination of the banking sector to the economy, meaning the politicians set policy not the bankers as it is in Neoliberal dominated nations, which is most of the West, Japan and South Korea. Now that some hints have been made, here’s the transcript:
Vladimir Putin: Good afternoon!
Let's start with shipbuilding.
A. : Of course, Mr Putin.
Vladimir Putin: How do you master it?
A. Kostin: Over the past period, new management bodies of the company [United Shipbuilding Corporation] were formed, the Board of Directors was elected, the General Director and his deputy were appointed. In accordance with your Decree, we are currently working with the Government to form a regulatory framework for the company's work.
Together with the CEO, I visited the largest enterprises in the industry: Sevmashzavod, Zvezdochku in the Arkhangelsk region, Baltiysky Zavod, Proletarsky Zavod and Admiralty Shipyards in St. Petersburg, Krasnoe Sormovo in Nizhny Novgorod. The main purpose of the trip was to monitor the implementation of the state defense order, the quality of its implementation, and the timing of its implementation.
In general, it seems to me that we can recognize the work in the corporation on the state defense order as satisfactory. There are, of course, drawbacks - both in the work of the corporation, and in the work of subcontractors, and in the mechanism of relations with the Ministry of Defense. But we are working together with the Ministry of Defense and with the active assistance and support of the Ministry of Industry, and we have created a road map. So I think that we will be able to cope with this task.
As for civil shipbuilding, in my opinion, very great prospects are opening up here. As a positive example, I can mention the program that is being implemented by the Baltic Shipyard on behalf of Rosatom-the construction of nuclear-powered icebreakers for the Northern Sea Route. Russia is the only country that produces this type of vessel.
Today we have a very large number of orders for all types of vessels. These include dry cargo ships, tankers, fishing vessels, crab fishing vessels, and river-sea passenger vessels. Very high demand.
Unfortunately, we are not able to fully meet this order today: there is not enough capacity, there is not enough technology. In my opinion, it will require a serious modernization of the industry and even, in my opinion, the construction of new enterprises and shipyards. We see at least two new shipyards. One is in the North-Western region, somewhere near St. Petersburg, in the Leningrad region. The second is in the Far East.
We are putting all this into the industry development strategy, which we will be ready to present to you sometime in March-April next year, such a long-term plan.
Among the important priorities, I would also mention expanding the training of qualified personnel for the industry on the basis of both higher and secondary special education. First of all, we focus on St. Petersburg, where the most powerful base is located. Today, there is a large shortage of personnel, plus there is a lot of competition-they are being lured to other industries, including defense. But this task is important, and we will also be working on it.
I am sure that in five or seven years we will have a modern and efficient shipbuilding industry.
Vladimir Putin: Excellent. I see that you have been immersed there, and I know about your movements in the factories, which is very good.
And how does the VTB team itself react to the fact that such a huge asset has appeared?
A. Kostin: Positive, of course.
Of course, there will be close cooperation with the bank, and teams are already traveling to enterprises. Therefore, we are working out, of course, a financial recovery plan and a plan for promising investments, too.
Vladimir Putin: What about the bank itself?
Alexander Kostin: Very well, Mr President.
This year is very successful not only for VTB, but for the entire banking sector. You know, as I reported to you last year, the bank suffered greatly from the fact that there was absolute lawlessness against us: foreign banks were taken away from us, and they are now being liquidated. We suffered, of course, serious losses.
But this year we have seriously compensated for this. We are restoring the capital base and reaching a record profit of about 420 billion rubles, which, of course, is very significant. It is important that we were able to rebuild quickly. Having lost Western markets, we focused, of course, first of all on Russia, but not only on friendly markets.
Let's say that our bank in Shanghai, which is the only Russian bank in China, will double its turnover in a year, which, of course, reflects the positive development of Russian-Chinese trade and economic relations.
But I must say that next year we still expect a decline in the growth of the banking sector and our revenues, because the Central Bank has taken anti-inflationary measures: raising the rate, limiting lending, including consumer lending.
But we understand that these are temporary measures. And we expect that as soon as the economy reaches its inflation target, the Central Bank will adjust its policy and make monetary policy less rigid, and perhaps even better-more lenient.
Vladimir Putin: We also need to be very careful with our softness here.
A. Kostin: We understand.
Vladimir Putin: You see, our detractors apparently did not expect that the Russian banking sector would go through all the difficulties that are created from the outside in this way. They did not take into account the seemingly elementary things that a bank is not just a pot where money is stored, but it is part of the economy. The banking sector reflects the state of the economy as a whole.
A. Kostin: Definitely. The banking sector, of course, was preparing for different developments, but the economy was stable, so we see economic growth.
Vladimir Putin: And the bank operates on this basis, of course.
A. Kostin: Yes.
And you know, it still showed once again that we could not be isolated. Therefore, payments in national currencies are carried out with friendly countries very actively, despite all sorts of secondary sanctions and so on.
Vladimir Putin: Are you satisfied with the bank's performance in the end?
A. Kostin: Yes, it worked well this year. Now we are preparing a new strategy, and we will present it at the beginning of next year. It will, of course, take into account the enormous changes that have taken place in the banking sector as a whole. But I think we are very optimistic about the future today. We're in such a mood.
Vladimir Putin: Andrey Leonidovich, it is clear that you have recently been involved in the shipbuilding industry, but still. You have just said that there are certain issues and problems, including those related to technology. You've already been to teams, worked with them, talked to people, and met them. I see that we are acquiring new competencies in many industries – but what about shipbuilding?
A. Kostin: I think these processes are also underway. It's just that the level of our enterprises is very different – I travel around the enterprises. There are enterprises with already modern equipment and technologies, and there are enterprises where, indeed, outdated technologies are still used. I think we should certainly improve this basis here.
We have a shipyard, I came to Krasnoe Sormovo ,they say: we are already loaded with orders for several years to come. Another thing is that there is a little work to be done with efficiency, contracts are not always profitable, but this is the second question. But in general, industry workers see that their work is in demand and that they are loaded with work, they will not be out of work – this is absolutely certain.
Vladimir Putin: This encourages them to look for new technologies.
A. Kostin: Encourages new technologies to look for new solutions. I see that there are also different directors, but there are those who have found these solutions, even in those conditions – the lack of funding may have affected them somewhere. But in general, I think that we will cope with this task absolutely. I say: the people are ready for this, they are determined. In general, I haven't seen any negative stuff anywhere. We also met with groups and talked to them. Teams are young very often, by the way, and, it is felt, work with a good charge.
Vladimir Putin: Excellent. [My Emphasis]
The highlighted text was done to help readers understand the big difference between Industrial and Finance Capitalism. In Finance Capitalism/Neoliberalism, the health of the banking/money sector is the health of the economy because it composes most of the economy. The big changes Kostin referred to is the altered focus of the banking/finance sector in Russia to supporting what Putin has termed a Supply-Side Oriented economy, which means banks must promote production of goods—fundamental Industrial Capitalism. Now in Russia, much of the monetary injection into the economy comes from both the banking/finance system and both the federal and regional governments, oftentimes in partnership. And since much of the banking/finance sector is a public utility as are the governments, you have basic socialist financing of both industrial and entrepreneurial development. China’s system is similar but has more of a Capitalist nature. China just recently published what it hopes BRI will attain by 2033 and how that will happen. Russia’s counterpart is revealed in its new Foreign Policy Concept. Both aim at using public capital to produce assets that will serve public needs while improving public wellbeing. One aspect related to Western business thinking was also revealed in the conversation I didn’t highlight: Companies willing to sit on their order book and not bother to expand operations to fill those orders at an earlier date because of the fear of then having more productive assets than orders in the future. That’s the exact reason Lockheed-Martin or Raytheon or any other NATO MIC corp isn’t expanding its production facilities to fill the orders that are required now, not in 4-5 years.
Short term thinking to maximize greed has caused the collapse of most Western heavy industry, not the decline in demand. Where the money comes from isn’t worried about as long as the money comes. In the recent discussion between Dr. Hudson and Steve Keen, there was an interesting point brought up by Keen related to the promises made at the birth of full-blown Neoliberalism, and that was that the new way would make more progress than the old. Keen has produced the analytical figures showing that’ was a lie and continues to be a lie; here’s that part of Keen’s presentation:
But one of the things which was sold to get a change, like we’ve got out of Thatcher and Reagan, you’ve got to have something which gets the popular support so you get people voting for it. Part of that comes out of the Murdochs of the world pushing their views and so on. But what they were saying is get rid of trade unions, get rid of government interference, get rid of, you know, socialized medicine, and socialize education. And what we’re going to get is a booming economy that grows much faster. And even though you won’t have a welfare state holding your hand or putting a net beneath you, you’re going to have a faster rate of growth. You’ll be wealthier. Okay.
So what that tells you is their argument was the economy would grow faster if we moved from the type of capitalism Michael was talking about earlier, where the government covered a lot of those costs, to one where everything is privatized. That was supposed to increase the rate of economic growth….
So, what you can see, this is for America. And the growth rate from 1945 to 1975 was 3.24, roughly 3.25% per annum. Real economic growth from ‘75 has been 1.9%. Okay. That’s virtually halving the rate of growth, which of course means that the level of economic activity now for many, many years is far lower than it would have been if we continued with the old, so-called inefficient Keynesian system. So they’ve sold us a product. We’ve bought the pump. And the trouble is, nobody realizes….
The growth of GDP to growth, of ownership of capital, ownership of resources, and a concentration of wealth? So we’ve actually grown more slowly. If you give the money to the workers and they were spending on Happy Days form, there’d be a higher rate of economic growth. That’s what they told us they’d get. They didn’t get the higher rate of growth. We’re now slumping, but they’re much, much wealthier, and we’re all complaining about it, and we’re right and they’re wrong.
What Keen’s figures omit are the additional overhead costs Neoliberalized publics now must bear that actually lowers genuine GDP into negative territory. So, since the 1998 Dot.Com Crash, Outlaw US Empire genuine GDP has been shrinking, although if you divided it along the lines Hudson and Keen suggest—the 1% versus the 99%—the 1% are growing like gangbusters while the 99% shrinks overall. The point being Russia and China have capitalist systems that are similar to the “Happy Days” variety Keen and Hudson talk about, and increasingly that’s what the Global Majority wants.
Examples of how government and institutions promote and support development are what the Global Majority want to see. Neoliberalism on the other hand does the opposite—it deconstructs development. The world is likely to see another example of Neoliberalism at work with the election of Milei as Argentina’s president. My question for Russia is: Where will it find the workers to man two new massive shipyards and fill out the work force in those already operating?
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