April 2, 2014 7:21 pm
Corruption has laid waste to the Russian economy
Russia’s annexation of Crimea came as a great surprise. After all, Russia was long thought to be a “normal” developing country. True, it was governed by an undemocratic regime – but it was well on its way to bridging the gap with the west.
However, what happened in Crimea is anything but “normal”. The last country to annex a neighbour’s territory was Iraq, which took over Kuwait in 1990. Russia is certainly not Saddam Hussein’s Iraq. But it stands out in one respect – it is a high-income country that is also very corrupt. According to Worldwide Governance Indicators, Russia ranks among the top fifth of most corrupt countries – on a par with far poorer parts of the world.
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IN OPINION
For many years corruption was perceived to be a domestic problem that Russians should be left to sort out by themselves. Western leaders also accepted Russian corruption for a more selfish reason. When money embezzled by corrupt officials was spirited out of Russia and placed in Swiss bank accounts or used to buy penthouses in Chelsea, western governments drew reassurance from the fact that powerful people in Moscow had a strong interest in maintaining a peaceful relationship with the west. In a way, corruption was thought to make the Russian elite more accountable to the west.
That was a mistake – and a large one, for Russian corruption turned out to be the root cause of the crisis in Crimea. Graft has laid waste to the Russian economy. And once economic growth is gone, territorial expansion is an authoritarian regime’s tool of choice for bolstering its popularity and holding on to power.
In Russia, the social compact of the 2000s was based on economic growth of 7 per cent a year. Citizens were happy with a government that provided substantial material benefits, even if it curtailed democratic freedoms. This was supposed to last. When Vladimir Putin took up the presidency for the second time in 2012, he promised to increase government spending – pledges that were premised on projected growth of between 5 and 6 per cent a year.
But this social compact is no longer feasible. Last year growth slowed to 1.3 per cent. Independent forecasters expect the economy to shrink in the first two quarters of 2014, as does the World Bank.
Russia’s corruption has spawned an aggressive foreign policy to which western leaders are now struggling to respond
Why has growth disappeared? Since all previous sources of growth – cheap labour, growing commodity prices, expansion of consumer credit – have already been exhausted, further growth would require incentives for investment. But that requires protection of property rights and enforcement of contracts – exactly what corruption in government and the judiciary undermines. Even before Crimea, investors were voting with their feet. Investment suffered. Russian stocks were trading at a 50 per cent discount to other emerging markets.
Having driven the economy into recession, the Russian elite has to find a new way to stay in power. For an authoritarian regime that is always a difficult task, requiring money, repression and propaganda.
Recession means Russia’s government can no longer use money to buy public acceptance. Repression and propaganda have to take up the slack. In these circumstances, nothing could be more helpful than a small and victorious military adventure. Tangible victories – no matter how small or how costly – boost the ruler’s popularity. It is not surprising that Mr Putin’s approval ratings now stand at 80 per cent.
Russia’s corruption can no longer be considered to have the salubrious effect of keeping the elite in check. On the contrary, it has spawned an aggressive foreign policy to which western leaders are now struggling to respond. Russian corruption has indeed become a threat to global security.
The country’s government has always been reluctant to investigate corruption on its own territory. Russian anti-corruption activists fight an uphill battle. Other governments can and should help to locate and freeze corrupt officials’ foreign assets. That will undermine support for Mr Putin within Russia’s ruling class – and support for the elite among the general public. Both will certainly contribute to the arrival of a new, democratic – and thus peaceful – Russia.
The writer, a former rector of the New Economic School in Moscow, is visiting professor at Sciences Po in Paris
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For a good account of the current events please watch the following video: http://www.youtube...atch?v=pculDDRKHdg
and the following text (in Russian, but can be translated in English via google translate):http://pozneronline.ru/2014/03/7200/
MarcusZ may well be right in that regard.
"Russia’s annexation of Crimea came as a great surprise"
Mr. Guriev starts with this statement. Surprise to whom? Under the circumstances, not in the least surprising to anyone who pays attention to events, has relevant background knowledge and seeks to draw conclusions based on relevant facts.
"western governments drew reassurance from the fact that powerful people in Moscow had a strong interest in maintaining a peaceful relationship with the west."
In other words because the oligarchs in Russia and in other former soviet states stashed the theft of a substantial portion of trillions of soviet assets, created through the blood, sweat and tears of 5 generations of hundreds of millions of ordinary people in soviet states, in western depositories, fully facilitated by western factota with full approval of government officials in relevant jurisdictions, most egregiously in the UK and its tax-avoidance havens around the world, that represents "reassurance" of something?
Pathetic assertion.
And on and on.
But the West always wants the easy way to do it- easier to deal with one person, the dictator, rather than a whole parliament/congress/the courts and civil societies.
Quit propping up dictators, kings, queens, mullahs, sultans, generals, colonels, etc.....support the corresponding nations' democratic institutions- it's hard work but eventually saves our treasures and our boys' lives.
Mr. Guriev’s article is fatally flawed. Why? He fails to state his assumptions. A proposition without an assumption is like a building without a foundation.
Scientifically stated, behavior is a function of its consequences. That proposition and the next assume the biological and physical contexts that exist on Earth. The potency of a consequence is a function of the context in which it occurs.
War changes context. The USA and its “peanut gallery”, the EU, placing economic sanctions against Russia, in essence, are declaring war ... yes, economic war but war, nonetheless. Sanctions are a form of punishment. Punishment occasions aggressive retaliation. Such retaliation may not be only economic but military. If so, one can’t predict the future economic status of Russia or anyplace else once the dust settles, providing the dust isn’t radioactive.
Ukraine isn’t within the American, historical sphere of national interest; neither was Rwanda. Cuba is.
Ukraine is within the Russian, historical sphere of national interest. Cuba isn’t (www.nationonfire.com).
Apparently better that you not use your brain. It might lead you to mistaken conclusions.
Am I serious? Yes.
I repeat. Unconvincing analysis from gospodin Guriev. References a la Wikipedia? What is that supposed to mean?
Expect conflicts to be incited and supplied by those who depend on flows of oil and gas revenue.
Oh look at Syria, its already started. Or did it ever end, who pays for the huge amounts of costly high explosives used weekly in Iraq for the last 10 years?
In the precise opposite of much received wisdom it is oil producers and their cartel OPEC that are corrupt and undemocratic and oil producers that abuse and attack oil consumers. It is the oil revenues that created these regimes and only the oil revenues that sustain them.
Worth watching Iraq and Syria and perhaps Iran as this is where a huge volume of new supply is coming from in the next months and years
His conclusion is that corruption brought about the economic slowdown in Russia.
Much more corruption existed during the times when the country attained 5% growth.
If anything there is much less corruption now.
Therefore corruption is not the cause of the slowdown.
There is a straightforward explanation: Russia is connected to the global economy which presently
is dead in the water. It resonates with it up and down. (Consider the statements of Lagard's global
slowdown to day).
Question: In this environment is it possible to have a higher growth? My answer is yes if certain
actions are taken: Given the outflow of Russian capital to the tune of 80B per annum i.e 4% of the
gdp a back of the envelope calculation would also give you 4% growth if all of it is invested internally.
I will definitely blame Putin if he does not turn of the spigot capital outflow.
Sooner or later it must be done.
@JMC22 Cause and effect?
I think I know why.:
China asserts clout in Central Asia with huge Turkmen gas project
http://www.reuters...SBRE9830MN20130904
China’s Unmatched Influence in Central Asia
http://carnegieend.../gnky?reloadFlag=1
China Pursues New Central Asian Gas Route
http://www.rfa.org...2102014124143.html
Construction on third line begins for Central Asia-China Gas Pipeline
http://pipelinesin...s_pipeline/066998/
According to these articles, China has constructed pipelines to Uzbekistan and Turkmenistan. The third such is going to be built soon.
Mind that until recent times, all the gas and oil from Central Asia has flowed through Russian pipes to western markets. Russia reaping a lot of money from having a monopoly access. But now China can at least offer to Turmenistan and Uzbekistan - far better prices. Which means once the third pipeline has been competed. That all the oil and gas from these two states. Will flow to China.
And China has already constructed a single pipeline to Kazakhstan and has more such in planning.
The point is - - the Russian economy is probably already feeling the pinch from the declining revenue, as China is moving into Russian former sphere of power in Central Asia and is in the progress of taking it over.
Yes, Mr. Guriev is probably correct, that Putin is playing the nationalism card. As the economy begins to falter. Ironically he may be able to use western sanctions. as an excuse for declining living standards. Somewhat in the way the Castro managed to.