Russia's economic recovery has been based largely on natural resource extraction, especially oil production. Unfortunately, the rest of Russian society is choked by corruption. The Russian government's attempt to boost Russian science has been choked by its own corruption.
PUSHCHINO, Russia — For the past decade, Russia has been pouring money into scientific research, trying to make up for the collapse of the 1990s, but innovation is losing out to exhaustion, corruption and cronyism.
A big increase in spending with nothing to show for it.
Shot through with back-scratching and favoritism, the government’s science program has tripled its spending in the past 10 years — and achieved very little. The number of papers published in scientific journals is the same as it was in 2000 and as it was in 1990, even while the rest of the world’s output has exploded.
Russian is in dire need of some virtuous leaders. Will it ever get them? A great deal could be accomplished if even some parts of the Russian government became incorruptible. Russia should be a warning on why we should want to keep corruption (and all of the conditions that favor the development of corruption) out of Western societies.
$40 billion for Ukraine. 30% off. From Russia with love.
“It looks like a peace treaty after a war,” said Mikhail Korchemkin, director of East European Gas Analysis in Malvern, Pennsylvania. “This deal will be valid as long as Ukraine behaves. If they do something the Kremlin doesn’t like, the discount will be canceled.”
Russia gets to keep the Black Sea Fleet in Crimea longer. One wonders what else Ukraine has agreed to do or not to do. Russia does not want Ukraine to fall under EU and NATO influence.
This agreement won't last because eventually Russian natural gas production will go into decline and the Russians will need money more than influence.
Never mind that Russia is sinking into a deep recession. Time to crank up military spending.
Russia's leaders are getting used to cutting budgets this year. As the country sinks deeper into recession — unemployment, according to some estimates, is as high as 12% and the economy is predicted to shrink by about 4.5% in 2009 — the government is slashing spending at most of its ministries. The Energy Ministry's budget is down by 33%, and that of the Transport Ministry by 30%. But there is one hugely expensive project on which President Dmitri Medvedev has vowed to actually increase spending: transforming Russia's creaking Soviet-era defense industry into a modern technological power, and turning the 1.1-million-man Russian army into a leaner but more effective fighting force.
The US maintains by far the largest military in the world. In 2008 the US spent $711 billion or 48% of world military expenditures. Russia spent only 5% of world military expenditures or only a little more than a tenth of US spending. In both cases this was mostly waste.
One of the reasons why the US supposedly needs to maintain high levels of military spending is to keep Middle Eastern oil flowing. Well stop and think about that. Imagine we invested some of that money in reducing the amount of oil we needed to buy. There are many ways to do that. The US government could, for example, offer big tax rebates on purchases of hybrids and other fuel efficient vehicles. The US government could also offer a trillion dollars in loan guarantees for nuclear power plant construction. Those loan guarantees would lower the cost of capital enough for nukes that they'd become much more competitive with dirtier coal plants.
The US government could also use regulations and tax rebates to shift a lot lot demand for short haul trucks and buses toward electric power and could do the same for long haul rail. Rail electrification could allow a shift from diesel to nuclear and wind powered rail. Less oil, less need for the Middle East.
Russia has much bigger problems and a much greater need for a shift of money from military spending to other types of spending. Russia's biggest problem is demographic: not enough babies. Russia could offer subsidies for smart people to have lots of babies. Anyone who tests above 120 IQ could get subsidies for baby making with each additional baby earning a larger subsidy than the previous one.
Russia also needs to spend on energy efficiency and nuclear power for when oil production enters its final phase of decline. America needs to do this too.
Declining oil production and decline in prices for oil and other commodities spell trouble for Russia. Under Putin Russia's rise came from commodity sales. There was no great boom in the private sector across many industries. The decline in the value of the ruble in response to declining oil prices cuts living standards since Russia depends on imported manufacturing goods.
The immediate response from Moscow has not been greater humility, but deepened bitterness and aggression. Predictably, Russia blamed the United States for everything, from the economic crisis itself to instigating the recent gas conflict with Ukraine. The anti-American hysteria in Russian state media is deafening. The hubristic tone of Russia’s leaders is buoyed in part because the crisis is not yet starkly visible in Moscow. Restaurants may not be full, but they are still busy, and supermarkets are heaving with people.
In Russian homes and on the streets, however, the talk is of crisis. Stories of layoffs and reduced salaries, canceled projects, and frozen funding have replaced the chitchat about holidays abroad and new foreign cars. Slowly but surely, the truth is starting to set in: After eight years of economic boom, the growth of Russia’s economy is now slowing.
Real incomes are dropping at the same time utility bills are going up. Inflation is forecast at 13 percent, and the ruble has lost more than 30 percent of its value since last summer. Given that half of all goods Russians buy are imported, the impact on living standards will be dramatic. The long-term risk is that the crisis will undermine private initiative and empower inefficient monopolies and opaque state corporations. The new economic model that could emerge would reflect the worst mixture of the private sector and public sphere: nationalization of debts and privatization of profits. This, on top of Russia’s other chronic problems (which include dysfunctional public services, thriving corruption, and an aging, shrinking workforce), does not bode well for the country.
Russia could use a larger private sector with less state interference. Will the Russian leaders eventually realize they need a bigger private sector?
Vladimir Putin remains popular so far. But will that popularity last as living standards drop?
But the chances of a liberal renaissance as a result of Putin’s social contract unraveling are highly unlikely. There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former kgb agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular.
Russia appears to have hit its second and likely final oil production peak at the end of 2007. Also, Russian natural gas production is probably near or past peak. So while commodity prices will recover Russia will have less to sell when prices start going up again.
Does ignoring the financial crisis make it less severe? In other words, is there any economic benefit from the censorship?
MOSCOW (Reuters) - When a Russian sociologist wrote a newspaper column last month suggesting the global financial crisis could cause social unrest, the state media watchdog advised the paper not to spread extremist sentiments.
"This is censorship," said Yevgeny Gontmakher, the author of the column and the head of the Academy of Science's Social Policy Center. "The situation in the country is changing; you can no longer utter the word 'crisis'."
The control exercised by the authoritarian press-controlling regime in Russia would have been more justifiable if the Russians had managed to clamp down on the excesses of their own boom. They could have kept more money abroad to limit the size of the boom and make more money available after the popping of the bubble. Also, they could have shifted the ruble's value downward to boost the development of a manufacturing economy in spite of the oil boom. But they didn't. Not so impressive.
Police in European Union member Latvia jailed an academic for two days for saying in an online debate people should not trust the banks, and launched a case against a singer who made similar comments at a concert.
The European Union has a long way to go before it has press freedoms as strong as in America.
Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert."They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.
Europe would be lucky in the long run if Russia cut back on oil supplies to Germany. That would serve as an enormous wake-up call to the Germans. They'd be forced to revisit their planned nuclear power plant phase-out and would likely shift toward building new nukes instead. Also, they'd further ramp up wind and solar and shift toward a more electrical economy.
Moscow is not above playing the oil card.
Supplies were cut to Estonia in May 2007 following a dispute with Russia over the removal of Red Army memorials. It was blamed on a "repair operation". Latvia was cut off in 2005 and 2006 in a battle for control over the Ventspils terminals. "There are ways to camouflage it," said Vincent Sabathier, a senior fellow at the Centre for Strategic and International Studies in Washington.
European diplomats say Moscow has sent a clear signal it will retaliate if the EU imposes sanctions arising from the Georgia conflict during an emergency summit of to be held on Monday.
The Russians are denying the rumours. They do not need to admit that they started the rumours. The rumours have already achieved their desired result.
Russia's energy minister and a top oil company denied on Friday they were preparing to cut oil flows to Europe in response to threatened sanctions, a step Moscow never took even at the height of the Cold War.
At this point Europe needs Russia more than Russia needs Europe. The Russians can buy goods from the Far East if the Euroes put any restrictions on their exports. The Russians can afford to cut back on oil production given how much they can make off of higher oil prices.
The coming peak in Russian oil production is close. The world oil production peak is near as well. Therefore the European countries all need to make plans for how to gradually replace the oil and natural gas from Russia. The Russians would do them a favor by cutting back on fossil fuels exports at this point in time. Such an act would spur the Europeans to develop alternatives that they need to develop anyway.
Zeyno Baran argues Russia is deepening divisions in Europe with energy and the Georgia invasion. I say she should go further and proclaim that Europe is Russia's bitch.
We saw the same fault line at the NATO summit in April that failed to offer a membership action plan (MAP) to either Georgia or Ukraine, further emboldening Mr. Putin to provoke the Georgians into an unwinnable war. It is simply not possible for the European Union to be united in what Russia considers to be its "sphere of influence" unless the Kremlin's gas leverage over the Continent is broken. Russia is Europe's single largest supplier of natural gas. As there is no global market for gas, the construction of costly pipelines effectively locks consumers into lengthy contracts with producers. This means that Moscow can (and does) easily manipulate dependence into political and economic leverage.
Germany, for example, imports almost 40% of its gas from Russia -- the most of any West European country -- and plans to increase this figure to over 60% by 2020. Six East European countries are entirely dependent on Russia for their natural gas imports. Yet they are also the most vocal about the EU's need to diversify away from Russia. That's because they know Russia can turn off the taps in a second -- as in Latvia in 2003, Lithuania in 2006 and the Czech Republic in 2008 -- with little reaction from Brussels. Russia managed to divide the EU by being a reliable supplier to Western Europe, while continuing to treat Eastern Europe as its "backyard."
The Eastern Europeans are far more outspoken and critical of Russia's Georgia invasion. They know that the current occupants of the Kremlin in Moscow wants them all back under Moscow's thumb.
But think about Russia's strategy. What can they hope to accomplish?
The Russian plan is rather simple: Punish countries that refuse to come under its influence by building new gas pipelines that bypass them, while rewarding countries and political leaders that cooperate with Russia with lucrative energy deals.
If the Eastern Europeans are smart they will make a huge push to break away from dependence on Russian oil and natural gas. Build nuclear power plants, wind farms, and put up solar panels. This will lessen their vulnerability to Russian machinations. But it will also reduce the economic damage to their economies when Russian oil and natural gas production start declining.
While debate about Western responses to Russia over Georgia focus on the short term the Western countries really should focus on a longer term response that involves developing non-fossil fuels energy sources. A push to do that would undermine Russian influence. Plus, it is necessary in the long run because Russian oil and natural gas production will be lower 10 years from now and even lower 20 years from now.
Here's your term for the day: Passport Diplomacy. Will Russia target Ukraine next with passports and then a move to protect Russian citizens?
Mr Medvedev also sent an undisguised message to other ex-Soviet countries thinking of challenging Russia's authority."If anyone thinks that they can kill our citizens and escape unpunished, we will never allow this," he said. "If anyone tries this again, we will come out with a crushing response. We have all the necessary resources, political, economic and military." Russia justified its invasion of Georgia in terms of defending its citizens of South Ossetia and Abkhazi - although it only gave Russian passports to the inhabitants of the two provinces five years ago. In the past week Ukrainian politicians have claimed that Russia has been doling out passports to residents of the Crimea, which has strong allegiances to Moscow, raising fears about the Kremlin's intentions in the region.
Mykola Stretovych, an MP with Ukraine's ruling orange coalition, claimed that Russia was engaged in a massive operation to hand out passports in Sevastopol, home to 400,000 people, many of whom have historic ties with Russia.Anatoly Gritsenko, chairman of the Ukrainian parliament's national security committee, launched a probe into the claims which, if true, would represent "a threat to national security", he said.
While President Mikheil Saakashvili of Georgia certainly blew it by sending troops into South Ossetia my fear is that Russia was just looking for an excuse to invade and even helped provoke Saakashvili. Putin was already very mad at the prospect of NATO membership for Georgia.
Three weeks later, Mr. Bush went to the Black Sea resort of Sochi, at the invitation of President Vladimir V. Putin of Russia. There, he received a message from the Russian: the push to offer Ukraine and Georgia NATO membership was crossing Russia’s “red lines,” according to an administration official close to the talks. Afterward, Mr. Bush said of Mr. Putin, “He’s been very truthful and to me, that’s the only way you can find common ground.” It was one of many moments when the United States seemed to have missed — or gambled it could manage — the depth of Russia’s anger and the resolve of the Georgian president to provoke the Russians.
If the people in control of Russia are executing a plan to rebuild the Russian Empire then Ukraine seems like a logical next target. The Russian speakers in Ukraine are an even higher percentage of the population than those classified as Russian.
Officially, 17.3 per cent of people living in Ukraine are ethnic Russians (around 8 million people). But more have Russian as a first language and they are concentrated in the east of the country, which nationalists in Moscow argue is culturally indivisible from the old Slavic motherland. Ukrainian nationalists vehemently disagree. The same goes for Belarus (official Russian population: 11.4 per cent, around 1 million people).
The Baltic states also have substantial Russian populations.
But the greatest tensions are in two of the Baltic States: Latvia (29.6 per cent Russian) and Estonia (25.6 per cent Russian). Although they formed part of the Russian empire in the 19th century, the Balts broke away when the Soviet Union was formed and were only forcibly reassimilated during the Second World War. Stalin then waged a brutal demographic war, shipping ethnic Latvians and Estonians to Siberia, and settling Russians in their place.
The Ukraine needs to negotiate a redrawing of borders that shifts Russians into Russia. Only then can Ukrainians feel secure within the borders of Ukraine. The Russians in the Baltic are more recent arrivals and paying Russians to leave the Baltic nations probably is the best way to assure territorial integrity of Latvia, Lithuania, and Estonia.
Demographic wars matter most in the long run. America is also in a demographic war of its own and America's most productive people are losing our demographic war.
As events in the Caucasus demonstrate, having ethnic groups within your borders who have loyalties toward Moscow is a recipe for getting your country beat up by the Russian military. Okay, what to do about it? Modest proposal: US and European aid should go toward paying Russians to leave the former Soviet and former Russian Empire states. Ukranians worry they are next up for Russian aggression.
The sense of alarm may be greatest here in Ukraine. Since the Orange Revolution began in 2004, bringing the pro-Western Viktor A. Yushchenko to power after widespread protests, Ukraine has been a thorn in Moscow’s side, though perhaps not as sharp as the outspoken Georgian president, Mikheil Saakashvili.
“We’re next,” said Tanya Mydruk, 22, an office assistant who lives in Kiev, the capital. “Sooner or later our president is going to say or do something that goes too far, and then it will start.”
I think the Ukrainians ought to do less to aggravate the Russians while they try to get into NATO. This attempt to restrict the Russian Black Sea fleet seems like a bad idea.
Ukraine has done little to win Russia’s favor since the crisis in the Caucasus began. On Wednesday, Ukraine announced that it would restrict the movements of Russia’s Black Sea fleet into Sevastopol, on the Crimean peninsula. On Friday, the Foreign Ministry issued a statement saying it was prepared to give Western countries access to its missile-warning systems.
17% of the people in Ukraine are Russians. So that's about 7.8 million people who could be offered financial incentives to move over the border into Russia. A lot of people. But NATO could offer money as a much cheaper way than weapons to make Ukraine a more secure place.
Yet despite fears of a Russian resurgence, Ukraine remains deeply tied to Russia by culture and history. Its ethnic Russian minority, largely in the south and east of the country, is roughly 17 percent of a total population of 46 million.
According to one estimate about 45,000 South Ossetians were in South Ossetia when the Georgian military tried to reestablish control over South Ossetia. As recently as the 1979 census only 2% of the South Ossetian population were ethnic Russians while about two thirds were Ossetians. Those 45,000 South Ossetians (which Wikipedia claims had a per capita GDP of only $250 in 2002 - seems too low) could have been bought out and, with their Russian passports, they could have been paid to move into Russia. The Georgian government could have asked for Western aid to pay to buy out whole villages and gradually turn South Ossetia Georgian.
The Baltic states ought to consider buying out their Russian citizens. Estonia, Latvia, and Lithuania could avoid future trouble by paying Russians hefty sums of money to leave. Russia has massive open spaces. The influx would not create a strain since Russia is shrinking by 400,000 people per year.
Update: Writing in the Times of London Sally Baker thinks Russia sees its invasion as a way to keep Georgia out of NATO.
Russia is in a determined mood and is actively encouraging secessionists in South Ossetia and the other breakaway region of Abkhazia. It appears that Moscow has calculated that it can destabilise Georgia through such a showdown and there is precious little that the United States can do about it. Moscow’s military intervention will have the dual purpose, it reasons, of creating an unstable Georgia that therefore cannot join Nato and at the same time demonstrating to the West that it has gone too far.
Ukraine wants into NATO too. Will Russia look to destabilize Ukraine by encouraging terrorist attacks or large scale political protests by Russian ethnics in Ukraine?
Writing in The New Yorker David Remnick usefully tries to look at the events in the Caucasus from Vladimir Putin's perspective.
Taken individually, the West’s actions since the collapse of the Soviet Union—from the inclusion of the Baltic and the Central European states in NATO to the recognition of Kosovo as an independent state—can be rationalized on strategic and moral grounds. But taken together these actions were bound to engender deep-seated feelings of national resentment among Russians, especially as, through the nineteen-nineties, they suffered an unprecedentedly rapid downward spiral. Even ordinary Russians find it mightily trying to be lectured on questions of sovereignty and moral diplomacy by the West, particularly the United States, which, even before Iraq, had a long history of foreign intervention, overt and covert—politics by other means. After the exposure of the Bush Administration’s behavior prior to the invasion of Iraq and its unapologetic use of torture, why would any leader, much less Putin, respond to moral suasion from Washington? That is America’s tragedy, and the world’s.
Imagine that Georgian President Saakashvili was a KGB plant. He couldn't have done a better job than what he did of giving Putin's gang an excuse to solidify their hold on South Ossetia and Abkhazia. Saakashvili was like a bull who saw red as Russian and South Ossetian puppeteers provoked the Georgian response that gave Putin the opening he was looking for.
There is little doubt that the Georgian President, Mikheil Saakashvili, provided Putin with his long-awaited casus belli when he ordered the shelling of South Ossetia, on August 7th. But Putin’s war, of course, is not about the splendors of South Ossetia, a duchy run by the Russian secret service and criminal gangs. It is a war of demonstration. Putin is demonstrating that he is willing to use force; that he is unwilling to let Georgia and Ukraine enter NATO without exacting a severe price; and that he views the United States as hypocritical, overextended, distracted, and reluctant to make good on its protective assurances to the likes of Georgia.
Putin's demonstration war should be treated as a wake-up call for European economies increasingly dependent on Russian oil and gas exports. Europe needs nuclear, wind, and solar energy in order to free itself from dependence on the KGB alumni who run Russia.
Remnick finds the rhetoric that compares Putin to Stalin and Hitler as overblown and not useful. I agree. We would do a much better job of understanding the world if we didn't limit ourselves to so much repeated use of the same small bag of World War II analogies. Human history is long and vast and full many many subtleties. Remnick says that the game Putin is playing is subtle. Our response should be subtle, clever, and wise.
But how high are the stakes? I doubt Russia will be able to prevent Ukraine from joining NATO. Also, I do not expect Russia to try to invade any NATO countries. So the stakes seem limited to the Caucasus. Russia might get some more oil profits in the future since any new oil pipeline through Georgia will be seen as too risky to construct. But what else does Russia gain? A greater feeling of pride, of having power that the Russians can exercise.
But Georgia isn't the only economy that now suffers from a risk premium as a result of the war between Georgia and Russia. Russia itself has a bigger risk premium for investments in part due to the events in Georgia but also because of the way the Russian government puts the squeeze on foreign investors in the oil industry. Russia is a dangerous place to invest where the government is not seen as an impartial arbiter in commercial disputes.
Russia's recent gains in the Caucasus will matter little in the long run. Russian power is set to decline for both demographic and energy related reasons. First off, Russia's population is shrinking by about 400,000 per year with some projections putting Russian population below 110 million by 2050, Muslim ethnicities within Russian borders are making more babies than ethnicities that are non-Muslims, and Russian oil production is near peak and might already be in a permanent decline.
Russia's turn-around since bottoming out around 1998 has been based largely on commodities, most importantly, oil and natural gas. Russia's industrial sector outside of the extractive industries shows few signs of positive developments. Unless Russia can find a lot of oil offshore in the Arctic what we are witnessing right now is probably the peak of power for post-Soviet Russia.
Poland and America just signed a deal to place anti-missile defenses in Poland. Russia's response? The Russian military's deputy chief of staff threatened to nuke Poland.
Only 24 hours after the weapons agreement was signed Russia's deputy chief of staff warned Poland "is exposing itself to a strike 100 per cent".
General Anatoly Nogovitsyn said that any new US assets in Europe could come under Russian nuclear attack with his forces targeting "the allies of countries having nuclear weapons".
He told Russia's Interfax news agency: "By hosting these, Poland is making itself a target. This is 100 per cent certain. It becomes a target for attack. Such targets are destroyed as a first priority."
The Russian leaders haven't let feminism dampen their masculine ardor.
Russia’s military offensive into Georgia has shattered, perhaps irrevocably, the strategy of three successive presidential administrations to coax Russia into alliance with the West and integration into its institutions.
From Russia’s point of view, those efforts were never truly sincere or respectful of its own legitimate political and security interests. Those interests, it is now clear, are at odds with those of Europe and the United States.
Been having retro feelings? Want to drive an old car? Maybe see Dr. Strangelove on DVD? These UN Security Council scenes seem like the good old days of the Cold War.
The United Nations Security Council has reverted to a cold-war-like stalemate, with American and Russian vetoes blocking meaningful action over Georgia and other issues.
I like a stalemated UN Security Council. World government is a bad idea. Russia's votes on the Security Council remind us that world government amounts to government by less free nations.
The Russian military moves in Georgia serve as a useful reminder: The world is not a nice place. Progress isn't inevitable. Democracy with limited government and freedom is not on the march.
But the Russian moves also make a lot of sense: Non-Georgians didn't want to be ruled by Georgians. Ethnic groups didn't want to be ruled by other ethnic groups. The US government backed this desire in the case of Kosovo. But in the case of the South Ossetians the US government backs the right of the government of Georgia to rule Ossetians (and also backs the right of Israeli Jews to rule Palestinians).
What else is interesting in all this? President Mikhail Saakashvili was dumb enough to invade South Ossetia and give the Russians the excuse they were looking for to invade Georgia. You might wonder: how did such a fool become President of Georgia? Well, billionaire George Soros put up the money that funded Saakashvili's path to power.
A year after he was made justice minister, he resigned, declaring that Mr. Shevardnadze was complicit in the criminality bedevilling Georgia.
In opposition, he caught the eye of George Soros, the American billionaire and philanthropist who had initially become involved in Georgia at Mr. Shevardnadze's request. Mr. Soros also had become irritated by the Silver Fox's go-slow approach, and he decided that Mr. Saakashvili was the embodiment of Georgia's future.
The Soros foundations began pouring millions of dollars into organizations that were nominally interested in free media and democracy building but mainly served to undermine Mr. Shevardnadze's rule and push for Mr. Saakashvili to succeed him (including the youth movement Kmara, which would provide the backbone of the protests during the Rose Revolution).
Soros bears part of the responsibility for this disaster.
The new Russian President Dmitry Medvedev proclaims that bribery in Russia should be rare. But Russian leaders have vowed to crack down on bribery in the past with seemingly little effect. The cost of corruption in Russia is very high.
Bribery enriches Russian bureaucrats and other officials to the tune of $120 billion annually, a senior Russian investigator said. "The revenues of our bureaucrats from corrupt activity, according to experts, account for one-third of our national budget," Vasily Piskaryov, a senior official at the Investigative Committee of the Prosecutor General's Office, said last month.
Other groups believe the scale is even bigger. The Indem Foundation, a Russian grass-roots organization, estimates that Russians pay $319 billion annually in bribes.
Without sufficient virtue in the people the society carries a big burden and pays for the effects of bribery through injustices and less competency.
"There is a very easy and light-hearted attitude to corruption in our country," said Panfilova of Transparency International. "But I keep trying to stress that corruption kills. Do you really want to take your children to see the doctor who bought his diploma? What about the drunk driver who pays, and then kills someone down the street?"
Another small-businessman, a glass company owner who wouldn't allow even his first name to be used, said he pays about $900 a month to various inspectors and police. If he refused, he said, they would paralyze his business with alleged fire, health, labor, tax or sanitary violations.
Maybe some of his regulatory violations are real and create safety dangers for his workers. When the regulators are corrupt not only do do businesses with high safety standards have to pay extortion but also unsafe businesses can pay bribery to avoid obeying beneficial rules.
Russia's $2 trillion economy is growing at 7% a year due to high oil and other commodities prices. If the estimates above are correct then bribery comes in at over 5% and perhaps as much as 15% of GDP. But some of that bribery is for services that the government funds (e.g. medical care). So the bribery would go down if the government privatized more services and the bribery is partially compensating for the government's underfunding of medical and other services.
More troubling is the corruption that forces businesses to pay protection money. Taxes collecting the same amount of money would cause far less damage because of the transparency and predictability of taxes versus extortion payments.
MOSCOW — On a talk show last fall, a prominent political analyst named Mikhail G. Delyagin had some tart words about Vladimir V. Putin. When the program was later televised, Mr. Delyagin was not.
Not only were his remarks cut — he was also digitally erased from the show, like a disgraced comrade airbrushed from an old Soviet photo. (The technicians may have worked a bit hastily, leaving his disembodied legs in one shot.)
Mr. Delyagin, it turned out, has for some time resided on the so-called stop list, a roster of political opponents and other critics of the government who have been barred from TV news and political talk shows by the Kremlin.
The march of freedom and democracy across the world is not inevitable. The West is not leading a sort of modern Manifest Destiny for how the whole world will function.
Lots of major political figures in Russia have disappeared from Russian television.
Onetime Putin allies like Mikhail M. Kasyanov, his former prime minister, and Andrei N. Illarionov, his former chief economic adviser, disappeared from view. Garry K. Kasparov, the former chess champion and leader of the Other Russia opposition coalition, was banned, as were members of liberal parties.
Of course, the United States has its own taboo views the utterance of which make people disappear regardless of how great their accomplishments.
The English language Russian expat newspaper The Exile is threatened with closure by the illiberal Russian government. Editor Mark Ames is perhaps sarcastically upbeat about their prospects under the new President Medvedev.
Welp, those dangerous days are behind us folks. Now that the liberal Medvedev Era has arrived, we can all breathe a sigh of relief. At last, after all of the assaults, lawsuits, threats, thefts, bad drug deals, false pregnancies and petty betrayals, after the terrifying presidencies of Boris Yeltsin and Vladimir Putin, the light of liberal freedom is shining into our basement offices. We can already taste the fresh gusts of liberal-air blowing in from that little fella with the big floppy head and the stumpy arms—damn, he’s cute, ain’t he?
Of course Vladimir Putin decided to take most of the power with him to his new role as Prime Minister. So if The Exile gets shut down will it be killed off by Putin or Medvedev?
We've had recent debates in the comments of posts here at ParaPundit on the question of the quality of Vladimir Putin's rule in Russia. Stanford University political scientist Michael McFaul says Vladimir Putin's successes with Russia's economy have been exaggerated.
While Russia can claim that wages have risen, its economy is expanding and poverty rates have been cut, there have been real setbacks in health care, public safety and corruption.
The state has undergone a massive expansion under Mr. Putin, with the number of state employees doubling to 1.5 million, Prof. McFaul said. The murder rate has increased and alcoholism and mortality rates remain high. Public health spending, meanwhile, has not increased in the past decade.
He also argued that Russia was well on the road to economic recovery as early as 1998, after the crashing ruble forced federal officials to control government spending and reduce the state's role in the economy.
But since then, its growth rate has stalled; in 2000, Russia's economy was the second fastest growing among former Soviet countries. Today, it is 13th, Prof. McFaul noted in an article he co-authored in Foreign Affairs, an international relations journal.
Edward Lucas, author of The New Cold War: How The Kremlin Menaces Both Russia And The West, says the level of corruption in Russia today will prevent full economic development.
Oil-fuelled crony capitalism does not bring lasting prosperity.
The real route to lasting progress is in solid, honest public institutions: courts, efficient bureaucrats, a good education system, strong anti-monopoly laws.
Russia not only lacks these, it has the opposite. Whereas the courts used to be merely bribable, they are now a branch of government. The education system is plagued by corruption.
Meanwhile, state bureaucrats shamelessly indulge in what they call "velvet reprivatisation": a euphemism for arbitrarily bankrupting companies and buying them at bargain prices for themselves.
By far the most likely explanation for Mr Medvedev's sudden elevation to the top job is that having smeared opponents as dangerous extremists and used oil wealth to muffle public protest, Russia's rulers have snapped up the lion's share of the country's assets to the tune of tens of billions of dollars.
Their priority now is to squirrel the proceeds away abroad.
That arbitrary bankrupting of companies is especially worrisome. Capitalists can pay a predictable rate of taxes and a predictable rate of extorted bribes. But the loss of everything doesn't just deprive the capitalist of incentive to work and invest. The bureaucrats who take over companies are not likely to run them well.
The ruble is stable and even being touted as a potential reserve currency. The economy grew 8.1 percent last year, and the middle class has grown dramatically. Russia stands 79th on the World Bank's ranking by gross national income per capita at $5,780 — behind Mexico but ahead of EU members Romania and Bulgaria.
The single most important factor in this stunning transformation has been skyrocketing prices for oil and gas. Oil was about $20 a barrel when Putin took office, roughly a fifth of current prices. Russia has earned about $1 trillion in oil and gas revenues during Putin's years, according to calculations by Moscow's UralSib bank.
"There's no doubt about it, they got extremely lucky with the oil price," said UralSib research head Chris Weafer. But "they did a couple of positive things as well, such as reforming the tax system from what was a real upturned plate of spaghetti in terms of all the various options and routes and exceptions that were in the system."
The Economist does an especially good job at examining the recent economic history of Russia. Putin was lucky to come to power at a point when Russia was already on the rebound.
In fact, Mr Putin came to power at an unusually benign moment. The debt crisis and devaluation of 1998 had flushed out the financial system, removed constraints on the rouble and enforced fiscal discipline. With much of the economy in private hands and most prices liberalised, recovery inevitably took off. By the end of 1999 Russia was already growing by more than 6% a year. In 2000 growth accelerated to 10%, a rate still not matched eight years later. Symbolically, four days before Mr Putin was officially elected as president, the first IKEA store opened in Moscow.
To be fair, at first Mr Putin worked hard to consolidate growth. His government simplified and cut taxes. Budget reform brought clarity and stopped the government making unrealistic pledges on spending. Mr Putin not only chose a liberal economist, Andrei Illarionov, as his economic adviser, but also listened to him. For the most part Russia used its oil windfall prudently, repaying debt, building up reserves and filling its stabilisation fund. Many of the reforms conceived in the 1990s were passed at last, including legislation to improve the judicial system and allow a free market in land. The benefits of Mr Putin's early efforts are still felt today.
Mr. Putin didn't cause the huge run-up in oil prices that made oil and natural gas into almost a third of Russia's economy.
The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7% in 1999 to 31.6% in 2007. Natural resources account for 80% of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.
That is an astoundingly large percentage of GDP just from fossil fuels.
According to Transparency International, a watchdog group based in Berlin, corruption has increased slightly in Russia since 1999 and the country is now ranked 143rd among 179 countries profiled. Its national business environment ranking – compiled by the World Economic Forum's Global Competitiveness Report – has also fallen since 2001, from 56th to 70th, though most of that is due to the addition of new countries. In addition to corruption, the report cites tax regulations, bureaucracy, and inflation as some top concerns.
The top leaders in Russia are now former KGB. They've probably created a more orderly system of bribery. The KGB turned into the FSB and now companies all have to hire FSB agents into top positions.
Current and former FSB officers work in large private companies as well. Another former FSB official said the Kremlin wanted the officers to make sure the companies do not act against Russia's interests.
"Big companies in Russia consult with the Kremlin before striking any big deal. The officers working for those companies are there to make sure that things are done properly or the way the Kremlin wants," the official said.
The companies, who pay generous salaries to the officers, feel they get their money's worth. The officers make sure they do not have problems with the Kremlin.
"All big companies have to put people from the security services on the board of directors," said a banker with a large private bank. "Many are appointed as directors or deputy directors. They are called 'active reserve agents,' and we know that when Lubyanka calls, they have to answer them."
These arrangements place severe limits on the extent of competition based on price and quality of service. Russia can't grow up to its potential as long as companies act like extensions of the state and corruption serves as an additional tax.
NIZHNY NOVGOROD, Russia — Shortly before parliamentary elections in December, foremen fanned out across the sprawling GAZ vehicle factory here, pulling aside assembly-line workers and giving them an order: vote for President Vladimir V. Putin’s party or else. They were instructed to phone in after they left their polling places. Names would be tallied, defiance punished.
Even children serve the Tsar on election day.
The city’s children, too, were pressed into service. At schools, teachers gave them pamphlets promoting “Putin’s Plan” and told them to lobby their parents. Some were threatened with bad grades if they failed to attend “Children’s Referendums” at polling places, a ploy to ensure that their parents would show up and vote for the ruling party.
Opponents of the Tsar are threatened with physical harm.
Around the same time, volunteers for an opposition party here, the Union of Right Forces, received hundreds of calls at all hours, warning them to stop working for their candidates. Otherwise, you will be hurt, the callers said, along with the rest of your family.
Over the past eight years, in the name of reviving Russia after the tumult of the 1990s, Mr. Putin has waged an unforgiving campaign to clamp down on democracy and extend control over the government and large swaths of the economy. He has suppressed the independent news media, nationalized important industries, smothered the political opposition and readily deployed the security services to carry out the Kremlin’s wishes.
The outcome of democratization in Russia illustrates how democracy doesn't succeed in every country. For other examples of democracy failure and theories on why democracies fail see my previous posts History Of American Interventions Bodes Poorly For Democracy, Liberal Democracy Is Not A Universal Desire, Low Per Capita Income Countries Never Remain Democracies, Robert Conquest On The Limits And Pitfalls Of Democracy, and Democracy Debate Needs More Realism.
In Russia's case I see a crisis on the horizon when Russia's oil production starts declining rapidly. The Russian people have been willing to follow Putin's orders in part because high oil prices and rising oil production have boosted Russian living standards. But when the Russian economy turns down their patience with autocracy might wear thin.
MOSCOW, Jan. 27 -- Former prime minister Mikhail Kasyanov, a political opponent of President Vladimir Putin, was barred Sunday from running for president after the Central Election Commission said it had found tens of thousands of forged signatures among the 2 million gathered by his campaign to get his name on the ballot.
Opinion polls indicated that Kasyanov posed no political threat to Putin's chosen successor, Dmitry Medvedev, the overwhelming favorite in the March 2 vote, and his disqualification will immediately raise questions about the Kremlin's willingness to face any competition or debate. As a candidate, Kasyanov would have enjoyed some access to state-controlled national television stations, which rarely mention him and only then to attack him as corrupt or declare him irrelevant.
The Tsar is knowing and wise. Surely as a good Tsar he is doing what is best for the Rodina and the Russian people. No patriot can question his decision in good conscience. Russia has democracy just like the West and the West is therefore no better. Russia even has a better form of democracy that eliminates the damage caused by divisive candidates who do not place the interests of the people first.
A little bit of reality seeps into the Bush Administration's view of the world. Will any neocons denounce Bush as a traitor for abandoning the fantasy of converting the whole world to democracy?
The secretaries of state and defense and a squadron of other U.S. officials head to Moscow next week for a series of top-level meetings. They will discuss missile defense, a conventional forces treaty and the next step in nuclear arms cuts.
Not on the official agenda -- the future of Russian democracy.
In watching Russia's slide toward authoritarianism, the Bush administration once considered the ultimate test to be whether President Vladimir Putin voluntarily gave up power in 2008 as promised. But this week Putin shrugged off U.S. warnings and signaled that he plans to keep power by becoming prime minister, once again surprising an administration that has now all but abandoned hopes of influencing Russia's internal direction.
What happened? Did the Bushies run out of hubris pills?
Also, if Russia is destined to continue to become less democratic do we need to follow the neocon logic and conclude that of course the lack of democracy and freedom will lead to Russian frustration and terrorism? Do we need to start treating the Russians like terrorist suspects because they lack democracy?
What, you ask "But what about Islam as the root cause of Muslim terrorism? What does democracy have to do with it?". Hey, I'm just trying to follow the logic of Bush and the neocons (and not a few liberals) to its logical conclusion. If lack of democracy causes terrorism and the spread of democracy is necessary in order to stop terrorism (and does Condi Rice still believe this?) then the Russians are on the road to terrorism. Watch out Finland.
It has long been assumed that President Vladimir Putin, whose term of office expires next March, would prefer to remain in power. But how he might try to do so while operating within the terms of Russia's constitution has been a source of endless speculation. On Monday, Putin provided what may be the answer, when he announced that he would head the list of the ruling United Russia (UR) party in December's election to the Duma, the lower house of Russia's parliament.
From his position in Parliament (and his party is expected to win by a landslide) Putin will most likely get himself appointed Prime Minister. Also, he'll choose a Presidential candidate who will accept a subordinate position and take his orders from Putin.
Some might think that this is democracy and democracy is good. Um, well, since Russia's voters can't watch independent TV news shows and since large chunks of the print media are also under control of Putin's allies it is not like the voters can know much about what is really going on or why they might want to vote for an opponent of Putin. Plus, simple majorities are not imbued with great wisdom and America's Founding Fathers make special provisions in the design of the US constitution to try to at least partially compensate for that fact. Democratic dictatorship is a real phenomenon. It is a bigger problem in societies such as in Russia where the majority doesn't feel strong support for a free society. Also, the Russians aren't big on what is called social capital. They don't form lots of independent organizations that serve as checks on government.
What I want to know: When Russian oil production starts declining at a moderately rapid rate, energy costs rise for keeping warm in those cold Russian winters, and living standards drop what will the Russian people think of their elected dictatorship and what, if anything, will they do in response?
Vladimir Putin announced ambitious plans to revive Russia's military power and restore its role as the world's leading producer of military aircraft yesterday.
Speaking at the opening of the largest airshow in Russia's post-Soviet history, the president said he was determined to make aircraft manufacture a national priority after decades of lagging behind the west.
The remarks follow his decision last week to resume long-range missions by strategic bomber aircraft capable of hitting the US with nuclear weapons. Patrols over the Atlantic, Pacific and Arctic began last week for the first time since 1992.
Russia's oil fields are going to peak in production soon. The Russians can ill afford to squander their oil wealth.
The Kremlin should focus instead on development of the private sector. Kremlin plans for a revival of the Russian aerospace industry make more sense because the goal is to generate more revenue from sales of higher tech products.
Last week Russian officials said they planned to build 4,500 civilian aircraft by 2025, while the Kremlin has pledged £125bn to boost the civilian industry.
As part of the plan to boost significantly Russia's civilian aircraft industry, a new state-controlled organisation, the United Aircraft Corporation, has been created.
But can a corporation owned by the Russian government operate with sufficient efficiency to compete with Boeing and Airbus?
Russia has the potential to earn a lot more money from arms sales. But Businessweek reports that Russia's commercial aircraft industry is lagging behind its military aircraft industry.
Most industry observers agree that Russia's civilian aviation industry is lagging behind the fighter aircraft makers. "Our military aviation is all right. The commercial aviation is slowly recovering," says Ruslan Pukhov, director of the Moscow-based Center of Analysis of Strategies & Technologies, a defense think tank. To boost the Russian industry's ability to compete in passenger and transport jets against Boeing (BA) and Airbus, the Kremlin created United Aircraft, a state holding company combining key producers such as MiG, Sukhoi, Ilyushin, Tupolev, and Irkut. United Aircraft's ambitious goal: to produce and sell about 4,500 aircraft worth some $250 billion by 2025. For starters, Russian airlines are expected to order some $600 million in Russian-built aircraft at the Moscow air show.
When the Russians start sending their bombers out to skirt US and British airspace which audience are they playing to? European government leaders? American government leaders? The Russian public? Or maybe potential sovereign buyers of Russian military aircraft?
At their first meeting with journalists since taking over Russia's largest independent radio news network, the managers had startling news of their own: from now on, they said, at least 50 percent of the reports about Russia must be "positive."
In addition, opposition leaders could not be mentioned on the air and the United States was to be portrayed as an enemy, journalists employed by the network, Russian News Service, say they were told by the new managers, who are allies of the Kremlin.
How would they know what constituted positive news?
"When we talk of death, violence or poverty, for example, this is not positive," said one editor at the station who did not want to be identified for fear of retribution. "If the stock market is up, that is positive. The weather can also be positive."
The requirement that half the news be positive isn't as bad as the restrictions on what goes in the other half. There's very little real news reported in most of the Russian media. Putin has been able to get away with this in part because the Russians lack the sorts of beliefs that are needed to support a free society. Democracy is a failure in Russia. Democracy is not the aspiration of all peoples in the world and not all cultures contain the elements needed to support freedom. Russia should serve as a cautionary tale for neoconservative and liberal democracy imperialists.
The rulers in Russia have been able to get away with their crackdown in part because rising oil revenues have created greater prosperity. But Russia is near an oil production peak and eventually revenues will start declining. When living standards start declining will the media manipulations prove sufficient to allow the puppet democracy to remain in power? Time will tell.