~ JD ~: Чтение России (VII)

As long as it is trapped, the Russian bear will growl

By Martin Wolf

The Russian bear is awake. But this is not a Russia restored to past greatness. It is caught in a failed transition. So long as this continues, Russia will disturb its neighbours and disappoint its citizens. Is there a chance of something better? Yes, but it is a small one.

Vladimir Putin expressed the attitudes of the new Russia, at once assertive and aggrieved, at the 43rd Munich conference on security policy this month. “I think it is obvious,” the president stated, “that Nato expansion does not have any relation with the modernisation of the alliance itself or with ensuring security in Europe. On the contrary, it represents a serious provocation that reduces the level of mutual trust. And we have the right to ask: against whom is this expansion intended?”
Mr Putin knows the answer to this question, but does not address a deeper one, because the answer would be too painful: why do Russia’s neighbours trust it so little? For it is they who wish to join Nato, not Nato that has forced itself upon them. This is because his country brought oppression and mass murder upon them, as it is doing now in Chechnya.

We need to ask what sort of a country Russia has become. The answer is a “limited access order”, in the language of a recent paper co-authored by the Nobel-laureate economic historian Douglass North of Washington University in Saint Louis.* In such an order, an elite uses the political system to create rents and uses the rents to stabilise the political system. It is an order based on a balance of power among insiders and the exclusion of outsiders. Russia has always been an extreme example of such an order in European history.

This way of thinking sheds much light on the post-Soviet period. Boris Yeltsin’s close aide, Anatoly Chubais, used privatisation and, above all, the “loan for shares” scheme of 1995 to create a new rent-owning elite – the “oligarchs” – in place of the discredited communists. This manoeuvre had a political and an economic goal: to create an elite supportive of the new state and dependent upon it.

Yet this settlement was unstable: it excluded those who must be included within the elite of any limited-access order, “specialists in violence”. Those excluded were the Soviet Union’s most ruthless specialists in violence, the secret police. The election of Mr Putin brought them back to power. Mr Putin’s assault on dissident oligarchs, especially Mikhail Khodorkovsky, and his extension of the state’s role in the economy marked the reallocation of rents in their direction.

Thus has Russia gone “back to the future”. Today’s system of rent-seeking in a centralised state is similar to earlier ones, with the difference that it is now natural resources, rather than “souls” that are the most valuable asset. Historically, the Russian elite has done a tacit deal with the Russian people: “as individuals you are nothing; but as Russians you are great”. Now, again, Mr Putin offers Russians a share in a restored Russia in return for depriving them of an effective political voice. It is an old bargain and, the polls suggest, it works.

What has made this restoration both successful and fragile is the source of the rents and so the power: Russia’s natural resources. The Russian economy has enjoyed a superb turnround: gross domestic product was up by 73 per cent between the third quarters of 1998 and 2006, a compound rate of growth of 7.1 per cent a year; foreign currency reserves reached $295bn in December 2006. Russia has come a long way from the humiliating default of 1998.

Yet, as the latest economic survey from the Organisation for Economic Co-operation and Development makes plain, “growth has largely been underpinned by temporary factors”: the now lost legacy of the devaluation of 1998; the high prices of resource exports; and the exploitation of now exhausted spare capacity. Meanwhile, investment is only 18 per cent of GDP; oil production is stagnating; and, above all, the reform process itself has stalled. Notwithstanding the recovery, Russia is a country with high corruption, and an ineffective and repressive state (see chart). It is also quite poor: its standard of living is about half that of the Czech Republic and a third that of the UK.

Professor North and his co-authors contrast a limited-access society with an “open-access” one – a society in which the economy and politics are open to competition. As they note, a close relationship exists between the two: “sustaining competitive democracy is possibly only in the presence of economic competition”.

The most important point about the state in an open-access society is that it provides services to the people at large. It must do so if those in power are to stay there. The move from limited to open-access societies is then also a move from the state as master to the state as servant. That is, alas, the move Russia has failed to make. Given the country’s tortured history, this failure is hardly surprising. But it has consequences.

Among those consequences is that Russia’s government views attempts to make the government subservient to the people in countries of the former Soviet Union as a political threat. Because it regards internal relationships as just about power, it views those with its neighbours similarly. So, instead of viewing the emergence of stable democratic governments aiming at the prosperity of their people as an opportunity, it sees them as a threat. It is trapped in an outmoded and dysfunctional view of Russia’s political future. This is a tragedy for itself and an inescapable worry for its neighbours.

The big question is whether Russia will evolve into an open-access society able to take its place as a close friend of the open-access societies to its west. The paper by Prof North and co-authors argues that there are three pre-conditions: a rule of law for the elites; perpetual organisations for the elites; and effective political control over the military.

Russia is not there yet. Maybe it never will be. But a collapse in oil prices would help, by shrinking rents and forcing reforms. The west should also try to help. It must stay true to its own core values. It must also insist that the expansion of Nato is the result of Russia’s history, but will not thwart the achievement of what Russia itself should want: a stable, law-governed, open and prosperous society. Russia can choose irredentism and resentment, instead. But that would be a disaster, for everybody, not least for Russia itself.