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Op-ed

There Is Nothing Normal About Corruption

by Anders Aslund, Peterson Institute for International Economics

Op-ed in the Moscow Times
April 23, 2008

© Moscow Times


In 2004, Foreign Affairs published a seminal article by professors Andrei Shleifer and Daniel Treisman, arguing that Russia was a "normal country":

"Russia was in 1990, and is today, a middle-income country with GDP per capita...comparable to Argentina in 1991 and Mexico in 1999. Almost all democracies in this income range are rough around the edges. Their governments suffer from corruption, their judiciaries are politicized, and their press is almost never entirely free. They have high income inequality, concentrated corporate ownership and turbulent macroeconomic performance. In all these regards, Russia is quite normal."

Berkeley Professor Steven Fish noted that Russia was "just as corrupt as one would expect it to be, given the prominence of natural resources in its exports." The oil revenues are a cause of the country's authoritarianism and corruption, but both have become quite extraordinary.

The only country with a higher income per capita and more corruption than Russia is Equatorial Guinea.

Over the past eight years three major factors have defined the state of affairs in Russia. First, the country's gross domestic product has grown by 27 percent a year in dollar terms. Second, the country has moved from being partially democratic to authoritarian. Third, its level of corruption has not decreased according to the measurements of the World Bank, the European Bank for Reconstruction and Development, and Transparency International, while corruption has abated elsewhere. In these regards, Russia is no longer normal, but extreme.

Many draw parallels between Russia and China, but even today, after 30 years of high economic growth, China's per capita GDP at current exchange rates is merely one-quarter of Russia's. Unlike Russia, China is still a developing country; it may be more authoritarian, but Transparency International assesses it as less corrupt.

By the standards of US political sociologist Seymour Martin Lipset, Russia is too rich, too educated and too open to be so authoritarian. The faster the country grows, the greater this contradiction between an increasingly obsolete political system and a swiftly modernizing economy and society. It is likely to be untenable even in the medium term.

No modern society can function without a debate on policy issues, the ability of opposition groups to oppose the government, or institutional checks and balances. A Russian president cannot make important decisions when he intentionally cuts off all channels for criticism and concentrates so much of the decision-making process around himself. During President Vladimir Putin's reign, the Kremlin has become too rigid and centralized to handle crises. Therefore, it would be difficult to consider this regime stable.

Authoritarian rule is often used by rulers to hide and sustain their corruption. According to Transparency International, the only country with higher income per capita and more corruption than Russia is Equatorial Guinea. That is hardly a standard worthy of a great nation.

Russia has grown faster than similar countries like Argentina and Mexico, but it has become more authoritarian and corrupt. The conclusion is not that authoritarianism and corruption are good for development, but that Putin has been lucky. Having been blessed by the good fortune of high oil prices, Putin was able to make the government as authoritarian and corrupt as he wanted.

There are several reasons that the Kremlin's dictatorship may be in danger of collapsing in the near future. First, opinion polls show that Russians are as upset as any other people about corruption and that they have more of it.

Second, the mismanagement of the large state corporations and alleged kickbacks of 20 percent to 50 percent on major infrastructure projects have gotten out of control. In other corrupt countries, people are upset at mere 2 percent kickbacks. Russia's corruption is one of the largest in terms of the absolute amount individuals receive and the relative share of the kickbacks. Claims that close friends of the president are stealing billions of dollars from the state or private businessmen abound, but so far the president has never reacted, which suggests that he sanctions such activities.

Third, and to his credit, Putin has decided to step down as president, which means that Russia will have an ambiguous, dual power structure. Ironically, both Putin and Medvedev feel forced to claim that they are pursuing an anticorruption campaign. Unfortunately, Putin is set to become party leader and head of government, the two posts that Joseph Stalin held during the last decade of his rule.

Russian public officials have to declare their wealth and income, but in most cases they file inaccurate or false statements. Moreover, many ministers own major companies in the industries that they regulate. If the government is serious about fighting corruption, it needs to battle against obvious conflicts of interests between business and the government.

Since February 2004, a large number of publications have claimed that multibillionaires Gennady Timchenko of Gunvor oil trading company and Yury Kovalchuk of Bank Rossiya are intermediaries for Putin's personal business interests. President-elect Dmitry Medvedev—or at the very least the Public Chamber or the Audit Chamber—should order an investigation of such links. Interestingly, we have learned a great deal about the economic interests and lives of Timchenko and Kovalchuk in the last half year, while they were virtually unknown before.

Can anything be done as long as the Putin clique stays in power? Yes, quite a few things can be done. The Russian Internet is full of interesting and detailed information about every conceivable corruption story. Unfortunately, few Western correspondents in Moscow dare to touch this issue. How long will they miss the greatest corruption story in history? Ordinary investigative journalism could do wonders.

Needless to say, a state as corrupt as Russia is far from being strong; it is dysfunctional and weak. Corruption poses a systemic threat to the quality of education, health care, and the stability of the state as a whole. The government's inability to carry out major infrastructure projects is a good example of its fundamental weakness. The country suffers a desperate shortage of qualified labor because much of the education system has been eroded by corruption, and the government has made no attempt to clean it up.

Ironically, the biggest hope that anything will be done against corruption comes from Putin's high-level ex-KGB friends, who are now arresting one another and their mafia liaisons for corruption. As getting rid of competitors is the surest path toward political power, this may prove to be one of the most effective weapons for fighting corruption.


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