Wed, Dec 07, 2011 - Page 9 News List

Cronyism and nepotism still run rampant throughout Russia

By Pierre Buhler

The winner of Sunday’s legislative election in Russia was a foregone conclusion: United Russia, organized by Russian Prime Minister Vladimir Putin. Likewise, there is no doubt that Putin himself will win the presidential election in March next year. However, the public enthusiasm that ratified Putin’s rule for a decade has vanished, something demonstrated by the poor performance of his party in the just concluded elections to the Duma.

Unlike Europe, beset by a sovereign-debt crisis, and the US, whose leaders are wrangling over how to stem the deficit, Russia may look like an oasis of stability and continuity. However, that continuity is more reminiscent of the zastoi, or stagnation, of the Brezhnev era.

Eight years of 7 percent average annual GDP growth during Putin’s previous presidency (2000-2008) allowed Russia to repay its debts, accumulate almost US$600 billion in foreign currency reserves and join the leading emerging economies. A decade after the 1998 crisis brought Russia to its knees, its leaders boasted that the country could weather the 2008 financial crisis.

Given Russia’s economic fundamentals, Putin’s diminished popularity might appear surprising. The IMF’s forecast of 4 percent growth this year and subsequent years puts Russia well behind China and India, but far ahead of average growth rates in the rich G7 countries. Moreover, Russia’s budget would be balanced as long as oil prices remain above US$110 per barrel.

Longer-term trends have also improved. Rapid demographic decline has been brought to a halt since the turn of the century (a time when coffins outnumbered cribs by seven to four), as generous government subsidies for a third child have boosted the fertility rate from its 1999 low of 1.16 children per woman to 1.58 last year. That is still far below the replacement rate of 2.1, but higher fertility, together with successful measures to reduce male mortality, has slowed the pace of population shrinkage.

Russia remains essentially a “rentier state” — that is, a state whose primary source of revenue is rent; in this case, oil and gas — rather than taxation, which thus keeps demands for political representation at bay. Instead, the state is the target of political entrepreneurs who strive to capture it in order to capture the rents that it controls.

Russia has most of the usual features of rentier states: autocracy, weak political and judicial institutions, arbitrary governance, lack of the rule of law, little transparency, restraints on freedom of expression, widespread corruption, cronyism and nepotism. Also common to rentier states are short investment horizons, vulnerability to commodity-price volatility — euphoria when they surge, crisis when they collapse — and an underdeveloped and uncompetitive manufacturing sector.

Today’s Russia is a gigantic reservoir of raw materials and its economy relies heavily on commodities — mining and drilling. Russia is the world’s largest oil and gas exporter, sitting on more than 25 percent of total proven gas reserves. Those commodities account for over two thirds of the country’s export earnings and are the primary source of state revenue.

The impact on governance is all too predictable. This year, Transparency International’s “corruption perception” index ranked Russia 143rd out 182 countries, on a par with Nigeria, and 182nd out of 210 for “control of corruption,” one of the World Bank’s worldwide governance indicators. Regarding the rule of law, there has been only minimal improvement, with Russia ranked 156th.

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