Source: Carnegie
As published in Moscow TimesMarch 14, 2003
Anders Åslund is a senior associate of the Carnegie Endowment for
International Peace. He contributed this comment to The Moscow Times.
Oligarchs are often blamed for corruption in Russia. It is true that they
have a habit of spending large amounts of money on "individualized
government services," but the nature of corruption has changed radically
in
the post-Communist period, and overall corruption has undoubtedly declined.
That is evident from personal observations and from major enterprise
surveys conducted by the European Bank for Reconstruction and Development
in 1999 and 2002. Rather than just blaming oligarchs or government
officials, we need to look at the supply of, and demand for, relevant
public goods and services.
In the early 1990s, the main beneficiaries of bribes were the key
regulatory agencies, the Fuel and Energy Ministry, the Foreign Economic
Relations Ministry and the Central Bank. Today, none of these institutions
is perceived as being particularly corrupt. All kinds of licenses and
quotas for energy and foreign trade have been abolished. Officials in these
agencies have little left to sell, and the demand from the private sector
has faded. Deregulation is the quickest and best cure against corruption.
Privatization amounted to a big, one-time grab, which temporarily boosted
corruption but then led to its reduction. Today, it is apparent how
important privatization was for the decriminalization of the economy. Most
state companies were sad stories of management theft with little or no
consideration for the development of the enterprise or the well-being of
their employees. Such problems remain in state or semi-state enterprises,
while for the most part they are history in long privatized enterprises.
While corruption was standard in Soviet enterprises, it is now mainly
considered a plague of the bureaucracy. In hindsight, it is clear that it
is much more important that enterprises were privatized than how they were
privatized. The owners who make them succeed are more often than not the
second or third owners following privatization.
Poland provides a sad contrast in this regard. Many large enterprises there
are still state-owned, notably in the coal and steel industries, while
their counterparts in Russia have been privatized. They continue to make
losses, extract subsidies and their production is not taking off. Russia
was evidently wise to sell off its large enterprises early regardless of
the price. Poland is stuck in a huge corruption trap: State corporations
are patently corrupt, and they corrupt and discredit every government that
tries to manage them. Russia has managed to throw away this poisoned
chalice, with only a few major enterprises remaining in state ownership.
Yet the major state-owned energy corporations pose a problem and should be
privatized as soon as possible to mitigate corruption. The stock market
greeted the recent Slavneft "auction" with relief because the most
important thing was that it took place. Privatization "at all costs"
has
ultimately reduced corruption in the Russian economy.
Alas, although deregulation and privatization have gone far, the oligarchs
continue to spend huge amounts of money on the state. The largest sums seem
to be spent on paying off extortioners from the federal authorities,
financing national parties and gubernatorial election campaigns. These
items are closely related, and it is often impossible to distinguish what
is extortion and what is the bribery.
The fundamental problem is that the oligarchs lack secure property rights.
Before each election, they have to fund political parties in order to
secure their property rights for a few more years. The oligarchs typically
fund several parties because some parties are honestly interested in
securing property rights, while others extract tribute for leaving them alone.
At the regional level, property rights are undermined by discretionary
gubernatorial powers over taxation and property. Norilsk Nickel beat
Russian Aluminum in the Krasnoyarsk gubernatorial election in Krasnoyarsk,
reportedly spending much more money on the election because it pays much
more in taxes there than Russian Aluminum.
The current pre-election situation is telling. Politicians are focused on
raising funds from oligarchs while ignoring electoral programs, party
organization and voter mobilization because they depend more on oligarchs
than on their voters.
Although the outcome of the elections appears evident, the oligarchs keep
spending. They must nurture their relations with the governing party, yet
are also anxious that pro-presidential parties not achieve a two-thirds
majority in the State Duma, which would allow them to amend the
Constitution. ("More than eight years of President Vladimir Putin would
be
too much of a good thing.")
The symbiotic relationship between political parties and the oligarchs is
surprisingly transparent. Voters see it, and they are disgusted by the
whole political system. This situation is reminiscent of unstable
oligarchic democracies in Latin America.
Attacking the oligarchs only aggravates the problem. Whenever Putin
criticizes them, their spending both on presidential parties and the
opposition appears to rise. And no prohibition can constrain such powerful
figures.
Paradoxically, to reduce corruption of the political system Putin needs to
guarantee the oligarchs' property rights. Then they would feel less need to
succumb to extortion or to pay parties to defend their property rights. The
rational approach would be legislate an ironclad guarantee of property
rights starting from a certain date. A natural choice would be Jan. 1,
2000, when Putin came to power declaring that the rules of the game had
changed. Such an amnesty would also revive the housing market and other
property markets marred by challenges to property rights.
The national parties would face financial distress, which would force them
to organize, formulate credible electoral programs and mobilize their
voters, thereby strengthening democracy.