Capitalism in Putin's Russia
Steven Pearlstein
Washington Post Business and Economy Columnist
Wednesday, December 10, 2003; 11:00 a.m. ET
Washington Post columnist Steven Pearlstein writes: "There are two schools of thought about what kind of capitalism is developing in Russia. The pessimists ... see Russia drifting away from the sometimes-chaotic American model of free markets toward a corrupt and arbitrary economic regime once again directed from the Kremlin. ... The opposite view comes from western money managers based in Moscow who credit Putin with restoring order to the Russian economy and standing up to the oligarchs who grew fabulously rich while the standard of living for most Russians deteriorated." Read his full column.
Pearlstein was online earlier today to discuss this topic. A transcript of the discussion is below:
About Pearlstein
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
Editor's Note: washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Alexandria, Va.:
What do the IMF and World Bank say about the state of the Russian economy? Are they raising red flags about transparency, corruption, etc.?
Steven Pearlstein: The IMF is probably thrilled with what's going on in Russia. Budget surpluses, good bond rating, lots of new laws passed, talks of more privatization--its all just up their alley. They don't really care much about democracy or political corruption. So, no, no red flags as you call them, punningly.
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Falls Church, VA:
We have friend in Central Asia (formerly part of the Soviet Union) who complain that local government officials bleed small start up businesses to death with arbitrary taxes and demands for bribes. From what you've gathered, is this a problem in small town Russia as well?
Steven Pearlstein: This is a big problem throughout the country and one that Putin has vowed to stop, which is probably in his interests. He wants to clean things up for outside investment and because the Russians themselves want it. At the same time, you can be sure that he also wants to maintain a more high level and sophisticated level of corruption at the top, involving the larger companies, to provide the financing for his political operation.
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Dulles, Va.:
It's not hard to see why Bush likes Putin so mcuh, given the GOP's goal of creating a similar corporatist regime in the U.S.
Steven Pearlstein: I see what you mean.
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Fairfax, Va.:
It appears the Russian people are caught between a rock and a hard place.
Adopt American-style capitalism and end up with 100,000's of fellow countrymen thrown out of work by the ensuing "free market" reforms. Or live in a semi-capitalistic system where the market is controlled by a corrupt government and mafia.
The saddest part is the Russian people will have little to say about what sort of economy develops, just like we Americans do here in this age of Walmart economics and moral bankruptcy amongst the executive class.
Steven Pearlstein: That's about right. The political economy is often about taking the best of bad choices, or trading off short run versus long run benefits. Its not exactly that the Russian people won't have anything to say about it, but the way their preferences will impacton the final decision won't primarily be through the ballot box.
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Moscow, Russia:
Talking of Putin-style capitalism, one should bear in mind that this KGB-style capitalism is inseparable from politics, which means that There Is No Rule of Law There. The regime passes and enforces its laws only in order to trap and devour its business rivals, political opponents, or skin the poor. They swallow Michail Khodorkovsky, charging him with fraud, in order to feed the criminal tycoons of their own. They imprison writer Edward Limonov, the leader of the Russian National-Bolsheviks, on charges of extremism (based entirely on his literary works) and ignore the inciting statements of the notorious KGB mouth-piece, Vladimir Zhirinovsky, threatening the regime's opponents with more assassinations, or calling for a genocidal war against the whole nation.
This blatant disregard of law will inevitably lead from Putin-style to fascist-style capitalism, and the only way to prevent it is to form a broadly based "Anti-Hitler" coalition, comprising all democracies, and using all political, economic and legal levers.
Sincerely,
Andrei Shkarubo
Steven Pearlstein: It seems pessimism is not limited to western think tanks and newsrooms.
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Arlington, VA:
The dichotomy is always drawn between Russia and "the West," but isn't the real distinction between Russian and American standards. It seems to me that European countries allow for cozy business arrangements between government and private sector that would be considered conflicts of interest in the US. The difference, of course, is the existence of functioning judicial systems that can step in when certain lines are crossed.
Steven Pearlstein: That's a very good point, and one I intended to make before I ran out of room. I'd say there is one other distinction: in Russia, the managed economy will be used to keep one party in power in perpetuity, like Mexico and Japan. In Europe, there is a general agreement among all the parties to leave the cozy arrangements the way they are no matter who wins, with all the major parties tapping into the system for their soft money.
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Arlington, VA:
Do the exiled oligarchs, Berezovsky-Elenin (or eLenin, as the Russian press has now dubbed him) and Gusinsky still control any significant holdings in Russia?
Steven Pearlstein: I think they were allowed to get out with whatever they had already squirreled away in Swiss bank accounts, but to tell you the truth I don't know for sure.
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Washington, D.C.:
If there's no internal pressure for change, what is the obligation for Western companies and governments to encourage further reform? From the way you paint it, there's no big money support in the West for change in Russia.
Steven Pearlstein: The big western money actually prefers dealing with state-managed economies, be they in Saudi Arabia or Russia or, say, Chile before the liberalization. Corporations don't care about democracy or freedom or equality of income or any of those things. And they don't care about not having a rule of law for anyone else, as long as their is a rule that says big corporate interests are protected, which is the signal Putin wants to send. Corproations are amoral.
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Washington, D.C.:
How much influence does the EU have on the evolution of Russian capitalism? Are the Germans too invested in the current regime to press Putin for reform?
Steven Pearlstein: The Europeans have greater influence because Putin desperately wants for Russia to be accepted as a major player in Europe, politically, militarily and economically. So he'll maintain as much of a capitalist and democratic facade as necessary to accomplish this task. Because of their own tradition of state-directed capitalism, and their proximity, the Europeans are of greater importance to Putin.
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Gaithersburg, Md.:
As I believe you noted, as long as the average Russian's lifestyle continues to improve, there won't be democratic pressure for change. What measures are there that Russians are doing better now than 5 years ago?
Steven Pearlstein: Their economy is growing at 6 or 7 percent a year and GDP per capita is finally growing rather than shrinking, although things are still very uneven--among regions and classes and even within regions and classes. One figure: life expectancy for males has fallen to 57, which gives you a sense of how much the infrastucture had deteriorated. That's obviously a lagging indicator.
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Nederland, Colo.:
"Putin aims to ... gain control of the commanding heights ... a handful of large, private firms that take their cues from the Kremlin." Should this aim be viewed by we who uphold American ideals, with anything but contempt? If we thought that Presidents Bush or Clinton had such aims, would they not be despised? The views of ordinary Russians were not expressed in your piece --don't they deserve as respectable a president as we do?
Steven Pearlstein: Well, its indisputable that the views of ordinary Russians weren't expressed directly, for obvious reasons. My Russian is a bit rusty. But I think it is fair to say that, even given the rigging of the election, most Russians support Putin because he restored order and got the economy back on track. They don't like oligarchs and think they are crooks who stole their money and assets. So while jailing oligarchs is unpopular in the west, its very popular at home.
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Washington, D.C.:
I find it ironic that the oligarchs are held up as the white knights in Russia, when in fact they were just as guilty as Putin and the Kremlin gang for looting the country. Their motives in supporting the pro-West groups were hardly noble.
Steven Pearlstein: That's a good point, no doubt about it. But having stolen the companies, they now prefer a system based on the rule of law, which is something we generally thing is a good thing. So what should we do when bad people get religion and support what we think of as good policies? Its obviously not a situation lending itself to obvious good guy-bad guy type of judgments.
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Washington, D.C.:
Steve, you've clearly followed economic news for a long time. Are the threats to transparent capitalism and liberal democracy greater today than say 20 or 30 years ago? You offer a bleak assessment in your column and in this chat, a future where Chinese and Russian capitalism is dominant over European and U.S. versions.
Steven Pearlstein: I hope that's not the conclusion you draw because that's not what I mean at all. Transparent capitalism in the end will win out in a competition with state-managed capitalism, not because state-managed capitalism doesn't have some advtanges in some situations, but because it always degenerates into its corrupt form that is very hard to purge. Transparent capitalism has better self-correction mecahnisms when the corruption (Enron) happens.
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Mclean VA:
I cannot understand the blind faith that the WP staff has in the innocence of Michael Khodorkovsky. Daily I read about the indicments of captains of American finance. But that apparently cannot happen to a Russian oligarch without the Post claiming he is being presecuted. PERSECUTED? Please explain the Post use of this word.
Who at the POST is so fancy that they can determine guilt or innocence from such a distance?
If Halliburton ran the aucton for Yukos and then submitted the winning bid of $300 mollion for billions in assests the POSY would be on the issue and properly so. So why the free walk for Khordo...?
Steven Pearlstein: I think you are being unfair. In all of our stories, we say very clearly he stole the companies that went into Yukos, using corrupt means. The question is whether the law is being selectively applied to him because he dared to challenge Putin on economic and political matters. And the answer to that just has to be seen as yes. Peter Baker of our staff did a very careful analysis of the indictment, which showed among other things that he is being prosecuted for activity that was the subject of a settlement with the same prosecutors office just months before, and for which he paid a small fine.
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Chicago:
If there's so much corruption in the Russian economy, why are major funds being established there -- profitable ones at that?
Steven Pearlstein: Because Putin is setting up a system that is safe for western investment. That's the point. But it doesn't mean that its good for Russians in the long run. He uses us. We use him. Mutually beneficial. Just like the Saudi princes. And we don't ask too many questions about how else he's running his country.
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Steven Pearlstein: Thanks for joining in today folks. Keep readuing and writing. See you next week.
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