Fruits of Good Governance

The resumption of capital flight from Russia is a predictable response to the Russian government’s onslaught on the Yukos and Michael Khodorkovsky. It’s a sad time both for investors in Russia, and for all those who still hope that Russia will develop along more or less Western lines. Both the symbols and habits of autocracy are re-establishing themselves. This is not a return to communism. But it may mark a drift back to what the historian Richard Pipes called the ‘patrimonial state’, in which state power is uncontrolled by secure rights of private property.

Kremlin actions in the Yukos affair are inexplicable except on the hypothesis that it was determined to destroy Russia’s most successful company –first by destroying its ‘brain’, Khodorkovsky, who was deemed a political threat to the President, then by redistributing its assets at knock-down prices to Kremlin-friendly businessmen: and all with a sublime indifference to what the rest of the world might think.

Forget the legalism: all autocrats have found a legal pretext for their actions. The real flaws in the privatisation of state assets could have been corrected in much more efficient ways – through a ‘windfall tax’, for example.

At first I inclined to the view that it was sheer incompetence which prevented the state authorities from pursuing rational problem-solving strategies. Now I am more inclined to the theory of malignancy. The steps taken to dismantle Yukos make perfect sense from the point of view of the power holders in the Kremlin. The fact that they damage the interests of Russia did not enter their minds.

This raises the question: what does one mean by ‘good government’ in a global economy –one that enables a country to prosper and become a respected member of the international society?

The first step is to have something recognisable as a government. Russia does not have a government, it has the Kremlin.

A second requirement is to have an Administration capable of conducting business in an orderly, coherent, and reasonably public-spirited way. Russia does not have an Administration in this sense – there is simply a collection of conflicting private interests fighting each other for the Prince’s ear and little sense of collective responsibility.

A third requirement is transparency. People need to know what is going on, otherwise the whole society is awash with rumours. But the doings and calculations of the Kremlin have all the mystery of an Oriental court. No one know what the policy is. Is the attack on Yukos a one-off event? Or is it the first shower in a storm which will sweep away all the Yeltsin generation of oligarchs?

A fourth requirement is active accountability. It is not enough to have rigged elections, bought deputies and journalists, and manipulated television and call it democracy. Continuous scrutiny of government actions, from a variety of independent sources, is essential not just to prevent or correct grave errors of policy, but to stop large deviations between the private interests of rulers and the public interest.

The lack of these requirements will not stop people making money in Russia, or even the growth of the Russian economy. But Russia will continue to perform well below potential. A profound contradiction has emerged between the way President Putin governs Russia and his aim of restoring Russia as a great nation. Does he understand this? How many Russians understand it?