How Putin?s crackdown holds Russia back

July 31, 2012

Free Market Foundation

If there is any causal relationship between authoritarianism and economic growth in Russia, it is negative, say Michael McFaul, a senior fellow with the Hoover Institution, Kathryn Stoner-Weiss, Associate Director for Research and Senior Research Scholar at the Center on Democracy, Development, and the Rule of Law at Stanford University.

Russia’s more autocratic system has in the last several years produced more corruption and less secure property rights which, as studies by the World Bank and the European Bank for Reconstruction and Development demonstrate, tend to hinder growth in the long run:

Asset transfers have transformed a thriving private energy sector into one that is effectively state-dominated (private firms accounted for 90 per cent of Russian oil production in 2004; they account for around 60 per cent today) and less efficient.

Re-nationalisation has caused declines in the performance of formerly private companies, destroyed value in Russia’s most profitable companies, and slowed investment, both foreign and domestic.

Perhaps the most telling evidence that Putin’s autocracy has hurt rather than helped Russia’s economy is provided by regional comparisons. Strikingly, even with Russia’s tremendous energy resources, growth rates under Putin have been below the post-Soviet average, say McFaul and Stoner-Weiss:

In 2000, the year Putin was elected president, Russia had the second-fastest-growing economy in the post-Soviet region, behind only gas-rich Turkmenistan.

By 2005, however, Russia had fallen to 13th in the region, outpacing only Ukraine and Kyrgyzstan, both of which were recovering from “colour revolutions.”

Between 1999 and 2006, Russia ranked ninth out of the 15 post-Soviet countries in terms of average growth.

Similarly, investment in Russia, at 18 per cent of gross domestic product (GDP), although stronger today than ever before, is well below the average for democracies in the region.

Source: Michael McFaul and Kathryn Stoner-Weiss, The Myth of the Authoritarian Model: How Putin’s Crackdown Holds Russia Back, Foreign Affairs , January/February 2008.

For text: http://www.foreignaffairs.org/20080101faessay87105/michael-mcfaul-kathryn-stoner-weiss/the-myth-of-the-authoritarian-model.html

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FMF Policy Bulletin/ 18 March 2008