The social Matrix

The social Matrix

Wednesday, February 15, 2012

Russia-the political economy of corruption

The United States isn’t the only superpower gearing up for a heated political performance, Russia’s Vladimir Putin, is looking to seize the crown of the Kremlin for the march 4,  election. In a 5,000 word article for Russian business newspaper “Vedomosti” Putin explained his platform for improving and stabilizing the Russian economy.

We need an economy with competitive industries and infrastructure, a developed service sector, and effective agricultural system. An economy founded on modern technology, Putin said.

Since the start of Putin’s political career as Prime Minister, there have been numerous economic reforms implemented including, establishing a flat income tax, creating a new bankruptcy laws, and reducing business taxes after introducing a Value-added tax.

Putin also transformed the private energy companies into state-owned enterprises in an effort to curtail foreign control of Russia’s natural resources.

In 2007, Russia signs of economic improvement. Trade and foreign Direct investment (FDI) both grew rapidly during Putin’s administration. From 2000 to 2007 Trade increased from $89 billion dollars to $300 billion and exports exceeded imports by $130 billion Likewise FDI increased in the same year from $5 billion to $52 billion.

Following the appointment of Putins successor, Dmitry Medvedev, there were some signs of the economy was stagnating. According to Putin, his successor has failed to improve the corrupt business environment.

A series of Wikileaks released in 2010 confirmed growing suspicions over Russia’s corrupt system. The report found that, the Mayor from Moscow, Yuriy Luzhkov, had connections with the criminal world and used bribes to help give the ruling party votes.

The corruption is manifested in different forms including, arms trafficking, money laundering and protection for criminals to extortion and kickbacks.  According to the Wikileaks report, governmental departments like the Federal Security Service, the Minister of Internal Affairs and the police department have taken part in this corruption by offering businesses a layer of protection for a fee. When the business refuses or can’t pay the fee regulatory agencies find some reason to close the business even on minor violations charges.

There have even been allegations by Spanish investigator Jose Gonzalez that Russia has actively supported Iran and Kurdish groups in Turkey.

During the Putin administration many world leaders were reluctant to criticize the then-prime minister Putin. In a past G-8 meeting then-French president Jacques Chirac said that other countries should mind their own business. German Chancellor Gerhard Scroeder went further and was awarded for his silence over Russian corruption by becoming the chairman of a company owned by Gazprom, Russia’s largest energy state-owned company.

Although neither Putin nor Medvedev have successfully transitioned the Russian economy from natural resources to knowledge based, (the number of patents to come out of Russia is less than one percent of total patents worldwide)  the influx of billions of dollars’ worth of remittance has improved the economy. Even with this fact taken into consideration Russia still earns less from exports than Belgium.  According to Nicholas Eherstadt, Hendry Wendt Chair in Political Economy at the American Enterprise Institute, Russia needs to create policies to increase global output.

It will be interesting to see if Russia’s political transformation will influence the political debates in America over foreign policy during the political season.

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