March 12th, 2010

Crumbling at the Center

The Economist argues in the recent article, “Modernising Russia: Another great leap forward?” that President Medvedev’s efforts to modernize Russia by creating a Russian version of Silicon Valley without strengthening institutional weaknesses is the result of an authoritarian regime that trumpets the state as the “only force capable of making Russia great and respected again.”

As the article points out, changes to the existing system threatens not only the power and legitimacy of the existing ruling elite, but their immense wealth as well

Russia’s ruling elite, which consists of a corrupt bureaucracy, the security services and a few oligarchs, lives off the rent from natural resources or administrative interference in the market. Competition and the rule of law undermine this arrangement. Corruption holds it together, and ensures the loyalty of the bureaucracy.

The conflict between real modernization and the vested interests of this bureaucracy is summed up in the fate of Mikhail Khodorkovsky, once Russia’s richest man and now its most famous political prisoner.

Russia’s institutional weaknesses are well known, weak rule of law, endemic corruption, no respect for property rights and governmental favortism in dealing with the private sector and weaken Russia from within. Without political competition and property rights protection, capital investment in Russia will remain anemic.

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