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Sunday, May 13, 2007

Point-Counterpoint: Is Russia like China?

Writing in the National Review, here's Charles Krauthammer on Vladimir Putin in light of Borish Yeltsin:

Twenty years ago, Yeltsin made a strategic choice for democracy. Putin and his KGB regime have made a different strategic choice: the Chinese model. They watched two great powers take their exits from Communism—Maoist China and Soviet Russia—and decided the Chinese got it right.

They saw Deng Xiaoping liberalize the economy while maintaining centralized power—and achieve astonishing economic success. Then they saw Gorbachev do precisely the opposite—loosening the political system while keeping an absurdly inefficient Communist economy—and cause the collapse of the regime and the state.

Yeltsin’s uncertain, undisciplined, and corruption-ridden attempt to deregulate both the economy and the political system caused such chaos that during his tenure, GDP fell by half. So Putin decided to become Deng. And while Deng destroyed democratic hopes in one fell swoop at Tiananmen Square, Putin did so methodically and gradually. By the time his goons beat up opposition demonstrators in Moscow and St. Petersburg earlier this month, so little was left of Russian democracy that the world merely yawned.

Yeltsin is not the first great revolutionary to have failed at building something new. Nonetheless, it is worth remembering what he did achieve. He brought down not just a party, a regime, and an empire, but an idea. Communism today survives only in the lunatic kingdom of North Korea, in Fidel Castro’s personal satrapy and in the minds of such political imbeciles as Venezuela’s Hugo Chavez, who can sustain his socialist airs only as long as he sits on $65 oil.

Outside of college English departments, no sane person takes Marxism seriously. Certainly not Putin and his KGB cronies. In the end, Yeltsin succeeded only in midwifing Russia’s transition from totalitarianism to authoritarianism with the briefest of stops for democracy—a far more modest advance than he (and we) had hoped, but still significant. And for which the Russian people—and the rest of the world spared the depredations of a malevolent empire—should forever be grateful.

Here's the response of blogger Streetwise Professor:

The usually (very) sensible Charles Krauthammer compares Putin to China's Deng Xiaoping. This comparison is way wide of the mark. The main similarity is that Deng and Putin took a non-idealogical approach to economic issues. Perhaps both view (or viewed) a strong economy as the foundation of a muscular state able to project power and restore their respective nations to Great Power status. These similarities in objectives do not extend to means.

Although China post-Deng has hardly respected the property rights of ordinary Chinese, it has not run roughshod over the property rights of investors, especially foreign investors, in the way that has become routine in Russia. China has not engaged in widespread expropriation. It has not dismantled leading corporations on false pretexts. Moreover, even though state owned enterprises are still prominent in China, that nation has been weaning (albeit slowly) inefficient nationalized companies from state support. In contrast, Russia is engaged in an aggressive effort to restore leading firms in every sector deemed “strategic” to state ownership and/or control.

In brief, while Putin may admire Chinese success in achieving strong economic growth while retaining state control over virtually all political activity, his means on the economic side are far different than those the Chinese have employed.

Nor has Russia achieved the same economic results as the Chinese. While Putin struts and crows about 6 percent economic growth over a handful of years, China has been growing at 8 percent for far longer. And Chinese growth has not been steroid (I mean to say energy price) enhanced. Russia’s growth is largely, though not completely, attributable to high energy prices. In contrast, high energy prices (driven to no small degree by robust Chinese demand) have constrained Chinese growth. Moreover, much recent Russian growth is catch-up from the economic collapses post-USSR and post-1998. Considering the windfall arising from strong energy prices, and that much of Russian growth reflects a return to more complete utilization of its economic capacity, rather than a growth in that capacity, and Russian growth looks much less impressive. Indeed, as Andrei Illironov has written, in the past two years Russian growth has lagged behind 12 of the 14 other post-USSR countries, most notably the Baltic states, but also other nations without the same human capital and natural resource endowments as the Russian Federation.

In brief, the Chinese transformation–and the Chinese model–are much different than the Russian. I am no Sinophile, and dislike that nation’s political system and much of its economic system, but viewed objectively it has done better than Putin’s Russia hands down. There are shaky supports to the Chinese economy–most notably its banking system–but it is on a far firmer footing than Russia’s. And Putin’s Commanding Heights-state driven-siloviki managed model will not encourage future economic growth. It is probably the best model if you are a former (or current) member of the state security apparatus looking to siphon rents, but it is far inferior to the Chinese model–and miles behind that dreaded Anglo-Saxon model–when it comes to providing broad-based economic growth that redounds to the benefit of the larger population.

Insofar as redounding to the benefit of the larger population is concerned, a couple of closing comments. First, there is no doubt that most Russians have seen a marked improvement in their standard of living. In this respect, Putin is reaping the benefits of very low expectations and the horrific experiences of the 1990s, as well as the aforementioned windfall from higher energy prices.

Second, as North et al emphasize in their analysis of the “natural state” (discussed here), there is a tension between an economy built on rent seeking and rent extraction that primarily benefits the connected elite but benefits the unconnected masses far less. Economic development that benefits a wide swath of the population that is largely deprived of political voice and representation is eventually what Avner Greif describes as “self-undermining.” Thus, natural states–of which Russia is an exemplar–are threatened by broad-based economic development that encourages the growth of a middle class.

And I think this is where Putin admires the Chinese most. They have heretofore succeeded navigating this tricky transition, and if Putin is looking east for inspiration, it is in this sphere where he is looking hardest. The ruthless campaign against any political opposition, no matter how puny, and the relentless drive to extend state control over great swaths of the economy in spite of the clearly adverse implications of this for economic growth, are manifestations of his strategy to maintain the natural state that benefits him and his fellow siloviki.

1 comment:

Anonymous said...

elmer here.

I believe Streetwise Professor has it right on this.

And I hope that Russia finally breaks its historical habit of horrid governments.