Sergei Guriev and Ekaterina Zhuravskaya of Moscow’s New Economic School have produced an excellent paper comparing Russia with South Korea. The starting point of their analysis is the superficial similarity between South Korean economic growth performance in the 1980s-1990s, and Russia’s performance in the 1990s and 2000s (i.e., lagged about 11 years). This similarity is sometimes touted as evidence that Russia is the next South Korea development miracle.
Not so fast, there, say Sergei and Katia. There are huge differences between South Korea and Russia. Notably, virtually 50 percent the latter’s growth is (per calculations by Guriev and Tysvinski cited in the paper) is attributable to natural resources (notably oil), whereas none of Korea’s is.
More importantly, the authors emphasize that when evaluating future prospects for growth, it is necessary to take account of the staggering institutional gap between Russia and Korea. By all measures, both contemporary, and comparing Russia today to South Korea in the late-1990s, Russia’s institutions are extremely weak relative to Korea’s, and this weakness is inimical to growth. Sergei and Katia argue that, without a substantial improvement in Russia’s political and economic institutions, notably its protection of property rights, Russia has no chance at being a Eurasian Tiger. No chance.
And here’s where their analysis is particularly pessimistic. They emphasize the interaction between the resource rents that have accounted for huge share of Russia’s growth, and the prospect for developing growth-supporting, modernization-supporting institutions; specifically, they note that the resource curse undermines the development of robust market-supporting institutions. They further note that, consistent with the predictions of a good portion of the resource curse literature, the energy and resource boom in Russia has led the elites to take measures to reinforce the status quo in order to protect their access to resource rents. That is, the resource boom has coincided with a weakening of institutions, and the still-birth of any modernization efforts. (The reinforcement of the power vertical and the erosion of federalism are the main examples they discuss.)
None of this should be a shock to SWP readers. Guriev and Zhuravskaya are advancing arguments and evidence that I’ve been making for the past four years.
For those giddy with the success of a bond sale, or the nascent signs of a Russian economic recovery on the back of strong oil prices, the Guriev-Zhuravskaya analysis should be a bracing corrective. The long term prospects for Russia’s development as anything other than a resource appendage, at the mercy of the economic prospects of the rest of the world (which determine the demand for the country’s resources), depend crucially on the development of strong institutions that constrain kleptocracy, corruption, expropriation, and rent seeking. But, ironically, the dynamics of a resource-oriented polity are inimical to the development of those strong institutions.
This implies, as G-Z state,
that Russia’s long-term prospets are rather bleak. . . . Russia is very likely to embark on a slow-growth trajectory. Even in the best-case scenario, it will not catch up with the advanced economies in the foreseeable future, and in the worst case, Russia will follow the fate of the Soviet Union.
Put differently, in SWP-ese: Russia: In economic purgatory for the foreseeable future.