An article on the McClatchy wire states that the Russian oil industry is facing a dire future due to “the practice of reaping quick profits and ignoring long-term interests.” This is no big surprise to those who understand the effects of insecure property rights on the incentives to (a) invest in specific assets, and (b) take as much as you can grab today because it may not be yours tomorrow. There are few assets more specific than an oil well. If you invest wisely today to maximize the present value of the well’s future output, that does you no good if you’re not around to claim those future flows (because, for instance, you’re rotting in a jail in Chita.) So, to hell with the future–maximize what you can produce today, even though that impairs the well’s long run value.
This is somewhat ironic because in the early days of the oil boom, the property rights regime in the US favored accelerated depletion of wells due to its failure to address the common pool problem, whereas Tsarist Russia encouraged a longer view. This was reflected, in part, by the far larger number of wells drilled in the US to produce a given amount of oil. In the US, competing producers (including wildcatters) drilled wells to get the oil from a given pool before somebody else did. This wasteful competition was attenuated in Russia.
Short-termism is clearly an important–and arguably the dominant–source of friction between BP and its Russian partners in BP-TNK. The Russians want to maximize current cash flows, BP wants to take a longer view. This short-termism is also likely an important cause of the relatively low rate of fixed investment in Russia. And this short-termism is a direct result of the insecurity of property in Russia. The constant threats of state expropriation and corporate raiding a la Russe will continue to impede Russian economic growth.
The contrast with China is of some interest. Formal property rights are absent in China too, but China’s rulers act more like “stationary bandits” (in Mancur Olson’s felicitous phrase) with an “encompassing” interest in the long run health of the nation’s economy. They apparently figure they have a high probability of being around for awhile, and therefore temper their short term exactions in order to enhance their future take. Thus, property rights are informally protected and relatively secure (by comparison to the Chinese past and Russia, but not to the US.)
Russia’s rulers, by contrast, act like Olson’s “roving bandits.” Apparently insecure in their future prospects, they lean towards taking today and letting the future take care of itself. The Putinists probably have a longer view than the pirates of the 90s, but they clearly have shorter time horizons than their Chinese counterparts. In an environment where competing clans vie for control, this is probably a rational view. My clan may control asset X today, but who is to say that the competing clan may not seize it tomorrow? So rather than enhance X’s future potential, grab as much as I can from it today.