Streetwise Professor

January 31, 2012

A Man WIth A Hammer Who Sees Only Nails

Filed under: Economics,Politics,Russia — The Professor @ 8:14 pm

Vladimir Putin wrote a long piece (5K words) in Vedemosti outlining his plans for Russia’s economy. It is bizarre, in a way, because he lays out a variety of different programs and identifies some serious problems with the system, which raises the question: what has he been doing the last 12 years?

His vision for transforming Russia from a resource-extraction dominated economy to a modern, innovation-based one, such as it is, relies heavily on state involvement.  The reason?: “Private capital will not voluntarily enter new sectors as it does not want to bear elevated risks.”

Well, why not? This isn’t a problem in other economies.

Putin acknowledges that the problem is institutional.  Specifically, institutionalized corruption and the lack of a reliable legal system make private businesses unwilling to invest “private capital” that can be taken in a trice.:

“The main problem is insufficient transparency and accountability on the part of state officials,” Putin wrote. “To call it by name, we are talking about systemic corruption.”

“Clearing the way for business that is ready to win in fair competition is a fundamental, systemic task … We need to change the state itself – executive and judicial power.”

Putin said Russia, ranked 120th in a World Bank investment climate survey, should seek to catch up with neighboring Kazakhstan, which is in 47th spot.

He called for business cases to be moved from criminal to commercial courts to break a cycle of collusion between police, investigators and judges that all too often ends in convictions.

Wow.  Aiming to catch up with Kazakhstan.  That says it all.

The diagnosis is actually spot on.  But again: what has he been doing the last 12 years? It’s not like these problems are new, or haven’t been pointed out again and again.

And how credible is it to say that he will do anything different in the future?  The corruption and legal nihilism are essential parts of Putinism.  Moreover, how credible is it claim that the new state corporations in the technologically dynamic sectors (such as pharmaceuticals) will be any less plagued by inefficiency, rent seeking, and corruption than the existing ones?

In sum: an acknowledgement that the existing system is fundamentally flawed, with no credible way to transition to a less-flawed one.  As I’ve said before: the hamster wheel from hell. The fact that the only way Putin can see to change the Russian economy is to continue to rely on extensive state involvement reveals him to be completely out of ideas.  Or, put differently, that he has only one idea.  He has a hammer–state directed investment–and every problem is a nail.

Putin’s intellectual bankruptcy foretells of a future of stagnation, not stability.  It further reveals that he is not Oz, but just a little man behind the curtain.  Which is why other members of the elite are openly sounding out, in places like Davos, the need to change the system.  No doubt these are just surface ripples.  Like the wake of a submarine, detected with a synthetic aperture radar.   If there are such things on the surface, something much bigger is moving deep below.  Putin’s weakness, and the palpable staleness of his thinking, is sparking bargaining  among the elites.   He used 5000 words to tell them–and the world–that he is not the future.   The future is now up for negotiation.

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  1. But again: what has he been doing the last 12 years?
    Sticking his incompetent buddies in every nook and cranny. What else?

    Anyway. I bet he didn’t read it, much less write it.

    Comment by So? — January 31, 2012 @ 10:20 pm

  2. Private capital will not voluntarily enter new sectors as it does not want to bear elevated risks.

    “Especially when one such elevated risk is the state gas company helping itself to private oil and gas developments with the personal approval of me.”

    Comment by Tim Newman — January 31, 2012 @ 11:31 pm

  3. Putin explicitly made a comparison to South Korea and China as examples of countries where the state has played an active and positive role in fostering modernization.

    Опыт успешной модернизации экономики таких стран, как Корея и Китай, показывает, что толчок от государства нужен, что его эффект перевешивает риск ошибиться. Без целенаправленных усилий диверсификацию осуществить будет сложно. Но, понимая все риски избирательности, мы должны сделать политику выбора приоритетов и государственной поддержки максимально прозрачной, открытой для оценки и дискуссий со стороны конкурирующих фирм и профессиональных сообществ.

    I read the Vedomosti article in full and I firmly believe Putin has the right vision for Russia’s economic development.

    Comment by Sublime Oblivion — February 1, 2012 @ 12:19 am

  4. @So? Agreed
    @Tim Agreed
    @Sublime retardation, well you would say that wouldn’t you. Geeze man, go back home to Russia! You would raise the average IQ of both the US and Russia by doing so.

    Comment by Andrew — February 1, 2012 @ 2:21 am

  5. […] – On Putin’s vision. […]

    Pingback by FT Alphaville » Further reading — February 1, 2012 @ 2:25 am

  6. So you peg my IQ at around 97.5? That is a remarkably precise estimate, Andrew.

    Comment by Sublime Oblivion — February 1, 2012 @ 2:49 am

  7. SO?’s bet is undoubtedly safe, since we know for sure Putin didn’t right his university thesis, but rather simply plagiarized it. And in fact, he likely did not even do the plagiarizing himself, but rather paid somebody else to do it. So Putin is even more intellectually bankrupt than even SWP imagines.

    Comment by La Russophobe — February 1, 2012 @ 7:02 am

  8. Hey, SUBLIME PSYCHOPATH, thanks for confirming that the USA is a significantly smarter country than Russia. Of course, one already knew that based on the vast disparity of Nobel prizes for science and literature, but it’s nice to have empirical confirmation!

    Comment by La Russophobe — February 1, 2012 @ 7:04 am

  9. Ekaterina…LaRussophobe…Young. Well I was half right about Phobie’s identity. 🙂

    Anyway…Andy Dzughashvili, you can stick around. I’m checking out of this Russophobic sewer where hatred of Russia once again trumps love of civil or religious liberties or even rational economics (cuz maintainting military bases in 120 countries is just a teesny part of the U.S. budget during a period of trillion dollar annual deficits…sure).

    I bet SWP thinks it serves all those Catholics right, they oughtta have to just have to issue a full body prophylactic to everyone who comes into a Catholic hospital or pay for abortions. Cuz it’s not their body after all. While we’re at it, why doesn’t the Obama Administration mandate that Orthodox Jews serve ham at every kosher deli? Since y’know, they don’t have to eat it.

    I’m done being lectured by a Kiwi turned crazed Georgian nationalist about how as an American taxpayer it’s my duty to subsidize a bunch of former Soviet states as America’s client states, with a tie-eating dope-addled maniac in the lead for handouts. And by a rambling Norwegian old fart who does most of his posts at 3 a.m. Oslo time (just sayin’, hope he’s not hitting the bottle :).

    And being told that Ron Paul is some sort of Nazi by people who don’t live in this country, and have never met the met the man (SWP, Paul ain’t too far from Houston in Lake Jackson, Texas — I’m surprised you haven’t at least met people who’ve known Ron for years). And who don’t know that Ron Paul’s idol is Ludwig Von Mises, an Austrian Jew who fled the Nazis. And who gets endorsed by Bill Gross, who runs PIMCO, the largest bond fund in the world, and Peter Schiff, who employs hundreds of people at EuroPacific Capital. But Senor Equis is the crazy one.

    SWP, how do you spin that one away? Gross and Schiff are fairly smart guys, and I’d guesstimate that in any other context you’d be agreeing with them, but now they’re suddenly ‘Ronulans’ and fans of ‘RuPaul’, hence they have to either be ignored or ridiculed.

    Comment by Mr. X — February 1, 2012 @ 3:22 pm

  10. hence they have to either be ignored or ridiculed….cuz we all know where your bread is buttered SWP. And you fear those conference invites will start withering away if you come out against the Fed’s unlimited money printing, or you’ll get the extra rubber gloves treatment from the TSA with every flight. So you keep your mouth shut and do your weekly 2 minutes hate routine with Russia.

    Comment by Mr. X — February 1, 2012 @ 3:23 pm

  11. Thanks your sewer Moron X – The Putin mafias unuseful idiot

    And by a rambling Norwegian old fart who does most of his posts at 3 a.m. Oslo time (just sayin’, hope he’s not hitting the bottle .

    The Sublim morons words is deliberately constructed to convey more complicated ideas. The words in his group are compound words with political implications, and aim to impose the mental attitude of the Party upon the speaker. For example, the Newspeak word “goodthink” roughly means “orthodoxy”.
    Julian Assange Published 14 April 2011 -As Assange argues in the most recent edition of The New Statesmen Whatabout WikiLeaks? Whatabout WikiLeaks? Whatabout WikiLeaks?

    Sergei Yushenkov presented the film at the Woodrow Wilson International Center for Scholars in 2002, decrying lack of civilian control over the Russian armed forces including the secret services.[4] A staffer in Senate Foreign Relations Committee said, “We just cannot go out and say that the president of Russia is a mass murderer. But it is important that we know it.

    Comment by Anders — February 2, 2012 @ 2:28 am

  12. The Stalinist sewer-rats favorite number is the doctored video of The Georgian president .

    The neo-Stalinist chauvenist race of presidential elections in Russia 2012

    Comment by Anders — February 2, 2012 @ 2:39 am

  13. When people like moron X go for unregulated predatory capitalism in Putin’s Russia it is important that we know it. -We may have a roller-coaster ride ahead, but the solution will be found.

    But the question of the moment is exactly that: what is the solution and how do we redefine the world in a new post-World War II reality? The new reality is that of a larger table with China, India, Brazil being the new large entities with an opinion and a stake. How do we want to organize ourselves, our people and our money? What is going to be the dominant ideology of the next 100 years? It is unlikely that mature democracies will allow themselves to regress into a central regime. It is unlikely that the extreme form of capitalism we saw play out in the last 30 years will last for very long. It is unlikely that Maoist communism will survive Twitter and smartphones. As citizens, we can hope that the model that emerges from this manthan (churning) is one that allows markets to work but in a framework created by the government with a long-term vision for the country, its people and the world based on the second part of the French credo of “liberty, equality, fraternity”. That countries have to be free of foreign rule is no longer in question. But we still struggle with the second part of the credo—equality. The world needs to figure out what kinds of equality we want and how do we want to go about institutionalizing it. And fraternity remains a goal for the future.

    Comment by Anders — February 2, 2012 @ 3:08 am

  14. INTERVIEWER: Some of those debates became very, very heated. I think [Ludwig] von Mises once stormed out.

    MILTON FRIEDMAN: Oh, yes, he did. Yes, in the middle of a debate on the subject of distribution of income, in which you had people who you would hardly call socialist or egalitarian — people like Lionel Robbins, like George Stigler, like Frank Knight, like myself — Mises got up and said, “You’re all a bunch of socialists,” and walked right out of the room. (laughs) But Mises was a person of very strong views and rather intolerant about any differences of opinion.

    INTERVIEWER: What was Hayek’s personal style? What was he like personally?

    MILTON FRIEDMAN: Oh, personally Hayek was a lovely man, a pure intellectual. He was seriously interested in the truth and in understanding. He differed very much in this way from Mises. There was none of that same kind of manner. He accepted disagreement and wanted to argue, wanted to reason about it and discuss it. He was a very cultured and delightful companion on any occasion. … I must say, he undoubtedly was the dominant figure in all of the Mont Pelerin meetings for many, many years.

    Comment by Anders — February 2, 2012 @ 3:20 am

  15. Russia must make a gigantic leap forward and become one of the 20 economies with the most favorable investment climate, Prime Minister Vladimir Putin said on Thursday.
    “We set forth the challenge of making the list of countries with the most attractive business climate in the next few years … to make 100 steps forward and rise to the 20th place from 120th place in terms of business,” Putin told the Russia Forum 2012.
    To reach that goal Russia must take measures including cutting the time to connect business to energy grids by three-quarters, a two-thirds cut in the time it takes to fill out tax records, and an 85 percent cut in the time taken for customs controls.
    Investors will receive building licenses in one-fifth of the current period and will fill in a third of the current amount of documents for them, he said.
    Other measure will provide rights for businessmen to file joint suits to protect their interests.
    Putin said Russia could soon be in the top-five list of world’s largest economies.
    “Russia is in sixth place of world’s largest economies and of course we have all prerequisites for entering the top-five soon,” the prime minister said.

    Comment by Sublime Oblivion — February 2, 2012 @ 6:21 am

  16. To reach that goal Russia must take measures including cutting the time to connect business to energy grids by three-quarters, a two-thirds cut in the time it takes to fill out tax records, and an 85 percent cut in the time taken for customs controls.
    Investors will receive building licenses in one-fifth of the current period and will fill in a third of the current amount of documents for them, he said.

    If they could, they would have done it already. Way too many vested interests to overcome, I’m afraid.

    Comment by Tim Newman — February 2, 2012 @ 6:32 am

  17. The Putin propaganda blitz has started.

    Last night I saw a program on Russian TV along the following lines-

    Building exploding and tornados blowing a path of destruction-

    break to Putin calmly sitting next to a fireplace who says-Things were bad before me but now-

    Video of kittens and people walking their dogs through the park.

    Then video of Chechen terrorists and massive floods

    break to Putin calmly sitting next to a fireplace who says-Things were a real mess before I took over but now

    Video of Lovers sitting next to each other on a park bench

    Then video of riots by people who were not receiving salary and The Oligarchs yukking it up together in a swank hotel

    Followed by a cartoon of Putin playing Whack A Mole with Oligarchs popping up for Putin to whack

    break to Putin calmly sitting next to a fireplace who says-The Oligarchs even bought Channel One our national channel and were using it to promote their commercial interests.

    Break to cartoon explaining Putin is not “The Golden Fish” but-and then statistics flash up of how much the pension fund, stabilization fund etc have increased

    Then video of Yeltsin drunk and another Yeltsin being embarassed at the press conference with Clinton when a reporter asked if he was a drunk (Clinton’s laughter at this time was very demeaning to the office of the President of Russia from strictly a protocol perspective)

    It was late and this is abbreviated but you get the idea. To tell you the truth I think it will play well.

    There are similarities to Obama’s “Blame It On Bush” strategy that I certainly hope doesn’t still play well.

    Comment by pahoben — February 2, 2012 @ 7:43 am

  18. Berezovsky was featured as the archetypical villian. I didn’t see the entire program but there was no mention of Khodorkovsky in the part that I saw.

    Comment by pahoben — February 2, 2012 @ 8:21 am

  19. I guess the analogy would be Wall Street=Oligarchs and Bush=Yeltsin.

    Comment by pahoben — February 2, 2012 @ 8:40 am

  20. Also I glanced at something from Rogozin yesterday about giving the command to consider Russian weapons in the Russian toy industry. He is incensed to see Leopard tank toys in Russia. This guy is an absolute polymath-it is hard to believe he is so productive as to have time even for the Russian toy industry.

    Comment by pahoben — February 2, 2012 @ 9:05 am

  21. … must take measures …
    … will receive … will fill in …
    … will provide
    … could soon be …

    Russia is the country of the future and always will be.

    Comment by Ivan — February 2, 2012 @ 9:50 am

  22. @Ivan-I agree in a way. There is discussion about change in the future but really Russians tend to be very conservative and at the end of the day generally prefer the status quo to the unknown situation post change. The status quo has to be pretty darn bad or the vision of the post change situation must be pretty darn rosy to overcome the inertia of conservatism . From this standpoint the past is very important. I am amazed at how much focus is still cenetered on WW II as an example.

    Comment by pahoben — February 2, 2012 @ 10:09 am

  23. Sorta like CFTC’s enforcement against MF Global malfeasance is always in the future.

    Comment by Mr. X — February 2, 2012 @ 10:18 am

  24. I thought you promised to check out again Goebbels X?

    BTW, you are such an uneducated prick about everything you post on X, you are lucky breathing is a reflex action, if you had to think about it you would be in trouble.

    BTW, the American public seem to be able to see what a scumbag Ron Paul is, what was it? 7% in Florida?

    And your queer little diatribes won’t be missed.

    Comment by Andrew — February 2, 2012 @ 2:18 pm

  25. Andy Dzughashvili, other than using Uncle Josef Stalin’s real last name as an epithet for you and suggesting that it’s quite weird for a Kiwi to be such a fanatical Georgian nationalist and hate Ron Paul so much, I’ve never bashed you. Or the ‘tribe’ you’ve decided to join for whatever reasons — I hope your Georgian wife doesn’t beat you.

    So it’s disappointing but not surprising to see so much hate. And while I admitted I never went to Syria, I’ve been a hell of a lot closer to Damascus as the bird flies than you ever have, and I’ve seen how vulnerable Israel would be if the globalists get their way and the MBO takes over in a Gaddafi-lynching repeat.

    And Ron Paul will win second in Nevada, mark my words, and come very close to winning Maine.

    Comment by Mr. X — February 2, 2012 @ 3:30 pm

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