Streetwise Professor

February 21, 2010

Not So Glorious

Filed under: Economics,Politics,Russia — The Professor @ 8:51 am

The dust jacket blurb of  a history of the Glorious Revolution, 1688, says:

James II developed a modernization program that emphasized centralized control, repression of dissidents, and territorial empire. The revolutionaries, by contrast, took advantage of the new economic possibilities to create a bureaucratic but participatory state. The postrevolutionary English state emphasized its ideological break with the past and envisioned itself as continuing to evolve.

Sound familiar?  It should; James’s England was a natural state, just as Russia is today–322 years later.  The Glorious Revolution was the beginning of the end of the natural state, and the birth of an open order.

Russia, alas, cannot count on William of Orange, a Dutch fleet, or a Protestant Wind.  It has its oligarchy, but that is firmly under the heel of the state.  So it will attempt, yet again, a Jacobean program of “centralized modernization”–if it tries seriously to modernize at all.

Russia Profile’s weekly expert panel addresses the prospects for modernization in Russia.  Vladimir Balaeff (whose views are orthogonal to mine, when they aren’t perfectly negatively correlated) opines:

Medvedev’s appeal to Russian business – to become more involved in economic and technological modernization – is neither surprising nor exotic. The proposal is contrary to deeply seated habits (vices) of corporate egotism, short-term planning and greed for the “quick buck.” In our present global crisis the pursuit of obscene short-term profits at the expense of society and reckless disregard for the long term are no longer seen as legitimate, quaint or endearing. Democratic governments serve the interests of large societies; when these are forced to rescue commercial corporations from the consequences of their folly and greed – the beneficiaries are required to reciprocate. So there is nothing wrong with Medvedev’s reasoning.

What Balaeff misses is (as I wrote about a great deal in 2006-2007) is that the intense short-term focus that he laments is a perfectly predictable consequence of natural state Russia, and particularly the precariousness of property and contractual rights.  Under such circumstances, it is perfectly rational to focus on the short term, take what you can today, and let tomorrow take care of itself–and the devil take the hindmost.  For there is no guarantee that you will be able to reap the benefits of your investments.

As usual, Stephen Blank nails it:

It is so Russian to believe that the state can force private business to innovate and that it, rather than business, knows what to innovate and where to go for exports. And it is equally Russian that this gambit will fall flat on its face as it always has in the past. If insanity consists of doing the same thing over and over again and expecting a different result, then Russian policy is insane.

If indeed Medvedev has opted for a statist approach (and nothing I’d seen suggested opting for a truly liberal approach), then it is because he has signally failed to modernize his domestic political and economic structures along the paths he wants, so maybe he will try more coercion and/or go along with Putin’s preferred course, which is to rely on import substitution, the energy and defense industries.

These strategies have long been discredited and the resort to them merely indicates the bankruptcy of the current course which, however, has a lot of muscle and vested interests behind it. Russia’s oligarchs, in any case, are not technological modernizers whatever other skills they possess, so this is not the audience for such sermons.

But then there is no truly independent business class in Russia, as property rights are not secured and entrepreneurial ambitions are distorted into short-term actions or corruption, or stunted by government regulations. Even those who are true entrepreneurs cannot reach their full potential in such a system.

While there are incentives that the regime can offer in terms of tax breaks, subsidies, etc., they don’t get at the basic problems of this oligopolistic system. The main incentive he could give is the security to do as you will, with property rights under law and a truly free or at least freer market, but nobody should hold his breadth.

Medvedev is no Mikhail Gorbachev, nor even an Alexander II, just another bureaucratic reformer in a long line of such who inevitably fall short before the accumulated obstacles of vested interests, autocracy, despotism, and the absence of the rule of law.

Sad, but true.  Russia’s basic problem is institutional, and there is no reasonable prospect of a Glorious Revolution to fix that problem.  Truly, Russia is no stranger to revolution, but its revolutions tend not to be glorious.  Moreover, public apathy and atomization (encouraged mightily by a combination of propaganda and crackdowns on any signs of organized protest) mean that coordinated opposition will remain at the margins.  So, as Blank suggests, the Putin purgatory of “vested interests, autocracy, despotism, and the absence of the rule of law” will likely remain the order of the day–for today, tomorrow, and many tomorrows to come.

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11 Comments »

  1. Stephen Blank is a master at being direct and succinct. I love it. It amuses me to no end that the Government of Russia is going to make their country innovative as if it is an order to follow. Unfortunately, innovation comes from freedom, trying the alternatives, breaking the mold, sticking your neck out from the lumpen masses, challenging the status quo, and being able to keep other peoples’ mitts off your stuff when you come up with something good. NOBODY can be pushed to innovate just because it sounds like a good idea or because you keep getting your butt kicked in the marketplace. It’s the culture, stupid, and Russia has NONE of these cultural qualities to achieve innovation. (I do believe they have people who can innovate, but everything else there kills it off) Blank is correct in that they’re just going back into their typical, worthless vicious cycle. At least we get to watch.

    Comment by Howard Roark — February 21, 2010 @ 2:35 pm

  2. Yes, I like Stephen a lot, for the reasons you mention. Turns out he was a grad student at Chicago when I was an undergrad there–must be something in the water:) Actually, no, since Obama and HIS Chicago crowd drank from the same Lake:) (I didn’t know Blank then. We’ve corresponded regularly in the past 2 years.)

    But Chicago was unique during that era not only in economics (it is much more in the mainstream now, alas) but in its Russian history scholarship. I took 2 courses from Arcadius Kahan, an expert on Soviet agriculture, who was an amazing guy. (I just looked up his obit. He died the year after I took the second of those courses. He was 62. I figured he must have been 82. Yikes.) Richard Hellie was there, not quite the enfant terrible he had been but still pretty ferocious and relatively young. He’s still there. Steve told me he studied under Alexandre Bennigsen, a descendent of the Bennigsen who commanded Russian armies in 1812. Anyways, in matters Russian UC was similar to the econ department–proudly out of the mainstream epitomized by Sovietophiles like Stephen Cohen at Princeton and other assorted useful idiots.

    Hellie is working on a book about Russia. I wrote a short post about an article about Hellie in the UC alum magazine in which he discusses the book. His remarks are priceless. I anxiously await its publication.

    The ProfessorComment by The Professor — February 21, 2010 @ 3:00 pm

  3. My favorite Blank commentary was his response in “Russia Profile” regarding Medvedev’s State of the Nation speech. Normally, he can write up to 600 words like his fellow commentators normally do. This time he just says:

    “Although Medvedev’s speech carried implicit criticisms of Putin and his policies, there are no mechanisms for change, no specifics, and no visible means of implementing changes. In the short-term major modernization of the system in Russia is quite unlikely, all things being equal.”

    Succinct.

    As for Stephen Cohen, I don’t get that guy. Very inconsistent.

    Comment by Howard Roark — February 21, 2010 @ 4:29 pm

  4. Stephen Cohen’s wife is the publisher of “The Nation.” That’s pretty much all you need to know about him. If more is wanted it is here:

    http://larussophobe.wordpress.com/2008/05/14/editorial-neo-imperialist-russia/

    http://larussophobe.wordpress.com/2006/06/25/saint-cohen-on-the-warpath/

    Comment by La Russophobe — February 21, 2010 @ 8:07 pm

  5. Russia is not an island.

    Comment by So? — February 22, 2010 @ 9:22 pm

  6. That’s true actually, Russia is not an island. It’s a hell hole.

    Comment by La Russophobe — February 22, 2010 @ 10:15 pm

  7. Haven’t been here for a while. Does our dear Russophile/Sublime Oblivion still post? I was checking Russia’s GDP for 2009. According to Bloomberg: “Russia’s economy shrank the most on record in 2009 after the price of oil slumped 77 percent from peak to trough and left businesses to start the year trying to adjust to smaller profits as banks cut off credit. Gross domestic product fell 7.9 percent in 2009….” Looks like I won my bet 🙂

    Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aG9CimQa7sKc

    Comment by Michel — February 25, 2010 @ 11:55 pm

  8. Ah, Michel-I have missed you. Wondered often whether you still lurk, and just don’t comment, or had taken a powder altogether. Yes, S/O still comments.

    Welcome back. Don’t be a stranger. Hope you’ve been well.

    The ProfessorComment by The Professor — February 26, 2010 @ 12:24 am

  9. Hi Michel.
    You win some, you lose some. I kicked your ass at demography. 🙂

    Comment by Sublime Oblivion — February 26, 2010 @ 12:28 am

  10. These past few months were busier than usual. Hello, Da Russophile. Well, nice to see you concede that I was right when it came to forecasting Russia drop in GDP 🙂 What are your stats for last year’s birth rates? They did not drop as quickly as I expected, but they are certainly not rising as quickly as they should either.

    Comment by Michel — February 26, 2010 @ 6:32 pm

  11. @Michel,

    “They did not drop as quickly as I expected, but they are certainly not rising as quickly as they should either”… haha, a pretty clumsy attempt to weasel out of the fact that you were completely, utterly wrong. 😉

    Our bets from last year @ https://streetwiseprofessor.com/?p=1897

    #1: GDP growth for 2009
    Michel = -4% –
    DR = -4% +

    #2: GDP growth for 2010
    Michel = 2% –
    DR = 2% +

    #3: BR’s in 2009
    Michel = 1545.8 –
    DR = 1545.8 +

    I lost #1 badly – the GDP decline was -7.9%.

    You lost #3 badly, since far from falling by 10% as you predicted, the birth rate rose by 2.9% to 1746 thousands. Source: http://www.gks.ru/bgd/free/b10_00/IssWWW.exe/Stg/d01/7-0.htm

    Now there’s only #2 left, and so far I seem to be off to a good start. 😉
    http://www.businessweek.com/news/2010-02-24/russian-growth-forecast-raised-to-6-2-at-citigroup-update1-.html

    Comment by Sublime Oblivion — February 26, 2010 @ 8:35 pm

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