Thursday, October 26, 2017

How Rampant Corruption in Russia Forced Putin to Attack Western Democracies

by Nomad

A few days ago, Sergei Aleksashenko wrote an article in The Moscow Times that very likely went unnoticed in the West. Aleksashenko was Deputy Minister of Finance and Deputy Chairman of the Central Bank in the 1990s.
Since that time, Aleksashenko witnessed with his own eyes the 1992 promise of economic transformation turn sour. The creation of the Putin's autocracy, wiping away Russia's chance for substantive reform, has been one of the modern history's sadness stories.

In the article, he spoke frankly about the series of missteps that were made along the way.
At the end of the 1980s people thought that the main problem for the market economy would be the lack of specialists. But, although working in a market environment did require different skills and knowledge, as so often happens, you just roll your sleeves up and get down to work — despite your fear. Free market prices and privatization quickly put everything and everyone in their place.
On the other hand, a task that seemed easy turned out to be the most difficult and it is still not solved.
The government, he writes, struggled to bring down inflation to take advantage of foreign investment. (In fact, the whole privatization program was conducted amid the chaotic background of hyperinflation.)

As soon as this problem was overcome, the Russian economy entered a phase of rapid growth. Things might have been on the road to success if not for the Kremlin's decision to strictly limit access to foreign capital.
Russia voluntarily stepped off the road to globalization: the share of raw and simply processed materials topped 80 percent of all Russian exports.
The great (and understandable) fear was that Russia would be surrender its sovereignty to foreigners, especially when it came to Russia's formerly state-owned assets.
   Conspicuously absent from this analysis are two other factors. Aleksashenko undoubtedly had his own reasons for not mentioning them. The rise of the oligarchs and the corruption that accompanied them.

Putin's Catastrophic Compromise

In the mid-1990s in Yeltsin's Russia, if you had the right contacts and lots of spare change, it was possible to get in on the ground floor of something really big. State-owned assets, particularly in the industrial, energy, and financial sectors were up for grabs.

The result of this private exploitation of Russian resources was the rise of a politically-powerful and wealthy oligarchy. As bne IntelliNews points out:
Russia's 'oligarchy' took power during Yeltsin’s re-election in 1996, when they used his reliance on funding from Russia's leading seven bankers to acquire the cream of the country's resource-producing assets.
Privatization in the early and mid-1990s under Boris Yeltsin led to the transfer of significant wealth to a relatively small group of business oligarchs and New Russians, particularly natural gas and oil executives. The Russians called the economic earthquake a "katastroika" - a catastrophe, a disastrous government reform.

Putin's rise in 1999 offered a new hope for Russia but it was not to be. This diminutive former KGB man in the Soviet era was deeply suspicious of the oligarchs, and of their pro-US policy preferences.

Senior Economist William Tompson explained in 2004 that one of Putin’s primary objectives on assuming power was to re-establish the authority of the Russian state. And to do this, it would require tackling Yeltsin’s legacy: the oligarchs.Any hopes that the West once had that the oligarchs would, out of their own self-interest, lead Russia into an era of globalization proved to be hopelessly unrealistic. Greed and self-preservation ruled the day.

The pragmatic Putin decided that it was easier to filter out the Western-friendly types and the tame the others. That plan seemed more expedient than to exterminate the entire oligarch system.
Putin tightened his hold over key industrial and financial assets such as the gas monopoly Gazprom, the oil transport monopoly Transneft and the state savings bank, Sberbank. This was aimed at least partly at shoring up his position vis-à-vis big business.
A New York Times 2014 article explains that Putin and the oligarchs reached a compromise of sorts. He was allowed to consolidate power and the oligarchs, (so long as they kept their noses out of politics and helped him when they were asked) were free to do as they liked.
What emerged has been called "kleptocratic authoritarianism.”
Its essential characteristic is all-encompassing corruption, which makes all the moneyed men of the Russian elite — and they are all men, and all moneyed — profoundly interdependent. Many of them have held public office during this time, but it has invariably been subject to three interlocking conditions: They had to pay to get into office, and though they could use the office for accumulating greater wealth, they could not use it to wield or gain political power.
The articles also notes that this agreement allowed Putin the luxury of time to consolidate his hold on power.
Over these years of helping Mr. Putin solidify his regime, the Russian rich have not only become entrenched in this corrupt system, but they have lost the very ability to form and pursue a political agenda. Those who predict an imminent coup — a coup by oligarchs as independent actors who can form a coalition to pursue their economic interests — are far off the mark.
And since that bargain was struck, corruption has become the main handicap to the Russian economy. And, sadly, this is all that remains from the promise of 1992. 

Russia's Insurmountable Affliction

The GAN Anti-Corruption Portal's profile of Russia paints an extremely dismal picture of that nation's current state.

Research collected from various authoritative sources has confirmed that:
"Corruption significantly impedes businesses operating or planning to invest in Russia. High-level and petty corruption are common, especially in the judicial system and public procurement. The business environment suffers from inconsistent application of laws and a lack of transparency and accountability in the public administration. Russia’s regulatory inefficiency substantially increases the cost of doing business and has a negative effect on market competition."
The study points out that corruption pervades all institutions in Russia.
The judicial system in Russia has been crippled. Bribes and irregular payments are widely exchanged in return for favorable court decisions and evidence is routinely fabricated.

Russia's law enforcement too has been compromised by police officers who "arbitrarily imposed heavy fines or extorted bribes from unregistered persons." In general terms, the Russian police are considered unreliable in protecting companies from crime, adding, even more, challenges to any company attempting to do business in the country.
But the problems do not stop there. Evidence shows that corruption has also hindered other institutions as well. Namely, the public services, land administration, tax administration, energy, exporting and importing, and other sectors vital to economic development.

Still worse, corruption with the legislative branch has made anti-corruption laws ineffectual and has compromised government officials in charges of these efforts.
"Despite Russia's comprehensive anti-corruption legal framework, enforcement is inconsistent."
In addition, the study finds, the problem is not confined within Russian borders:
"There is no evidence suggesting that the Russian government has undertaken serious efforts to curtail bribery committed by Russian companies abroad."
Finally, the corruption has infiltrated the civil society on another level.
The few independent media outlets in the country face pressure from authorities and struggle to maintain operations. This particularly applies to outlets exposing government abuses.
Since the early 1990s, every violent or questionable death of a journalist has been recorded. Which of these deaths are directly linked to their work is not always easy to determine. Even without any evidence of the Kremlin's direct involvement in these deaths, experts say the political climate in Russia is responsible for the high volume of journalist murders in the country. This week, deputy editor-in-chief at the station Echo of Moscow, Tatiana Felgengauer, was stabbed. The Echo is Russia’s leading independent radio station and it is one of the country's few broadcasters that regularly airs criticism of Putin.

Russia currently ranks 180 out of 199 countries for press freedom, behind Iraq, Sudan, and the Democratic Republic of Congo, according to the international watchdog Freedom House.

As with all autocratic regimes. media suppression and subversion is a necessary part of Putin's game plan. After all, how can Russians begin to understand the levels that their country has sunk without any opposing or critical voice.

A Failure of Leadership

In the hands of a strong and committed leader, Russia might have found a means of putting the country back on track. It wouldn't have been an easy task but it has been done in the past. Theodore Roosevelt, armed with anti-monopoly laws, managed to put the unruly and corrupt industrialists into line. (at least, for a time.)

And yet, Putin's mentality was steeped in the mindset that brought down the Soviet era. That included the accumulation of political power and wealth- usually on a personal or crony level- as a means of holding onto power. Any question of reforming broken systems takes a backseat to exploiting them for personal gain.

And all might be forgiven if this accumulation of power in a dog-eat-dog political scene served some higher purpose. However, when it is all about skimming off profits, that's far less forgivable. The level of Putin's involvement in Russian corruption was exposed not a few years back with the release of the Panama Papers.

You might recall that the Panama Papers was the name given to a leak of some 11.5 million documents detailing financial and attorney – client information for more than 214,488 offshore entities. The source of these documents was taken from, Panamanian law firm and corporate service provider Mossack Fonseca.

Who did the hacking was never discovered but it led to a lot of eye-opening information about who was hoarding public funds and how they were escaping detection and/or paying taxes.

For Putin, the Panamanian revelations uncovered a network of secret offshore deals and vast loans worth $2 billion that implicated the Russian president. The UK Guardian reported:
Though the president’s name does not appear in any of the records, the data reveals a pattern – his friends have earned millions from deals that seemingly could not have been secured without his patronage.
The documents suggest Putin’s family has benefited from this money – his friends’ fortunes appear his to spend.
Around this time, Julian Hans, a Moscow correspondent for the German magazine, Süddeutsche Zeitung, conducted an interview with Russian opposition leader, Alexei Navalny. Since 2009, Navalny has become longest surviving Putin-critic.  

This interview dealt with the leaking of the so-called Panama Papers and Navalny's thought about what the leak revealed about Russian president, Vladimir Putin. Here are excerpts from that interview.

Russia's Most Risky Move

The Russian government's failure to effect positive reforms against corruption has, at least, partially led to Putin's riskiest move of his career: the demoralization and subversion of Western liberal democracies.

With all hopes of ever reforming his own country, President Putin is left with one viable option: to bring down the rest of the world to Russia's level, to instill distrust in democratic values and to sow unrest whenever and wherever possible.

It was, in actuality, an admission that the leadership in the Kremlin felt the Russian situation was utterly hopeless, that liberal democracy (and all of its values) would never take root there, that it was not really worth the effort of trying.

Corruption could never be brought under control at home so it was easier to change the definitions and celebrate the "uniqueness" of Russia. Instead of abiding by protections of minorities outlined in the 1992 Russian constitution, for example, the Kremlin decided to call their system a majoritarian democracy, in which the majority makes the rules and the minorities are at the mercy of the mob.

And given the sizeable wealth Putin has accumulated in the past two decades, his plan has every chance of success. He has plenty of help too, in the form of the compliance and complacency of some leaders of nations.
Corruption is an insidious and contagious thing.

Make no mistake. This is not an accident. The plot to disrupt the US elections was not the result of a spur of the moment decision but part of a carefully calculated plan, reportedly developed by a Russian think-tank, the Moscow-based Russian Institute for Strategic Studies.  It is a tactical strategy every bit as threatening as anything launched by the Soviet Union, whether or not the US President is prepared to admit it. 

In spite of a mountain of supporting evidence of interference, the president of the United States still stubbornly refuses to admit that the Russians were in any way involved in the elections. In addition, he still hasn't been willing to implement sanctions that Congress has called for and, most importantly, refused to take the necessary steps to prevent the Russians from further interference. 

Just the other day, US Ambassador to the United Nations Nikki Haley declared that the Russian interference in US elections was "an act of war."  In July, she made similar statements, saying:
"Everybody knows that Russia meddled in our elections. Everybody knows that they're not just meddling in the United States' election. They're doing this across multiple continents, and they're doing this in a way that they're trying to cause chaos within the countries."
Bizarrely, these statements seem to have put her at odds with her own boss in the White House. With his refusal to address a serious threat to the nation and the legitimacy of elections, there is no other plausible explanation except Trump's clandestine cooperation with Russia.

So what of the future for Russia? In an April interview with the UK Guardian, Navalny said:
“Look, of course the regime will fight back. But all autocratic regimes come to an end. Who would have thought in 1985 that the Soviet Union would all come to an end before long? Nobody. ...In 2012, I said the regime would last two more years, and I was wrong, so I’ve stopped making predictions. But sooner or later, it will all come to an end.”
A few months after Navalny remark, Putin supplied his own reply. At a carefully-choreographed Q & A discussion, the Russian president was asked what he planned to do after he left the presidency, Putin paused and smiled. 
“But I haven’t decided yet if I will leave the presidency.”
The audience, made up of mostly children, erupted in laughter and applause.