THE NEW RUSSIAN MODEL.
WHAT DOES IT MEAN FOR
INSTITUTIONAL DEVELOPMENT,
INTERNATIONAL ENERGY SECURITY,
LONG-TERM ECONOMIC GROWTH,
AND RUSSIAN-EUROPEAN INTEGRATION
A. Illarionov,
CATO Institute, Washington, USA
Institute of Economic Analysis, Moscow, Russia
WIIW Spring Seminar “EU-27 and Its Neighbourhood”,
Vienna, March 23, 2007
© CATO Institute, Institute of Economic Analysis
www.cato.org, www.cato.ru, www.iea.ru
"Russia is a riddle
wrapped in a mystery
inside an enigma.“
Winston Churchill
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1. Creation
of the New Russian Model.
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New Russian (siloviki) model.
1. Appropriation of executive power by the Corporation of secret
police (CSP).
2. Capture of the Russian state bodies (security services, tax
agency, courts, Prosecutor offices, MFA, MoD, parliament, media)
by the CSP and use of these bodies in the interests of the CSP.
3. Concentration and monopolization of all significant resources
(political, legal, military, security, economic, financial, mass
media) in the hands of the CSP.
4. Destruction of the rule of law with new rules of the game: law
is above people, the CSP is above law, no people/law above the
CSP.
5. Ideology and practice of “nascism” (“our ownism”) with
selectiveness/absence of identical rules as a leading principle.
6. Rise of state monopolies with privatization of profits and
nationalization of costs as a leading principle.
7. Siloviki-type PPP (public-private partnership) – coercion of
private business to fulfill orders of the CSP and bear the costs.
8. Main award of the CSP is “paratrooping” its members (doesn’t
matter - whether Russian or foreign) into the state or statefriendly company.
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“The Federal government plus regional governors
corps… should work like one corporation.”
President of Russia at the State Council Meeting,
December 24, 2005.
“The accumulation of powers, legislative, executive,
and judiciary – in the same hands, may justly be
pronounced the very definition of tyranny.”
James Madison. Federalist papers, # 47.
“The people should not know
who governs them.“
Mikhail Boyarsky, Russian popular actor
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Professional background of government personnel
in modern Russia.
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Division of powers in modern Russia. Distribution
of flash-lighted cars among branches of power:
judicial, legislative and executive (including security).
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Path of Russia’s Transition.
Areas of
public life
Departing
point in 1991
European/
US model
New Russian
model
Economy
Centralized
planned
Free market
economy
State monopoly
capitalism
Political
system
Communist
dictatorship
Liberal
democracy
Militocratic
(siloviki)
dictatorship
Nature of
state
mechanism
Party monopoly
state
Competitive
state
Corporatist state
(state captured by
the CSP)
Foreign
policy
Confrontation
and aggression
Friendly
neighboring
Confrontation and
aggression (energy,
wine, etc.)
State
ideology
Communism,
social hatred
Social patience “Nascism”
and ethnic
(sovereign
tolerance
democracy)
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2. Implications of the New Russian Model
for Russia’s institutional development is
“Zimbabwean Disease” –
establishing next to total control of executive
power over public and social life
leading to destruction of virtually all
political and economic institutions
of civilized society –
legislative and judicial powers, political parties,
private businesses, mass media, NGO,
religious organizations.
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Zimbabwean disease:
Political Freedom in Zimbabwe and Russia, 1991−2006
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Deterioration in Electoral Process Index in Russia.
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Deterioration in Judicial Framework & Independence
Index in Russia.
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Deterioration in Civil Society Index in Russia.
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Deterioration in Independent Media Index in Russia.
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Deterioration in Governance Index in Russia.
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Level of violence in Russia.
Crimes against personality
per 100 thousands population (1998 г. =100%)
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3. Implications of the New Russian Model for
availability of energy supply is
“Venezuelan Disease” –
nationalization and quasi-nationalization of private
assets in oil and gas as well as in
transportation, construction, automobile industry,
aviation, shipbuilding, etc.
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Private sector share of Russian oil production shrank
from 83,5% in 2003 to 42% in 2006
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Source: Oil & Capital
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Financial results of Yuganskneftegaz after transfer
from private YUKOS to state-owned ROSNEFT became
a triumph of ineffectiveness and incompetence.
Yuganskneftegaz’ financial results
in Jan-Sep 2005 in constant prices as % in Jan-Sep 2004.
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After 4 years of unprecedented growth in 2000-2003
within YUKOS the “pearl” of Russia’s oil industry,
Yuganskneftegaz, saw its output collapsed.
Yuganskneftegaz oil output growth as % to previous year
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Oil output of the fastest growing and the most
transparent Russian company YUKOS has collapsed
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Oil output in Russian companies
in October 2006 as % of September 2004.
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Source: Oil & Capital
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Oil output in foreign companies operating in Russia
in 2006 as % of 2005.
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Source: Oil & Capital
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In a response to the assault by the CSP,
annual growth rate in oil output fell
from 12% in June 2003 to about 2% in late 2006.
Oil Production Annual Growth Rates, January 1996 – December 2006
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Growth in oil output in Russia has slowed significantly
and not reached the Soviet level yet.
Source: Rosstat.
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Gas output of Gazprom remained flat for the last 7 years,
while independent producers more than doubled it.
250
226,5
230
210
191,5
190
199,4
170,9
170
147,4
150
155,8
130,3
130
110
100,0100
95,7
93,7
95,5
98,9
99,8
100,2
100,6
90
70
50
1999
2000
2001
2002
2003
Independent gas producers
Source: Institute of Energy Policy, “Gazprom”
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2004
2005
2006
"Gazprom"
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4. Implications of the New Russian Model
for reliability of Energy Supply is
Saudi Disease –
use of nationalized and quasi-nationalized
energy resources and energy infrastructure
as a weapon
in domestic and international relations.
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Backed by an unstoppable influx
of financial resources into the country
the Russian government’s foreign policy became
more assertive, more arrogant
and more aggressive.
Energy warfare has been recently used against
Ukraine, Moldova, Georgia, Poland, Lithuania,
Belarus.
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5. Implications of the New Russian Model for
Long-Term Economic Growth is
Darvensazimus disease
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Darvensazimus disease
is a rather rare, complex and dangerous illness
consisting of at least 5 diseases:
-
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“Dutch” Disease
“Argentinean” Disease
“Venezuelan” Disease
“Saudi” Disease
“Zimbabwean” Disease
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Dutch Disease:
GDP per capita in the Netherlands as % of the USA,
1975–1988
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Argentinean Disease:
GDP per capita in Argentina as % of the USA, 1958–2005
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Venezuelan Disease:
GDP per capita in Venezuela as % of the USA, 1957–2005
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Saudi disease: GDP per capita in Saudi Arabia
as % of the USA, 1973–2005
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Zimbabwean Disease:
GDP per capita in Zimbabwe as % of the USA, 1982–2005
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Annual average rates of lagging behind by “sick”
countries during their “diseases”,
as a percentage of the US GDP per capita level.
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Losses in economic growth rate
due to quality of policies and institutions.
Real GDP growth adjusted for windfall profits received.
GDP real growth minus windfall profits, percentage of GDP
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Russia’s real GDP growth rates among FSU
countries during 3 sub-periods, 1999–2006
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Industrial output (January 1990 = 100%)
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Russia’s GDP as % of FSU, 1989-2006
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Russia’s GDP as % of total in countries in transition,
1989-2006.
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6. Implications of the New Russian Model to
International Relations is
growing isolation from the West and CIS
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Since 2001 intensity of the Russian President’s
international summits was constantly falling.
After November 2006 it fell by half.
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Country’s preference of the Russian president’s summits
has change dramatically,
especially after November 2006
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Structure of the Russian President’s summits
has undertaken radical changes
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Intensity of Russian President’s summits
by groups of countries
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7. Implications of the New Russian Model to
Russia’s relations with the EU is
failure of Russian-European integration
and further Russia’s departure
from economic and institutional standards of the
EU
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GDP per capita: EU10 and Russia as % of EU15
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Property Rights Protection:
EU10 and Russia as % of EU15
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Bureaucracy Quality: EU10 and Russia as % of EU15
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Corruption Perception Index:
EU10 and Russia as % of EU15
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Freedom of Press Index: EU10 and Russia as % of EU15
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Civil Liberties: EU10 and Russia as % of EU15
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Political Rights: EU10 and Russia as % of EU15
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PR&CL Index: EU10 and Russia as % of EU15
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8. Implications of the New Russian Model to
the rest of the World is
export of political and economic non-freedom
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Civil Liberties and Political Rights Index (CLPRI)
in Russia, 1991-2005.
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In 2005-06 the Political Freedom Index in Russia
fell below the level of even Middle East countries
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By changes in Political Freedom Index in 1991-2005
Russia occupies 190th place
among 193 countries of the World.
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Another G8 by speed of destruction of political freedom
in the World in 1991-2005.
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In 1991−2006 Russia was the main contributor
to decline in Political Freedom Index in the FSU
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Monthly Average of Political Freedom Index
for the countries with leaders of which
the Russian president held summits
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9. International approval of the New Russian model
(esp. since July 2006)
1. IPO of Rosneft at the London Stock Exchange.
2. G8 summit in St. Petersburg.
3. US support for WTO membership in October 2006.
4. Foreign business leaders’ gratitude to the Russian
leadership for their expulsion from Sakhalin,
Kovykta, Stokman and other projects.
5. The US President Bush response to the Russian
President Putin speech in Munich.
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Great Leader Appreciation Disease –
irresistible passion to be thankful
for everything under the Sun
to the Great Leader
(Stalin, Mao, Kim Il Sen, Turkmenbashi)
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“He’s done a helluva of a job. The country has made tremendous
strides in the time we’ve been there, and you’ve got to give Putin
credit for that. He did a lot of positive things in a very short
period of time.”
Mark Mobius, Tempelton Asset Management Ltd.
WSJ, January 22, 2007
“Two key factors in any emerging market are economic
predictability and political stability. Russia has the first thanks
to oil, and the second thanks to Putin.”
Chris Weafer, chief economist, Alfa Bank,
WSJ, January 22, 2007
“Thank you for supporting this truly historic event. We sincerely
welcome Gazprom as one of our partners in the project… This is
historical situation for all sides… I am grateful to you, Mr.
President, for your assistance.”
Van der Veer, Royal Dutch Shell,
Meeting with the Russian President, December 21, 2006
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Press Conference by the President George W. Bush,
February 14, 2007, White House:
“Q Is the Vladimir Putin who said the United States is undermining
global security and provoking a new arms race the same Vladimir
Putin whose soul you looked into and found to be trustworthy? Has
he changed? Are U.S.-Russian relations deteriorating?
THE PRESIDENT: I think the person who I was referring to in 2001
is the same strong-willed person. He is a person with whom I have
had agreements and disagreements… I've tried to convince
Vladimir that NATO is positive…
We work together on… common interests, we can accomplish
important things for the security of our own people, as well as the
security of the world.
There's also a relationship in which we can find common ground to
solve problems. And that's the spirit -- that's the spirit I'll continue
to work with Vladimir Putin on.”
http://www.whitehouse.gov/news/releases/2007/02/20070214-2.html
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Intermediate conclusions
The main implications of New Russian Model:
1. Destruction of institutions of modern society in Russia.
2. Less available and less reliable energy supply for the
world markets.
3. Reduction in potential long-term rate of growth.
4. Growing isolation of Russia from the West and CIS. Shift in
preferences of contacts from the West and CIS to the East.
5. Failure of Russia-EU integration. Further departure from
economic and institutional standards of the EU.
6. Export of Political Non-Freedom from Russia.
7. The Western approval of the New Russian Model at the
highest level.
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THE NEW RUSSIAN MODEL.
WHAT DOES IT MEAN FOR
INSTITUTIONAL DEVELOPMENT,
LONG-TERM ECONOMIC GROWTH,
ENERGY SECURITY,
AND RUSSIAN-EUROPEAN INTEGRATION
A. Illarionov,
CATO Institute, Washington, USA
Institute of Economic Analysis, Moscow, Russia
WIIW Spring Seminar “EU-27 and Its Neighbourhood”,
Vienna, March 23, 2007
© CATO Institute, Institute of Economic Analysis
www.cato.org, www.cato.ru, www.iea.ru