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Financial Times (UK), September 3, 2003

Reforms that corrupted Russia

By Grigory Yavlinsky

The writer heads Russia's liberal democratic party, Yabloko, which, like other opposition parties, receives support from Russian businesses, including Yukos

The judicial assault against Yukos, the Russian oil company, has raised widespread international concern about the arbitrary power of the Russian state. But this apparently new confrontation between business and the state is only one in a much wider range of problems that have their roots in the reforms of the mid-1990s.

In those years two Marxist dogmas, albeit disguised in liberal phraseology, still shaped economic policy. The first was that the primary accumulation of capital is always a crime. The second was that the structure of property ownership and the market automatically creates adequate political superstructures. Hence the Kremlin's "loans for shares" deals, which created a group of oligarchs through cut-price privatisations.

The prevailing conviction among the reformers was that it was unimportant how and to whom property was distributed, as long as it passed from the state into private hands. The market would readjust everything. They were wrong: the institutions necessary for the development of an effective market economy do not evolve by themselves.

Russia lacks an independent judicial system. It has neither an independent parliament nor independent national mass media. Electoral procedures and results are heavily influenced by the government machine. The secret services and law enforcement agencies are exempt from public control. The judicial system is corrupted by oligarchs and serves as an instrument for the authorities to settle scores by selective application of the law.

United Russia, the party at the centre of the Kremlin-engineered majority coalition in parliament, is not a political party in the true sense of the word. Rather than existing to further a particular set of values, it was established simply as an instrument for carrying out the Kremlin's orders. The mid-1990s reforms also produced one of the other peculiarities of Russian public life: the coalescence of business and government. There are regular payments by companies to officials placed by them in various parts of the state apparatus.

Cynicism, selfishness and mistakes made by the authors of the reforms led to the formation of a semi-criminal oligarchic capitalist system, which has poisoned Russian business and political life. Business and politics are intertwined to protect the interests of those in power. If a businessman tries to become independent or proclaim his own political ambitions, the authorities use an obedient law enforcement system to fish for wrongdoings related to the 1990s privatisations.

It is high time to tackle this problem. Dismantling the oligarchic system is essential. But there are limits to how this should be done. Government-imposed revision of the results of privatisation is out of the question. That way, only the owners' names would change, not the system of relations between business and government. Besides the oligarchs and the state, there is a "third force" of people who enjoyed influence in the power structures of Soviet days and believe they were deprived of their share in the 1990s. They are trying to influence President Vladimir Putin to redistribute property by administrative fiat. Such a move would lead to a clash with the present proprietors and undermine confidence in property rights in Russia. Dismantling the current system must not destroy confidence in Mr Putin's reforms and deter international investors.

I suggest a three-part legislative package. First, there should be an amnesty for offences linked to the privatisation process, with the exception of murder and other violent crimes. Second, Russia must adopt regulations to separate business and politics. The financing of political parties is far from transparent. Companies spare no effort to secure parliamentary support through blatant corruption. We need laws on transparent party financing and lobbying.

As a corollary, Russia needs an independent public national television network, to liberate the mass media from oligarch pressure. It might also be useful to limit the rights of those who played a leading role in the mid-1990s privatisations - both businessmen and politicians - to participate in political life. A period of, say, 10 years from the enactment of the law might suffice.

Last, Russia needs anti-monopoly regulations if its economy is to flourish. Implementing these will require a strong and independent government.

None of this will be easy. But some such legislation is the only alternative to an endless round of Yukos-style scandals, or even more serious power struggles that risk political and economical instability. To preserve a system in which there is no division of power, civil liberties are restricted and property rights are not guaranteed is to prevent Russia from ever becoming a fully-fledged European nation.


See also:

the original at

YABLOKO Against Corruption

YUKOS case

Financial Times (UK), September 3, 2003

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