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A Country That Cannot Change

Russia's English-language Moscow Times carries a provocative page-one story today (here) by Anders Aslund titled, "There Is Nothing Normal About Corruption." Author Aslund is a senior fellow at Washington, D.C.'s Peterson Institute for International Economics and author of "Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed."

He argues that since 1990, both authoritarianism and public corruption have grown dramatically in Russia, and that there's a connection between the two. "Authoritarian rule is often used by rulers to hide and sustain their corruption," Mr. Aslund says. "According to Transparency International, the only country with higher income per capita and more corruption than Russia is Equatorial Guinea. That is hardly a standard worthy of a great nation."

Ordinary Russians are fed up with public corruption, he says. He cites the mismanagement of the large state corporations and alleged kickbacks of 20 percent to 50 percent on major infrastructure projects. In other corrupt countries, he says, people complain about "mere 2 percent kickbacks." He says that because many ministers own major companies in the industries they regulate, the obvious conflicts of interests between business and government are undermining the rule of law and the economy.

Mr. Aslund asks, "Can anything be done as long as the Putin clique stays in power?" Surprisingly, his answer is to look toward the Internet. "The Russian Internet is full of interesting and detailed information about every conceivable corruption story. Unfortunately, few Western correspondents in Moscow dare to touch this issue. How long will they miss the greatest corruption story in history? Ordinary investigative journalism could do wonders."

Russia's extreme corruption has turned the country into a dysfunctional and weak state, he says, threatening the quality of education, health care, and the stability of the state itself. The government's inability to carry out major infrastructure projects is a good example of its fundamental weakness, he says. "The country suffers a desperate shortage of qualified labor because much of the education system has been eroded by corruption, and the government has made no attempt to clean it up."

We've said before that today's Russia is a minefield for anyone subject to the Foreign Corrupt Practices Act. The compliance challenge is enormous, if not insurmountable. While foreign investors can choose to stay away, the local population is once again trapped by another increasingly repressive, self-protective regime. The losers are ordinary Russians -- isolated from the world economy, this time not by ideology but by overwhelming corruption. Russia, it seems, really is a country that cannot change.

Full post as published by The FCPA Blog on April 22, 2008 (boomark / email).