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Protesters rally in St.Petersburg on Feb. 25 to demand the resignation of Prime Minister Vladimir Putin before the coming presidential vote. The placard reads: 'Everything fits for a good thief.' (Alexander Demianchuk/Reuters/Alexander Demianchuk/Reuters)
Protesters rally in St.Petersburg on Feb. 25 to demand the resignation of Prime Minister Vladimir Putin before the coming presidential vote. The placard reads: 'Everything fits for a good thief.' (Alexander Demianchuk/Reuters/Alexander Demianchuk/Reuters)

Russia's crony capitalism no road to long-term prosperity Add to ...

To understand the significance of the Russian presidential election this weekend, read a book by two U.S.-based academics being published this month. Why Nations Fail, by Daron Acemoglu of the Massachusetts Institute of Technology and James Robinson of Harvard University, is an ambitious work that hop scotches through history and around the world to answer the question of why some countries get rich and others don’t.

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Their one-word answer, as Mr. Acemoglu summed it up for me, is “politics.” The authors divide the world into countries governed by “inclusive” institutions and those ruled by “extractive” ones. Inclusive societies, with England and its Glorious Revolution of 1688 in the vanguard, deliver sustainable growth and technological innovation. Extractive ones can have spurts of prosperity, but because they are ruled by a narrow elite guided by its own self-interest their economic vigour eventually fades.

“It is really about societies that have a more equitable distribution of political power versus those that don’t,” Mr. Acemoglu told me. “It is about societies where the elite, the rich, can do what they want and those where they cannot.’’ For many of us, that is a welcome conclusion. It may also seem to be an obvious one. But he pointed out that academics, policy makers and business leaders have often advanced quite different views. One perspective is that all that matters is economic growth and the right technocratic mix of policies necessary to deliver it. This approach, implicit in the prescriptions of so many International Monetary Fund missions, is that if countries can get richer, everything else will fall into place.

A version of this view, which has gained particular currency since the collapse of the Soviet Union, is that the key is private property. Establish property rights, the reformers in Warsaw, Moscow and Beijing believed, and economic and social success will inevitably follow.

But the authors argue that if an extractive regime is in charge, neither wealth nor private property can save a country from eventual decline. The Russia of today, they believe, is a textbook extractive regime, and that is what makes the vote this weekend, and the unexpected protests that preceded it, so significant.

“Russia is ruled by a narrow clique,” Mr. Acemoglu said. “The only thing that is keeping it going is a big boom in natural resources and a clever handling of the media.’’ He argued that wealth in and of itself doesn’t lead to sustained growth: “Saudi Arabia can get a lot of growth, but that is not the right growth. Take away the oil and Saudi Arabia would be like a poor African country.’’

A crucial argument the authors make – and one foreign aid donors and policy advisers too often miss – is that the leaders of extractive regimes don’t implement policies that stifle sustainable growth out of ignorance. They aren’t stupid; they are pursuing their own self-interest. The real ignorance is that of outsiders who fail to appreciate that in an extractive regime, the interests of the rulers and the ruled do not coincide.

The book’s analytical framework helps to make sense of one of the seeming paradoxes of the past 12 months – the prosperous middle-class people who have taken to the streets in the Arab world, in India and in Russia to protest crony capitalism. If you believe that economic growth today is a sufficient condition for long-term prosperity, these affluent agitators are puzzling. That leads observers to search for softer grievances, such as the quest for dignity.

But the authors believe that dignity and long-term prosperity are intimately connected. The protesters, who put the demand for political rights ahead of everything else, are right; the academic consensus that argues they should simply focus on the correct economic policies is wrong.

The authors conclude with a prediction about Russia’s future that fits neatly within their framework of extractive versus inclusive institutions: “The Kremlin talks about creating the next China, but Russia’s path is more likely to be something like that of Angola – an oil-dependent state that is growing now because of high oil prices but has floundered in the past when oil prices were low and whose leaders seem more intent on maintaining themselves in office to control oil revenues and other rents than on providing public goods and services to a beleaguered population.’’

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