Will Freer Markets Lead to a More Democratic Government in Russia?

During the past three decades, democracy has expanded extraordinarily in the world. What political scientist Samuel Huntington named the "Third Wave" of democratization, which started in Spain and Portugal in the mid-1970s, has increased the number of democracies in the world from 41 in 1974 to 123 in 2007, according to the authoritative assessment by Freedom House. For the first time in world history, most human beings live in democratic countries.

In a seminal article published in 1959, the influential political sociologist Seymour Martin Lipset argued that the probability of a country becoming democratic increased with its level of income, the population's education, and its openness to foreign trade and travel.

Since world income, education, and openness have increased greatly in the past three decades, the advance of democracy is not surprising. By and large, democracy and freer markets go together, but the correlation is not all too tight.

Yet in the past few years, a few prominent countries have turned their backs on democracy. The outstanding examples are Russia, Nigeria, and Venezuela, and this article focuses on Russia. Many also point to China, which has grown relentlessly for three decades and even so remains solidly authoritarian.

In a recent article the neoconservative intellectual Robert Kagan argued: "Now it looks as if the richer a country gets, whether China or Russia, the easier it may be for autocrats to hold on to power. More money keeps the bourgeoisie content and lets the government round up the few discontented who reveal their feelings on the Internet."

Yet it is far too early to draw such pessimistic conclusions. Unlike Russia, China is still a developing country. Even today, China's gross domestic product (GDP) per capita at current exchange rates is merely one-quarter of Russia's. By traditional Lipset standards, we would expect China to be authoritarian.

A Contradiction

Russia, however, is too rich, too educated, and too open to be so authoritarian. The faster Russia grows, the greater this contradiction becomes between an increasingly obsolete political system and a swiftly modernizing economy and society. It has become an outlier.

At present, Russia's GDP per capita measured in purchasing power parities, that is, standard of living, is a respectable one-third of that of the European Union. Only eight countries in the world are richer than Russia and still not democratic, namely Singapore and seven small oil states. Russia is both far bigger and less dependent on oil and gas than any of these other authoritarian oil states.

Numerous political scientists point to Russia's current abundance of oil revenues as the main source of its remaining authoritarianism. In a fine book with regression analysis of many countries, University of California, Berkeley professor Steven Fish finds three causes for Russia's authoritarianism, namely too much oil, too little economic deregulation, and too weak a legislature.

The grand old man of Russian history, Harvard professor Richard Pipes, emphasizes the country's strong authoritarian tradition, both in practice and thought. The current post-imperial nostalgia also contributes, as does the post-revolutionary stabilization. Russians are tired of politics, and they blame their economic hardship in the 1990s not on the collapse of communism but on the post-communist democracy. They praise former President Vladimir Putin for the steady economic growth of 7 percent a year since 1999.

The question of whether Russia's authoritarianism is sustainable is best answered by clarifying its purpose. Since 2003, when Russia became truly authoritarian, no reforms have been undertaken, so that was not the goal.

Instead, the most remarkable development has been rising corruption in Russia, although corruption usually declines when a country grows wealthier, and it has declined in most other post-communist countries. According to Transparency International, the only country in the world that is both richer and more corrupt than Russia is Equatorial Guinea, which is hardly a standard worthy of a great, historic nation.

Large-scale Corruption

Credible independent Russian reports, such as Vladimir Milov's and Boris Nemtsov's Putin: The Results, record kickbacks from major infrastructure projects of no less than 20 to 50 percent of the total project cost. Russia's top officials steal many billions of dollars from the state and its corporations every year. A group of KGB intelligence officers sits at the top of each state corporation and taps it for money while purchasing good private companies with state funding and foreign bank loans.

Presumably, no country has ever seen such large-scale, top-level corruption as Russia does right now. This can hardly go on for very long. The state is becoming just too dysfunctional. The situation is untenable even in the short term. Any Russian ruler must start a serious anticorruption drive, but that can be destabilizing in itself.

The aggravated corruption took off with the confiscation of the Yukos oil company initiated in 2003. Since then, one big, well-run private corporation after the other has been renationalized. Curiously, no ideological aim is presented, but the nationalization appears to be a means for state officials to seize assets cheaply or extract kickbacks.

Therefore, the increased role of the state in the Russian economy has been accompanied with rising corruption. Freer markets would reduce the corruption, and then the top officials would not need so much authoritarianism. The state channels the oil wealth to its top officials, and freer markets would not allow them to do so.

Naturally, this large-scale corruption reduces economic growth. At present, both oil and natural gas production have started falling. Russia can afford its extensive corruption only because of the very high and still-rising price of oil. If the oil price were to moderate, the Russian people would ask where all the money has disappeared, and what many already know would become evident to everybody.

No large state with an educated population has managed to maintain authoritarian rule or stay so corrupt at Russia's level of economic development.