Over 100,000 entrepreneurs and small business owners are in prison in Russia for not paying bribes to assorted inspectors or because parties to business disputes bribe police to arrest them on trumped-up charges. Russia’s private sector has very little security in law for its property rights. Almost everybody dragged before any court is found guilty. The consequences are minimal re-investment, low productivity growth, and owners who seek security by taking out maximum cash and, if able, stashing it abroad.
Consequently, Russia depends upon imports for 90 percent of its consumer goods. Its agriculture is still a shambles, with no secure property rights, lousy roads to get products to markets, and younger farm workers fleeing the boredom and poverty of the countryside. Just fly over any Russian city, as I have done, and see how little of the land is cultivated compared to cities in the rest of Europe.
Yet many leading libertarians have been very soft on Putin’s elimination of political freedoms and ruination of his country, excusing Russia because of NATO expansion and Western support for the overthrow of Ukraine’s Moscow-backed Yanukovych government. Some conservatives have even argued that Putin is an ally in supporting traditional “family values” because of his public opposition to homosexuality and gay marriage.
Ron Paul defends Putin, writing that there was no proof that Russian missiles shot down Malaysia’s Flight 17 over Ukraine. His allies argue that criticism or exposure of Putin’s regime merely strengthens the War Party in Washington, helping it to gain more spending and bring about more wars against more nations. They argue that it was NATO expansion and NATO’s attack on Serbia launched by Bill Clinton that ultimately led to the reactions and new aggressiveness of Russia. This is an argument I once appreciated, but it’s not a reason to whitewash today’s Russian dictatorship and incredible corruption. We–and I consider myself a Libertarian—can still oppose our military-industrial congress complex without excusing or hiding mention of monstrosities abroad. In fact such excuses weaken our moral standing and our competence as “realists.”
Now, with the 50 percent decline in oil income and a concomitant approximate 50 percent decline in the value of the Russian ruble, it’s very important to understand Russia’s domestic scene and how the country’s rulers are incapable of nursing its private business sector and agriculture to substitute for lost oil revenue. Russia, with its economically ignorant police-state rulers, may simply evolve into a semi-failed state with loose nukes around for the stealing or buying. Some analysts even warn that “when the federal government will no longer be able to offer financial incentive to the regions, Russia’s feeble federalism will crumble.”
Putin’s power base is with pensioners—to whom he could make relatively generously payments because of the past oil boom—and his constituency of security services, government officials (with guns), and inspectors shaking down the private sector. I have lived under various forms of dictatorship and wrote an essay in 2009, “Understanding Dictatorships,” explaining how dictators stay in power and the importance of “legitimacy” even for them. I lived in Havana when Fidel Castro overthrew the corrupt Batista dictatorship. I saw then how Batista depended upon his police, who consequently became very corrupt, constantly shaking down middle-class Cubans for bribes. They made Batista hated, but he couldn’t control them because he depended upon them to stay in power. Russia under Putin is very similar. In 2012 he publicly recognized the problem and even appointed an official, Boris Titov, to oversee releasing some 10,000 entrepreneurs from prison, but then he backed off the program. Instead, in 2013 Putin gave even more power to corrupt local courts with a new law allowing them to issue judgments without even notifying defendants of a pending case against them—see “Germany Cools to Russian Investment.” In consequence Allianz, a giant German insurer, stopped writing automobile insurance in the country.
Short of revolution, it’s hard to see how Putin can be thrown out. He and his cohorts can never allow a free election to threaten him with loss of control. He and they would all be subject to prison, or at least exile, once their corruption was investigated. He dare not leave power voluntarily. To the contrary, if squeezed too hard, he might lash out by invading other lands—Azerbaijan, for example, with its oil, or Kazakhstan with its minerals and pipelines.
The oil-price decline and Putin’s self-destructive corruption have done far more damage to Russia’s economy than any economic sanctions from the West. So now it would be better to ease up and not push Putin into more desperation or give him excuses to blame the West. European and American banks should be allowed to refinance existing Russian corporate debt, say 80 percent, with a schedule of payments to gradually reduce it—and certainly not to increase it. Just the cutting off of fresh money is all that’s needed to keep positive pressure on Russia without creating a possible failed state. A world price of $50-60 per barrel is enough to keep most of America’s shale oil production profitable yet prevent Russia from having excess funds beyond the essentials to pay pensions and prevent a possibly catastrophic implosion.
Hopefully Russia will be forced to turn inward to foster its own vast potential economic development by allowing private property rights and a breath of freedom at home. Economic development of the private sector needs a substantive rule of law.
Yet the other possibility, of becoming a failed state, is not as farfetched as it sounds. All former dictatorships are vulnerable in these days to such a risk of breaking up into religious sects, racial and ethnic groups, gangs, ideological crazies, and other malcontents with guns fighting each other. Iraq, Libya, and Syria are perfect examples. The American Conservative’s strategic expert William Lind argues that America should support “centers of order” wherever in the world against a growing number of 21st-century fracturing, failed states that will spread chaos; witness Europe’s fear of Middle Eastern fanaticisms coming to their lands. For Russia, with its thousands of nuclear bombs, it’s very much in the West’s interest to help keep it going as a viable, prosperous, and cohesive state.
Jon Basil Utley is publisher of The American Conservative.