Better Off Than You Might Think: Russia Is Not a Basket Case

[ 132 ] asia policy Better Off Than You Might Think: Russia Is Not a Basket Case Jeffrey Mankoff With a range of collaborators, Anders Åslund and Andrew Kuchins have written a very fair-minded and penetrating analysis of the Russian political economy. Published by the Peterson Institute for International Economics, The Russia Balance Sheet is a follow up to the very successful 2006 book China: The Balance Sheet.1 As its predecessor did for China, The Russia Balance Sheet seeks to identify the underlying strengths and weaknesses of the unique political-economic model that has emerged in Russia over the past decade-plus and then offers a strategy to U.S. policymakers now seeking to re-conceptualize Washington’s relationship with Moscow. The book’s timing is particularly fortunate, being published in the early spring of 2009 when Russia was suffering through the worst part of the global economic crisis. The book’s focus on Russia’s strengths is especially welcome, because popular portrayals of the country too often emphasize the negative: social decay, corruption, repressive politics, and an aggressive foreign policy. The Russia Balance Sheet makes the case that, with the exception of corruption, many of these stereotypes ought to be tempered by a longer perspective and a broader comparative lens. As Åslund and Kuchins emphasize, Russia in many ways is better off than most middle income countries, including its putative partners among the BRIC economies (Brazil, India, and China), all of whose citizens have a much lower median income level and less access to education than their Russian counterparts. Moreover, Russia lacks the desperate poverty of the Brazilian favelas (shanty towns) or the slums of Mumbai. Russia is also more economically open than it is often given credit for being (p. 77).2 At least until the onset of the current crisis, Russian economic policy was generally conservative, with the oil wealth sequestered in a sovereign wealth fund designed both to insure against a downturn and to prevent the influx of money from setting off inflation. 1 C. Fred Bergsten, Bates Gill, Nicholas R. Lardy, and Derek J. Mitchell, China: The Balance Sheet (New York: PublicAffairs, 2006). 2 Per capita foreign investment in Russia was seven times higher than in China as of 2007. jeffrey mankoff is Associate Director of International Security Studies (ISS) at Yale University and Adjunct Fellow for Russia Studies at the Council on Foreign Relations. He can be reached at . [ 133 ] book review roundtable • the russia balance sheet Despite these strengths, Russia has for the most part experienced a bad crisis, and this book’s analysis of the Russian economy’s unique structure helps us understand why. The problem has much to do with politics, particularly the way in which wide swaths of the economy have become a cash-cow for the governing elite. To some extent, the fusion of business and politics is part of the Soviet legacy, but Åslund and Kuchins make clear that it also rests on specific policy choices, particularly those of the past five or six years. The Russia Balance Sheet begins with an attempt to trace the historical evolution of Russia’s state capitalist system, emphasizing the uneven trajectory of economic reform in Russia since the mid-1980s when Mikhail Gorbachev launched perestroika. The failure of Gorbachev’s economic reforms set the stage for the struggles over economic policy that have been central to Russian politics since the end of the Soviet Union. Under Boris Yeltsin some sectors, notably oil, were effectively privatized, setting the stage for a decade or more of impressive growth. Yet Russia never broke completely with the Sovietera model of large industrial conglomerates subject to state management. Gazprom, Russia’s largest and most powerful corporation, is merely a partially privatized successor of the old Soviet Ministry of Oil and Gas. Likewise, three state-dominated companies—Sberbank, VTB, and Gazprombank—control half the Russian banking sector. Russia has gone through periods of further reform since the heyday of liberalization in the early 1990s. As Åslund and Kuchins point out, Putin himself started off as a serious reformer. Only with the assault on Mikhail Khodorkovsky and Yukos in 2003 did Russia begin retreating from the goal of...