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Moscow Times
October 15, 2001
IMF and Russia Suffer Democracy Deficit
By Matt Bivens
Matt Bivens, a former editor of The Moscow Times, is a Washington-based fellow of The Nation Institute [www.thenation.com].

Among the three American professors who won this year's Nobel Prize in economics is Joseph Stiglitz of Columbia University. Russia-watchers will remember Stiglitz's controversial three-year stint as chief economist of the World Bank -- a period which saw rolling financial disasters domino their way from Thailand to Indonesia to Russia. Stiglitz had much unkind to say about the way the International Monetary Fund and the U.S. Treasury made that bad situation far worse (see "What I Learned at the World Financial Crisis," www.thenewrepublic.com/041700/stiglitz041700.html). And he has been just as sharply critical of the Washington-approved Russian economic reform plans of the 1990s.

The other two Nobel Prize-winners -- George Akerlof of the University of California at Berkeley and A. Michael Spence of Stanford University -- made careers, like Stiglitz, in exploring the ways in which access to good information is crucial to a healthy market economy (and intelligent economic policymaking). Stiglitz hammered away at this idea in discussions of both the IMF and of Russia: in essence, he argued that the more democracy at both the Fund and in Russia, the better for the world and Russian economies.

After watching the IMF push Thailand to adopt contractionary policies during a recession, Stiglitz concluded, "Bad economics [at the IMF] was only a symptom of the real problem: secrecy. Smart people are more likely to do stupid things when they close themselves off from outside criticism and advice. If there's one thing I've learned in government, it's that openness is most essential in those realms where expertise seems to matter most." Regarding Russia, Stiglitz looked askance at the secretive rush-rush privatizations of the mid-1990s, and at Washington's embrace of the rigged oil company auctions of that era. "Consider the incentives facing the so-called oligarchs in Russia. They might well have reasoned: democratic elections will eventually conclude that their wealth was ill-begotten, and there will thus be attempts to recapture it. They might have been induced to pursue a twofold strategy: on the one hand, to use their financial power to gain sufficient political influence to reduce the likelihood of such an event; but, assuming that that strategy is inherently risky, to use the other hand to take at least a significant part of their wealth out of the country to a safe haven."

This, to me, sums up Russia's Catch-22: Democracy, it seems, ought to be at least an eventual goal in and of itself; and while free markets and private property generally favor democracy, the New Russia is dominated by a corporate elite whose bickering members collectively have every rational reason to fear true democracy. They have bought up the media precisely because the media, by asking questions about their corrupt pasts, might threaten their futures. The ruling elites (oligarchs, but also powerful regional leaders) may talk of expanding democracy and adopting "a level business playing field" and "the rule of law." But any one of those things would put at risk what they control -- so at best, democracy has to be "managed" to prevent such outcomes or postpone them as long as possible. Moscow now looks incredibly stable, oil prices look stable, and the long-suffering 60 million Russians in poverty are as docile as ever. But a system dominated by a tiny corrupt elite is inherently unstable and opposed to a flourishing middle class -- which is crucial to many kinds of business activity but is also, unfortunately, likely to bring about democracy.

This is the situation in which some hope President Vladimir Putin will be an autocratic liberal, while others fear he will be a liberal autocrat. The point is that even the economy needs him to be a true democrat. Otherwise, he is simply the head of a secretive corporation called Russia that forever fears its own people. Even oil at $60 a barrel doesn't solve that problem.

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