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Tuesday, April 24, 2007

The Price of Oil and Yeltsin's Legacy

Martin Wolf says a fall in oil prices is needed to complete the reforms that began under Boris Yeltsin:

How Russia slipped on the road to Yeltsin’s new era, by Martin Wolf, Commentary, Financial Times: ...[Boris] Yeltsin was the most democratic ruler Russia has ever possessed. Yet what is emerging under his successor is not the vibrant democracy that many hoped for. Yeltsin’s legacy is as mixed as was his turbulent nature.

Yeltsin was among a small number of leaders who have transformed the world. ... Yeltsin’s courage and charisma brought to an end both the party and the Soviet Union itself.

His enemies will never forgive him for his role in ending the party, the state and the Russian empire in 1991. But those who lived most of their lives in the shadow of the cold war will always be grateful to him. The sight of him standing heroically against the attempted coup of August 1991 is unforgettable. It was the end of a ghastly era of human history, in which despotism went almost beyond the limits of the imagination. ...

Inevitably, reform of Russia ... proved ... difficult... Yeltsin ... never fully understood what a democracy or a market economy was. How could he have done so? But, to his eternal credit, he did tolerate free speech, he did allow the former republics of the Soviet Union to go their own way, he did give sporadic support to the reformers, he did go ahead with the presidential election in 1996 and, not least, he did leave office peacefully. Moreover, notwithstanding all the mistakes he made, he did begin the move to the market. He was neither a civilised intellectual nor a sophisticated statesman, but, by Russia’s dreadful standards, he was little short of a miracle.

History will, I believe, judge that he made three huge mistakes: the war on Chechnya, which brought the security services into the heart of government; the “loans for shares” programme of 1995, which transferred a vast part of the natural wealth of Russia into a tiny number of private hands; and the selection of Mr Putin as his successor. These three errors, together, led to a reversal of the move towards a more democratic, liberal and open Russia. But these errors are at least understandable: the first because Russians feared the dissolution of their country; the second, because return of the communists to power seemed a real risk; and the third, because Mr Putin appeared both reliable and untainted. ...

Behind Yeltsin’s mistakes was a still bigger failure: his infirm grip over government itself. Under his rule, Russian government was more corrupt, incompetent and feeble. A backlash was inevitable. The backlash has taken on traditionally Russian characteristics, through the rebirth of a strong arbitrary state, unchecked by parliamentary or legal restraints presiding over a cowed civil society.

Yeltsin’s remarkable story may then be seen as at best a partial success and at worst a gross failure. I would regard it as closer to the former than the latter. The Russia of today is not [the] one ... hoped for. But it is surely far better than the Russia of three decades ago. For that Yeltsin deserves much credit.

The story of the ups and downs of Russian reform over the past two decades is not just about political leadership and political ideas... It is also about the impact of the world price of energy on an economy that Stalinist socialism had rendered desperately inefficient.

Economic reform began under Mr Gorbachev ... shortly after the collapse in the price of oil in 1985. It continued through the era of Yeltsin and Mr Putin’s first term. It died, as the oil price soared... The economic boom that resulted has made everything easier for Mr Putin. Between 2002 and 2005, for example, gross domestic product rose by an impressive 22 per cent...

Russia today is a politically centralised and corrupt petro-state. As long as this continues, reform will remain stalled and the political system centralised and oppressive. ...

The price of oil rose too soon in the process of reform, with sad longer- term results. The collapse in oil prices in the 1980s made the reforms necessary, but their current rise makes Mr Putin’s regime stable. When (or if) prices fall again, a new leader may dare to complete Yeltsin’s task of turning Russia into a modern liberal democracy. We should hope for this outcome, above all for the sake of the Russian people themselves. Then at last we will also be able to say with confidence that, under Yeltsin, a new democratic Russia was born.

How will the Iraq war affect the price of oil in the short-run and long-run and hence the power of authoritarian regimes in oil rich states?  So far, higher oil prices from the war have aided such regimes. Along this particular dimension - higher oil prices supporting authoritarian regimes in Russia and elsewhere in the world - how will the war in Iraq be judged over the longer haul? I would think, not so favorably.

    Posted by on Tuesday, April 24, 2007 at 12:52 PM in Economics | Permalink  TrackBack (0)  Comments (5)


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