Liberalisation, Putin style

What does economic liberalisation mean?

Ever since the repeal of the Corn Laws in the mid-19th century, the answer to that question is so clear-cut as to be self-evident.

Free home market. Free trade. Removal of protectionist tariffs. Reduction of state interference in the economy. Less red tape. Lower taxes. Unrestrictive labour laws. Incentives to businesses. Denationalisation…

Well, you know. All those worthy things that collectively add up to shifting economic activity away from the state and towards the individual.

Yet we must acknowledge that there are states and there are states, and not all of them will find this version of liberalisation to be indisputable.

Some states have a yearning for economic liberty coded onto the DNA, as part of the overall freedom genome.

For some others, economic liberty is a novelty, and not always a welcome one. Such states care more about their own power than the wellbeing of their people.

They find it psychologically hard to liberalise the economy, or anything else for that matter. Yet hard doesn’t mean impossible, as brilliantly demonstrated by the so-called Asian Tigers.

Those states managed to overcome their natural inclination towards tight control because their leaders at the time knew they had to. No other path to prosperity existed.

The results were quite spectacular, on a par with the German post-war economic miracle (Wirtschaftswunder for short, and don’t you just love the German language).

Now imagine for the sake of argument that the state in question is neither a socialised Western control freak nor a traditionally regulated Asian polity. Picture in your mind a great superpower whose economy is so indelibly fused with organised crime that it can proudly boast a unique status: the first ever Mafia state.

I know this sort of thing is hard to imagine, so I’ll give you a little visual aid. Just look at today’s Russia: it’s precisely such a state.

Crime in Russia is organised, and it’s the state that does the organising, with economic corruption radiating from centre to periphery. No business in Russia, from a lingerie shop to an oil company, can survive without paying massive amounts in bribes and kickbacks.

Since we are into visualisation, think of a snowball rolling down a ski slope and getting bigger as it goes along. Now play the mental picture back in reverse, with the snow ball becoming smaller as it climbs up to the top.

That’s exactly how the Russian economy works. The lowest tier won’t be allowed to operate unless it kicks back some of its profits to the next level up.

Some of the money settles there, along with the income that level generates by itself. The rest, including some of the indigenous profits, is punted up the ladder – and so on, all the way to the Kremlin.

By the time the snowball scales the Kremlin wall, it will have become quite small. But, considering that there are thousands of such snowballs, one can understand why Russia is being ruled by a government of billionaires, and why Col. Putin himself is reputedly one of the world’s richest men.

The arrangement is similar to a Mafia family being paid off by every retail outfit in, say, a part of New Jersey, but the scale is vastly greater.

So what would economic liberalisation mean in such a state? If rumours emanating from the Kremlin are to be believed, Col. Putin will explain this on Thursday.

Since the state exercises control over the economy through a pyramid scheme of bribes and kick-backs, these will have to be reduced.

The Russian economy, otherwise known as the Mafia, is suffering from Western sanctions a little and from the drop in oil prices a lot.

Its access to foreign money markets greatly reduced, and its hydrocarbon imports (three quarters of the total) reeling, Russia has to rely on a brisker economic activity at home.

Hence Putin will decree that the tens of billions in protection money, kickbacks and bribes that every business has to pay will have to be reduced. Actually, he’ll use the word ‘eliminated’, but both he and everyone else in the country will know it’s only a figure of speech.

Apparently Putin made the decision to deliver the epoch-making speech after a conversation with Alexei Ulyukayev, Minister for Economic Development.

A major recession is inevitable, complained the minister. Look, Mr Putin, the rouble has lost 40 per cent of its value in the last few months, and so have the oil prices.

The inflation rate is climbing like a vertical take-off Mig, and the sanctions are beginning to bite. We need to borrow heavily, yet we can’t. We really must have those bloody sanctions repealed.

And do you have any idea how we could do that? wondered Peter Hitchens’s idol. Er, I don’t, admitted the minister. But I was hoping you did.

In fact, both interlocutors know exactly how. Stop the aggression against the Ukraine, foreswear any future forays, and Western countries will be falling over themselves proffering credits, exports, financing and lucrative markets.

But such words can’t be spoken by, or to, the KGB colonel in the Kremlin. Ulyuakayev knew this, hence his evasive reply.

The only other way of preventing a total economic collapse is to activate the domestic entrepreneurial resources, and there is every indication that Putin is aware of this.

Hence his earlier diktat to stimulate domestic food production to a point where Russia won’t have to rely on imports. Hence also the speech he is alleged to be planning for Thursday.

The measures to be proposed are the crime-syndicate version of traditional economic liberalisation. For lower taxes, read smaller bribes. For reduced red tape, read less money extorted in kickbacks. For allowing more economic freedom, read fewer murders in dark alleys.

This is an eerie simulacrum of the real thing, but Putin may find it’s easier said than done.

The only way to make a Mafia family loosen its grip is to ‘whack’ (to use Putin’s favourite expression) its godfather, his immediate cronies and consiglieries. This option just isn’t on the cards, not if Putin and his retinue can do something about it.

A bossy but generally lawful state can be reformed, but as the Soviet Union found out, a criminal state can’t. It can only be destroyed – unless it succeeds in destroying its opposition.

I’ll leave you to ponder the possible scenarios on your own. Personally, I find none of them appealing and some of them scary.


My new book, Democracy as a Neocon Trick, is available from Amazon and the more discerning bookshops. However, my publisher would rather you ordered it from, in the USA,




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