By Steve Kelman

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Russia provides a case study in government corruption

"Every educated person here is pessimistic about this country's future,” said the director of a Russian public relations firm, speaking over dinner during my stay in Moscow.

I was taken aback by the declaration, but perhaps I should not have been. Every Russian I asked about the situation in their country said something similar.

What people talk about the most is corruption. People do not feel secure either in their personal lives or with their property, not because of a totalitarian state but because of a gangster one. Somebody told me a story about a foreigner who had tried to cross one of Moscow's cavernous Stalin-era boulevards rather than using the underground passage provided for this purpose. Such an action is extremely unwise, bordering on suicidal, but it turns out also to be illegal.

Police stopped the man and told him he was under arrest for this crime. The police officer quickly added, however, that the foreigner could give the police officer 10,000 rubles (about $400) and all would be forgiven. The man didn't have 10,000 rubles in cash with him, he said. The officer, it developed, was willing to take whatever cash the man had in his wallet instead.

Afterward, the visitor went to a Russian friend and told him the story. The friend, who had some connections, called the local police station. Quickly thereafter, the police officer agreed to meet the visitor and return him his money -- but said he could only return half because the other half had already been given to the officer's boss, the boss' share of the take.

I asked someone why Russia wasn't doing better at high tech, given all the smart Russian computer whizzes. Were they all employed as hackers? I asked somewhat sarcastically. No, came the answer. They are in the Silicon Valley, where they can work in peace. In Russia, they are afraid that if they start a successful business, some government official will threaten to put them in jail for violation of some law unless they agree to allow the official part ownership of the business.

While here, I have been interviewed by two local newspapers. Virtually every question I got in the interviews was about corruption -- how do you deal with this problem in the U.S., is there any way to stop this, what effect is this having on Russia? (Interestingly, the newspapers here are said to be rather free, while television is carefully controlled -- apparently the authorities believe the former have little power compared with the latter.)

Having been anointed a number of years ago as one of the "BRIC" nations (Brazil, Russia, India, China), Russia is very much trying to see itself as part of the group of "transitional economies" (the preferred phrase here).

The ultra-modern Skolkovo Business School at the edge of the city, established a number of years ago by some Russian oligarchs, has positioned itself as a business school for students who want to work in one of the emerging economies. Its futuristic building has India and Singapore wings, among others, and its International Advisory Board includes the CEO of China's Lenovo Computers and Singapore's legendary former Prime Minister Lee Kuan Yew. Russia is already exporting significant quantities of oil to China, and, according to an article I saw in The Moscow Times, Gazprom, the natural gas giant that is the dominant source of natural gas for Western Europe, is negotiating with China, India and Korea about sending supplies there as well.

However, Russia's growth rate is half or less than that of the other BRICs. More than even Brazil (which has successful companies such as Embraer, a successful ethanol industry, and efficient agriculture), Russia's growth is pretty much uniquely dependent on natural resources it has in the ground, but which it has contributed little to exploiting. If you want to see what harms bad government can bring to a nation with talented and educated people, look no further.

Posted on Jul 05, 2011 at 12:09 PM


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