“Russia’s Crony Capitalism” Q & A with Anders Åslund

Swedish economist Anders Åslund is one of world’s most prolific and long-lived scholars of post-Soviet economies. Through scores of books, articles, and blogs, Åslund has shaped public and policymakers’ opinions for nearly three decades. As an adviser to Russian, Ukrainian and Kyrgyz leaders in the 1990s, Åslund had a hands-on role in the creation of market-based economies in those three countries. Currently, he is a Senior Fellow at the Atlantic Council, and serves as chairman of the International Advisory Council at the Center for Social and Economic Research. In his latest book, “Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy”, Åslund works to untangle the complex web of corruption that marks Russian President Vladimir Putin’s regime, and to track wealth concentration into the hands of the Russian elite. CIPE’s Business of Integrity Blog recently caught up with Åslund for a Q&A.

 What are the origins of modern oligarch wealth in Russia?

The original source of the wealth of the oligarchs in Russia was commodity trading. At the end of the Soviet Union, people with good connections could buy oil for $1 a ton and sell it abroad for $100 a ton, which was the world market price at the time. Their second source of wealth was banking. Until 1998, all the oligarchs were bankers. Their banks borrowed money for a song from the Central Bank of Russia, and, thanks to the high inflation, it cost them virtually nothing to pay it back. Meanwhile they had purchased commodities with the money.

How do Putin and his cronies balance placating the Russian population with their desire for extreme personal wealth?

Putin understands that his system of authoritarian kleptocracy cannot engender much economic growth. Russia’s GDP has grown only 1 percent a year during the last decade. With little bread, Putin offer circus instead in the form of small victorious wars. His popularity rating peaked at 88 percent twice, with the war in Georgia in August 2008 and the annexation of Crimea in March 2014. However, the wars in eastern Ukraine and Syria have not been popular. Increasingly, Russian protesters chant “Putin is a thief.”

Is the nature of the Western banking system itself at fault for facilitating the accumulation of dark money? If so, what critical changes should the Western banking system adopt?

The main problem with money laundering is that Anglo-American law permits anonymous companies. They US has more than two million anonymous companies. The net capital flight from Russia is about $40 billion a year on average. The wealthy transfer major assets abroad because Russia has no secure property rights. This is true of both honest and illicit money. A reasonable guess is that half is illicit. The West needs to prohibit anonymous companies, which the European Union has already decided to do. The US needs to follow.

Does the current sociopolitical order in Russia have a future post-Putin?

Russia’s current system of authoritarian kleptocracy is likely to end with Putin. Therefore, he has to hang on to power until he dies or is ousted.

 

Caroline Kelly, Intern, Anti-Corruption and Governance Center