Not that I needed to add one more article to the growing pile of opinions separating Russia from Brazil, China, and India, but the logic in this one was a little hard to follow:
“It was incredibly surprising to us how quickly people had abandoned Russia,” said Alex Turkeltaub, Frontier Strategy Group’s chairman. (…)
Frontier Strategy disagrees. It says Russia’s failure to diversify its economy away from oil and gas meant it didn’t grow between commodity cycles. Unlike Brazil and China, there was little evidence that a broad middle class was emerging in Russia with bulging wallets and the confidence to spend. And with its declining population, Russia’s demographics were less attractive than, say, those of Mexico.
But perhaps the biggest turn-off for investors was political uncertainty. People are still unsure who’s really running the country – prime minister and former president Vladimir Putin, or his successor, Dmitry Medvedev. “In Russia, we don’t know who’s really in power and there’s no consistency about policy,” says Mr. Turkeltaub.
Turkeltaub is not exactly wrong here – the pattern of expropriations, clan infighting, and near total lack of rule of law demonstrated by the political prisoner cases make the country a risky bet. But doesn’t this imply somehow that China’s authoritarian model is preferable to business? Or in other words, if Vladimir Putin were to step back in with full force, retire Medvedev and the attempt to fake democracy, the investment dollars would start flowing again at least because policy would be perceived to be consistent? Well, I suppose nobody ever said that foreign investment was necessarily encouraging of democracy.
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But doesn’t this imply somehow that China’s authoritarian model is preferable to business? Or in other words, if Vladimir Putin were to step back in with full force, retire Medvedev and the attempt to fake democracy, the investment dollars would start flowing again at least because policy would be perceived to be consistent?James, I think it indeed does imply that. In the past, investments did, I think, flow into dictatorships (Chile) or authoritarian/religious regimes (the shah’s Iran) as long as there was stability and a profit to be made. Democracy tends to increase these, but China is showing it is not the only way to do that. There apparently are others.The Chinese model is, to me, more worrisome than what is happening in Russia. After all, the Chinese are succeeding much better than the Russians. All the problems of authoritarianism and croony politics can be seen in Russia; but not in China, at least not so clearly. Russia looks like a good example of what is bad and why; China does not. Russia looks like the well-known powerful-leader, politics-and-corruption-disturb-economy authoritarian model; China somehow manages to combine political authoritarianness with business efficiency and true economic progress.One wonders what the future of democracy will be.
I think one ray of hope is the dramatic rise of democratic Brazil (where I am currently writing from on a trip). It placed #1 in this latest survey of 72 businesses. Other democracies also received higher marks than they would have otherwise out of stability of predictability of features like having a trustworthy justice system.It’s true that the economic incentive to move from authoritarianism to democracy is not always present, but in the case of Russia, I think the rewards could be astounding.