Russia Is Not Ready for the OECD

Coinciding with a plethora of op/eds today either singing the praises of Boris Yeltsin or condemning his weaknesses (some articles did both), Deputy Prime Minister and presidential hopeful (is it possible to “hope” for a non-democratic appointment?) Sergei Ivanov slipped in an editorial in the Wall Street Journal appealing for Russia’s admission of membership to the OECD (see earlier post with photos and quotes).

Russia should become an OECD member, but not until major improvements in rule of law, democratic freedoms, and market reforms are made

Despite some disagreements I have with the current Administration’s policies, it has long been my argument that Russia deserves to have its rightful place at the table in the international community in a manner reflective of their global importance, and should be integrated into as many rule-based environments as possible to help encourage an effect of institutional spillover into domestic legal and regulatory bodies. However, the case of the OECD is one in which I draw a very clear line in the sand. Lavrov’s appeal is reasonably well written and contains some good arguments: thanks to record high oil and gas prices, Russia’s economy has been very dynamic over the past ten years, and its large foreign reserves and open exchange market are admirable. Lavrov is also right to point out the geopolitical heft Russia has gained from becoming an arbiter in various international disputes (regardless of whether we agree with the specific decisions, the new foreign policy activism cannot be denied). However, Lavrov’s appeal also contains a number of assertions that border on the absurd. Through these rose-tinted lenses, Russia is a “democracy,” with attractive conditions for foreign investors even in the oil and gas industry. He writes that no “prejudice or ideology affects our approach to foreign affairs,” and that Russia has proven itself to be a “reliable partner.” Most important of all, this article is mistaken in assuming that Russia currently meets the criteria for OECD membership as outlined in the Noboru Report. The report says that the criteria for eligibility for membership in the OECD is based on “like-mindedness” and “significance” – and while Russia probably wouldn’t have to argue very hard for the latter, the former is quite a difficult proposal. The two fundamental yardsticks for the “like-mindedness” criteria are 1) market-based economy, and 2) democratic principles, and Russia has neither, a fact so poignantly expressed both by the recent fraudulent Yukos auctions and interventions on Royal Dutch Shell and BP, as well as the truncheon-wielding crackdown of a modest march of democrats. Mr. Lavrov’s words reflect the Kremlin’s improbable belief that you can fool all of the people all of the time, and that is just not the case. Russia is perhaps today the greatest force in the world against transparency and free markets. It is literally written into the DNA of the state corporatists who are presented put in charge of the approximately 40 areas of the economy that the state has deemed to be “strategic” – meaning that intervention is necessary to dominate, control, or outright steal from individuals and companies working in these areas. Those in the Kremlin should read the OECD guidelines on state-owned enterprises, and compare the independence rules contained therein to the sorry state of affairs in Russia, in which the president’s closest friends from his former career as a spy making multi-billion dollar decisions regarding the future of critical industries as a second job, after they finish their full time job of discharging their cabinet duties. Russia indeed deserves its place at the table, and I would very much like to see them get there – but tolerating the anti-market, authoritarian status quo is not helpful to anyone, inside or outside of Russia.