The Economic Damage of Politicized Justice

Stephen Blank has an interesting new article on Forbes in which he assesses the economic damage being caused by Russia’s inability to effectively reduce legal nihilism and corruption, both of which are dragging on the country’s attempt to recover from the crisis.  Sticking out like a sore thumb is of course the second trial of Mikhail Khdorkovsky, which will be in full session during the first state visit of President Barack Obama.  Blank describes the Khodorkovsky trial as a “palpable judicial farce,” and if President Dmitry Medvedev is unable to take action to solve the situation it will “confirm the widespread belief that he is merely a tool of his predecessor, a placeholder until Putin resumes the presidency.

When he was a candidate to lead Russia, Dmitry Medvedev denounced the country’s “legal nihilism.” Now, as president, he has often spoken in favor of judicial independence. Yet one year after his inauguration, with President Obama set to pay a state visit on Monday, Russia remains engulfed by a tidal wave of corruption, hamstrung by a politicized justice system that is chasing away the enduring foreign investment and economic stability that Russia so desperately needs.

Ikea, the Swedish home furnishings giant, just declared a moratoriumon investment in Russia, frustrated by officials’ endless efforts toextort bribes. As it seeks membership in the Organization for EconomicCooperation and Development and World Trade Organization, Russia ranked147th out of 180 countries last year in Transparency International’sCorruption Perception Index, behind Cuba, Libya and Iran and tied withSyria and Bangladesh (see story, “The Most Corrupt Countries”). Arecent survey of private equity investors by Coller Capital foundRussia tied with sub-Saharan Africa as the riskiest emerging market,and Russia led the list with the biggest increase in riskiness sincelast year.

This is catastrophic for Russia, where the economy contracted at a9.5% annual rate in the first quarter. The country must attract diverseand durable investment to break free of export dependence that causesgross domestic product to surge and plummet with every fluctuation inoil prices as speculators jump in and out of its boom-bust stockmarket. Inflation and unemployment each exceed 10%, and the averagesalary is about $500 a month.

Symbolizing all that is wrong with the Russian system is the currenttrial of Mikhail Khodorkovsky and his former partner, Platon Lebedev,who ran the Yukos Oil Company. The absurd charges against them–forexample, embezzling 350 million tons of oil–are an attack on thefundamental right of individuals to own property under law. As this isthe second trial for both men, it is a palpable judicial farce.