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The Rise of Russia’s State Oligarchism

This one comes from Prof. Craig Pirrong on the Streetwise Professor:

In Darkness at Dawn, David Satter claimed that Yeltsin’s young liberal economists were actually prisoners of their Soviet educations. They believed Marxist dogma about primitive capitalist accumulation, and that any transition to capitalism would inevitably entail the enrichment of those with the least scruples. But, in their view, the creation of a market state would eventually tame and discipline these unworthy acquirers. Regardless of the original disposition of property and property rights, efficiency would ensure that resources would soon flow to high value uses, and that the managers and owners best able to create value would end up owning and controlling them. (Thus, I guess, they simultaneously believed in Marxist dogma, and the Coase Theorem as a reasonable approximation of reality.) To them, anything was better than state ownership and control, and primitive capitalist accumulation was merely an unsavory but necessary transitional step to a modern economy. It didn’t work out that way. Institutions matter, and Russian institutions did not–and do not–fully encourage and support wealth enhancing Coasian bargains. Instead, rent seeking, the lack of a rule of law, and weak property rights have prevented the realization of the liberals’ vision. So, it is likely that the pendulum will swing back towards state dominance, which is perhaps better described as state oligarchism, rather than private oligarchism. This trend has been evident for almost exactly 5 years–Khodorkovsky was arrested 5 years and a couple of days ago–but the financial crisis is accelerating the process dramatically.