Magazine

Russia's Surprise Reformer


Six years ago, Russia was in a financial crisis. The government defaulted on its ruble debt and declared a moratorium on principal payments on foreign-currency loans. After that, burned foreign investors treated Russia like toxic waste. Yet contrary to expectations, the economy grew 38% in the next five years. Now Russia has a trade surplus of $60 billion a year and annual economic growth of 7%. Affluent Russians use cell phones, own laptops, and tool around in foreign cars.

Rising oil prices, of course, have a lot to do with Russia's unexpected economic success. So does President Vladimir V. Putin. Yes, he threw oil giant Yukos tycoon Mikhail B. Khodorkovsky in jail for fraud and tax evasion. And yes, he clamped down on the media and manipulated the last election to guarantee a landslide victory for himself. Clearly, the ex-KGB agent is a political authoritarian. But he is turning out to be an economic liberal as well.

Much to the astonishment of the West, Putin is cutting taxes, abolishing restrictions on land ownership, insuring bank deposits, encouraging private pensions, and creating a more stable legal system for business. By cutting the income tax to 13%, Putin is bringing millions of Russians in from the cold of the underground economy. For the first time, Russians are asking employers to report their full incomes so they can get mortgages, credit cards, and car loans from banks.

Yet there is an economic price to be paid for Putin's authoritarian ways. Russia has one of the world's most educated workforces. It does advanced work in software, semiconductors, space, rockets, materials, and nuclear energy. Increasingly, U.S. and European companies are tapping into that talent. But an undemocratic society cannot maximize the creativity of its engineers and scientists. Russia has a good chance of moving from petro-state to global high-tech power, and if Putin improves the country's democratic institutions, he could help take it there. There could be no better legacy.


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus