Tag Archives: economic reform

Russia’s Rent-Seeking Downward Spiral

It is clear that if we do not start taking action today, including by carrying out structural reforms, we could end up going into a lengthy period of economic stagnation tomorrow. Our economy is still based primarily on natural resources rather than on manufacturing. Our economic system has changed little in essence. Where does most of our money come from? From oil, gas, metals and other raw materials.

– Vladimir Putin, Annual Address to the Federal Assembly, April 3, 2001

Fifteen years later, the Russian economy envisioned by that progressive speech by Putin in April 2001 seems to be a distant memory. Russia’s economy, and budget, are still largely dependent upon the sale of oil and the majority of Russian industry is still based on extractive industries. The modern vision of Russia in that speech, one deeply embedded into the international system, where property rights are protected by the undiscriminating rule of law, has been replaced by a cynical “managed” system of crony capitalism where profits are skimmed off by insiders while Russia has isolated itself by its actions on the international stage.

Since 2001, record-setting commodity prices have supported increased social benefits, military spending, and infrastructure investments, each of which has supported corruption schemes where insiders profit off of the state’s largess (see the cost of the Sochi Olympics as Exhibit A). High commodity prices also allowed the Russian government to slowly smother individual rights and free speech at home and, largely through key investments in media, buy the country a larger voice in affairs abroad.

Rather than pulling away from a resource-based economy, Russia’s entire economy appears to now be moving in near perfect correlation with energy prices (see chart below).

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Kenneth Arrow: Directions of Research in the Coasean Tradition

Marginal Revolution blogger and George Mason University Professor Tyler Cowen moderates a panel on the future of economic research, featuring Nobel laureate Kenneth Arrow.

Marginal Revolution blogger and George Mason University Professor Tyler Cowen moderates a panel on the future of economic research, featuring Nobel laureate Kenneth Arrow.

Last year, CIPE and the U.S. Chamber of Commerce partnered with the Ronald Coase Institute to host a conference that celebrated the legacy of Ronald Coase and review research inspired by his work. Ronald Coase is perhaps best known for his explanation of the importance of transaction costs, property rights, and institutions to the functioning of an economy. A primary thought leader for new institutional economics, he received the Alfred Nobel Memorial Prize in Economic Sciences in 1991.

To recognize the anniversary of the conference, “The Next Generation of Discovery: Research and Policy Change Inspired by Ronald Coase,” CIPE focused this month’s Economic Reform Feature Service article on remarks given by Nobel Laureate and Professor of Economics Emeritus at Stanford University Kenneth Arrow.

To quote Arrow in his opening remarks, Ronald Coase’s work was “provocative, so undriven by fads.” In taking his own independent course, Coase challenged assumptions and norms, and left behind a wealth of insights that continue to influence today’s economic research agenda in a range of fields.

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Ukraine Needs to Privatize its State-Owned Companies — But Rushing It Would Repeat the Mistakes of the Past

Storied aviation company Antonov, makers of the world's largest cargo plane, is in no position to be privatized.

Storied aviation company Antonov, makers of the world’s largest cargo plane, is in no position to be privatized.

 

The stakes for reforming Ukraine’s state-owned companies are high: these companies are the lifeblood of a corrupt, sclerotic crony capitalist system that scares away potential investors, drives off international donors, and robs the Ukrainian government of legitimacy. But  privatizing them as quickly as possible is not the solution.

Even after mass privatization in Ukraine in the 1990s, the government still owns a large portfolio of companies in a variety of sectors – from heavy industry to banking — that employ over 900,000 employees, far more than any private firm.  Reforming these state-owned enterprises (SOEs) has been a slow process and remains incomplete due to weak corporate governance, unmotivated management, and a near-total lack of transparency. None of these problems will be solved by simply speeding up the process.

The demand for rapid privatization is a familiar tune. Western “expert” advice in the early 1990s led to a huge transfer of wealth from the former Soviet Union to a handful of connected insiders, particularly in Russia: first through voucher privatization and later through the disastrously corrupt loans-for-shares schemes in the run-up to Russia’s 1996 election.

To get an idea of the scale involved, a 1993 paper by several Western economists who worked directly on the voucher privatization program estimated that most of the Russian Federation’s civilian industrial base – nearly every plant, factory, and mine in the country – was effectively sold off to insiders for between $5 and $10 billion, less than it would have cost to buy a single mid-sized Fortune 500 company (and roughly equal to the market capitalization of Whole Foods today). Still, at the time they regarded this program as a great success.

Unfortunately, the corrupt and predatory “oligarch” elite, created practically overnight, proved to be more interested in asset-stripping than in transforming their new firms into firms that could compete on world markets. What followed was the largest peacetime economic collapse of any country in recorded history. The sheer volume of banditry surrounding state assets during the 1990s led many average citizens in post-Soviet countries to believe that lower standards of living and a complete lack of justice were a natural part of living under democracy.

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Sparking Debate on Economic Policy in Nepal

Samriddhi wins an award at the Asia Liberty Forum in Kuala Lumpur.

Samriddhi wins an award at the Asia Liberty Forum in Kuala Lumpur.

By Sarita Sapkota, Samriddhi

In the annual Asia Liberty Forum in Malaysia this year, Atlas Network presented the Asia Liberty Award to Samriddhi for its ‘Econ-ity’ initiative. As part of Atlas’ Regional Liberty Awards, The Asia Liberty Award recognizes think tanks within the Atlas Network that have made important contributions to improving the landscape for enterprise and entrepreneurship in their regions. Through the award, Econ-ity was specially appreciated for the success it has brought about in advocating for and having an impact on energy sector reforms and investment policy reforms in the area of foreign investment in Nepal.

These reform efforts include pressuring the government to remove the minimum investment requirement in its recent foreign investment policies to allow small entrepreneurs to receive smaller investments and technology transfer from foreign companies as well as the establishment of a hydropower trade agreement with India that creates a more optimistic environment for investors in the sector. CIPE has been partnering with Samriddhi on several research and advocacy projects in both areas over the years.

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Disruptive Development: Harnessing the Power of the Fourth Industrial Revolution in the Middle East and North Africa

2015 TechGirls at iD Tech Camp at American University

Many say that we are in the midst of a Fourth Industrial Revolution, characterized by rapid and transformative technological advancement on a scale the world has never seen before. This Fourth Industrial Revolution has already radically and fundamentally altered the way we live, work, and interact with one another, and, unlike the ones that preceded it, is evolving at an exponential, rather than a linear, pace. Its possibilities are nearly endless.

And while previous industrial revolutions were slow to spread to certain areas of the world—thus engendering spheres of “industrialized” and “non-industrialized”—the technological nature of the Fourth Industrial Revolution has meant that the playing field has evened somewhat; industry in virtually every country has been disrupted, and transformation of entire systems of production, management, and governance is all but inevitable, if it hasn’t already started.

From cell phones to self-driving cars and artificial intelligence, the Fourth Industrial Revolution is shaking up what we know—or think we know—about almost everything. This presents an opportunity to recalibrate the lens through which we view and approach critical development issues, and provides a challenge to traditional mechanisms for delivering key goods and services.

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A Way Forward for Afghanistan’s Economy

Presentation of the Herat PBA in Herat City. (Photo: CIPE Afghanistan)

Presentation of the Herat PBA in Herat City. (Photo: CIPE Afghanistan)

In many respects, 2015 was the most significant year in Afghanistan since the beginning of the international military presence in 2001, as Afghan National Security Forces took full control of counterinsurgency operations, and the National Unity Government (NUG) of President Ashraf Ghani and CEO Abdullah Abdullah assumed power.  However, the year ended on a bleak note, with civilian casualties reaching an all-time high, the Taliban regaining control of the most territory they have held since November 2001, and political infighting continuing to paralyze the NUG’s proposed economic reform program.

In November of last year, the Asia Foundation released its annual Survey of the Afghan People, which compiles the views of more than 75,000 Afghan men and women on major issues key to the country’s social, economic, and political development. The results reflect the immense levels of upheaval and change the country has gone through in the past year, with only 36.7 percent of respondents stating that they believed their country was moving in the right direction, the lowest level of optimism over the past decade.

While the increased levels of violence, and the resurgence of the Taliban and other armed opposition groups have certainly been a key contributing factor in this loss of confidence, the most frequently cited local problem among those surveyed was not insecurity, but unemployment and lack of economic opportunity.

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Key Minister Resigns in Ukraine, Casting Doubt on Economic Reform Progress

Photo credit: Lithuania Ministry of Foreign Affairs, Flickr https://www.flickr.com/photos/mfa_lithuania/20063595149

Photo credit: Lithuania Ministry of Foreign Affairs, Flickr

By Eric Hontz and Marc Schleifer

In a stunning announcement in Kyiv on February 3, Ukraine’s Minister of Economic Development and Trade Aivaras Abromavicius submitted his resignation to President Poroshenko. The Lithuanian-born Abromavicius cited several factors contributing to his resignation, including pressure to appoint questionable individuals to his team or to key positions in state-owned enterprises. In particular, he named Igor Kononenko, considered a Poroshenko ally in parliament. President Poroshenko has reportedly urged Minister Abromavicius to stay on, and has promised that the National Anti-Corruption Bureau would investigate his claims against Kononeko.

A public statement signed by 10 ambassadors to Ukraine, including from the United States, the United Kingdom, Germany, and France, released hours after the resignation, emphasized deep disappointment and noted the importance of Ukraine’s leaders setting aside parochial differences and the necessity of putting the vested interests that have hindered progress for decades in the past.

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