Nick Paton Walsh

Nick Paton Walsh has a long and interesting piece in The Guardian on Russia. Essentially, how Putin is using the powers of the State to take control of the commanding heights of the economy (although they call them "strategic industries"). There’s also some interesting pointers to how the bureaucracy have become rent seekers:

One study suggested that a tenth of Russia's millionaires are bureaucrats: Russia spends more on bribing officials - $30bn, by one estimate - than it does on paying income tax.

Regular readers will know that my little business is based over there, reliant upon both supplies and manufacturing done in Russia. How do we deal with this environment? Not, I assure you, by joining in the paying people off boom.

We’ve actually had to leave certain areas of business (ie, trading in certain metals) as they were reclassified as "strategic" and thus a licence was needed to export. Such licence depending upon your contacts and payments to those issuing said licences, of course. The metals that we do deal with are not so classified....but in a rent seeking bureaucracy, why aren’t they? Because there’s not enough money in them.

The annual global market for one material we deal with (and we have a majority of that market) is around $3 million a year. That’s not the margins, that’s gross. These sorts of sums might be of interest to the local krishas, but not to the people who actually get to make the central rules. Whatever they could get out of controlling that market would pay for a night out at a club, no more. So they don’t bother.

For us that’s just fine, we carry along merrily, paying our taxes but not having some bunch looking over our shoulder. But it contains the seeds of a huge problem for Russia in the future. Any time a sector or market looks like becoming big enough to be interesting, big enough to help pay for a foreign villa, the rules are going to be changed so that the bureaucracy can get its cut. And obviously, this will mean that just as people find an interesting new market, they’ll face a new tax/bribe burden. That just isn’t going to be good for the development of the small and medium enterprises (SMEs in the jargon) upon which everyone is now agreed continuing economic growth depends.

None of this really surprises Russians themselves. Anger, annoy, but not surprise. One little anecdote that used to be told by the Governor of Nizhny Novgorod back in the early 90s. The requirements for a licence before you opened a business were done away with. Just start up, get on with it and tell the taxman when you’re working. The result the next morning was a queue around the block to get into his office. Well, yes Gospodin, that’s all very well that we don’t need a licence to start a business, but where do we get the licence that says we don’t need one?