Andrei Kozlov, Reformist Central Banker, RIP at 41
Russia’s state-capitalist system takes form in an oligopoly structure which is different from that in the West. Instead of large nation-state governments granting legal government-sanctioned benefits to the politically-chosen few (or in the words of Adam Smith, “systems of preference and restraint”) many Russian oligarchs practice their craft outside of the law. Russia’s state-capitalist system has grown out of the rubble of the sale of Soviet state assets to insiders and/or from those not educated enough to know the asset’s values, which is what occurred during the mass privatizations in the 1990s. The Russian oligarchs (but note not all of the oligarchs are corrupt and some actually have the morals to practice rights-filled capitalism the honest way) then use violence or the threat of violence to consolidate their market power; in this way they are similar to other organized crime, excepting that type of organized crime which exploits the foolish illegality of victimless acts.
Rule of law and clear, open, accounting systems are the first step (after stable macro policies) toward building a growth-oriented capitalist system where honest growth can be obtained (growth which then gets, via the invisible hand of the market - or through outright philanthropy - to the poor who need this growth the most) . The next step is clear, open capital markets, the first step of which is banks. Without sounds banks money doesn’t circulate. No one wants to deposit and money doesn’t go for productive uses. The clear accounting systems are needed so that people know that their money is protected and earning a return for their foregone consumption.
In the ‘East’ government has been more involved in directing bank lending thus creating unsustainable institutions with a high proportion of bad debt. This can be seen from Japan, to China, Thailand, Indonesia, Central Asia, India etc and Russia (and France too somewhat). It is now mostly accepted that the market, not government, does a better job of distributing capital to the masses. Banks are becoming more sound, less political, in their lending practices and banks are being privatized, and their assets scrubbed. In some countries this has taken decades.
Reform of Russian banks has been difficult; 24 Russian bankers have been killed since 1995. The most recent was Central Banker Andrei Kozlov who was shot after playing in a soccer game. He was only 41 years old.
Some heterodox economists believe that the state should not be in the banking, or money, business at all, that no system with government involvement can be free of political corruption, tilting favor to those in power or the bureaucracy. The problem, like always, is how to go from the short run to the long run. If it was government who created the banking crises and writ-large the crony-capitalist system, what are the best steps for non-violent reform in Russia?