Russian Economist Blames Corruption for Downturn

A leading Russian economist says that corruption and a “bad political equilibrium” are primarily to blame for Russia’s current economic stagnation.

Sergey Guriev, former rector of the prestigious New Economic School in Moscow and a one-time adviser to the Russian government, spoke on February 12 at Columbia University in New York. In his remarks, the now France-based economist addressed the recent slow-down in the growth rate of Russia’s Gross Domestic Product (GDP) from nearly five percent in early 2012 to 1.2 percent at the end of 2013.

“The difference between the early predictions - between what countries at this level of development have done - is quite big,” commented Guriev, who left Russia after realizing he was being investigated by authorities for his “independence and objectivity” as an expert witness. Describing himself as “very optimistic,” he rejected a bevy of possible explanations for the economic slow-down -- from weak external markets (doing much better in 2013), to “populist overspending” (budget still balanced), to a cyclical downturn (low unemployment; growing consumer spending and credit). He also insisted that Russia’s energy sector still possessed the wherewithal to keep carrying the Russian economy.

Instead, Guriev noted several areas of concern, including Russia’s high capital flight rate, its low industrial optimism index, and the failure of Russian stocks – including those of the government-owned oil and gas giant Gazprom - to rebound to anywhere close to pre-2008 levels.

“If you think about it, why would investors be worried about Gazprom?” Guriev asked. “Investors are afraid that maybe Gazprom will make money, but that money will not find its way to them, but to the pockets of Gazprom officials who are rumored to be connected to the government.”

Conceding that not all Russia’s regions are equally graft-ridden, the economist characterized Russia’s overall situation as: “The government wants a bigger pie so it can have a bigger piece of that pie. But [with reforms] it endangers its own position to cut the pie, so it would rather have a bigger piece of the smaller pie.” The good news, Guriev said, is that the prognosis is good for Russia “in the long-run exactly because all these problems are known.”

Guriev gained international notoriety when, after setting up Russia’s most prestigious private university, he became part of a witch hunt over his expert testimony on the second trial of Mikhail Khodorkovsky, which he prepared at the behest of Russian authorities. Before releasing the oil tycoon under amnesty this winter, the Russian government was preparing a so-called “third Khodorkovsky trial,” in which those like Guriev who had condemned the legal proceedings in Khodrkovsky’s case, could face jail time.