Vladimir Putin Is a Free Marketeer Hamstrung by Inert Bureaucracy

Year after year the Russian president tries to cut red tape yet on the ground regulators continue to harass businesses

Fri, Oct 7, 2016
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Vladimir Putin gave a short speech on Wednesday at the opening of the Russian State Duma, in which he said a couple of things which I found worthy of note. I’ll write about the second in a separate post tomorrow, but the first was the following statement.

In order to put the economy a new trajectory of growth, we must remove the legislative barriers which stand in the way of developing competition, the flow of investment, and the introduction of modern technologies, and must guarantee the balanced development of Russia’s regions, of the northern and far eastern territories.

Legislation will be introduced in the State Duma concerning support for entrepreneurship and individual initiative. This will include strengthening the legal protection of business from pressure exerted by unscrupulous employees – unfortunately, these still exist – of the regulatory bodies.

This supports my previous analysis that, economically speaking, Putin’s instincts are largely in favour of the free market. Having strengthened state control over the energy sector during his first presidency, and having thereby assured a steady stream of revenue for the state coffers, he sees further development of the economy as dependent upon small businesses. This requires a degree of deregulation. As he said in a speech in December 2014: ‘It is essential to lift restrictions on business as much as possible … It is crucial to abandon the basic principle of total, endless control.’

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The speech also reveals that these deregulatory instincts are not having much impact in practice. In his December 2014 speech, Putin drew attention to the burden businesses faced from regulatory inspections. A year later he reiterated the need to create better conditions for business, but he also complained that although all the necessary decrees had been issued to reduce the regulatory burden, they were having no effect. Regulators were continuing to harass businesses. The fact that Putin today once again felt the need to talk of removing ‘legislative barriers which stand in the way of developing competition’ and of ‘strengthening the legal protection of businesses from pressure exerted by unscrupulous employees of the regulatory bodies’ provides further evidence that past decrees have not been wholly effective.

In short, Putin’s statement contains an important clue about why the Russian economy is struggling. Year after year, the president outlines a similar vision. He issues decrees. The Duma passes laws. But down on the ground nothing very much changes. For all the talk of Russia being an autocratic state, its leader’s power is remarkably limited.

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