Understanding Moscow; Russia Faces Economic Pressure from Iraq War
Byline: David McCormack, SPECIAL TO THE WASHINGTON TIMES
Much has been made in recent days of apparent Russian government complicity in sales to Iraq of hardware and technology capable of hindering the coalition war effort. The situation is not surprising to most observers, and indeed has been on the Bush administration's radar for months. But how are we to understand the incident? Is this simply an indication of lingering hostility by the Russian military-industrial complex toward the United States, as some have suggested? Perhaps this plays a part, but a more thorough analysis requires a look at Russian domestic and foreign policy over the last dozen years.
Following the collapse of the Soviet Union, Russian reformers intent on moving their country toward political liberalism and market capitalism set out on their own campaign of "shock and awe." This involved a radically swift effort of privatization and property distribution, assuming that once a critical mass of private owners had been created, this constituency would demand political institutions courts, regulatory agencies, etc. that would advance democratic principles as well as lead to economic growth.
That this did not occur is now well-known. Instead, the small number of enterprise insiders who benefited most from privatization sought rules of the game meant to build only on their newly obtained interests, effectively preventing the establishment of mechanisms capable of encouraging growth. At the same time, the process of "permanent redistribution" that set in had a terrible, corrupting effect on both business and the government, whereby economic actors traded their capacity to influence the state for political subservience. These unintended consequences combined to ensure the economic crises that befell Russia throughout most of the 1990s, posing a direct threat to a democratic Russia.
The Russian economy, and hence government, has been rescued over the last four years almost solely by high oil prices, as demonstrated by a strong statistical correlation linking these increases to the economic growth experienced in Russia over that period. Indeed, estimates suggest that every dollar increase in the price of a barrel of oil results in $1. …