Russian Law, Justice and Corruption Update Jon Hellevig

Russia Business ForumHelsinki, 12.6.2012

"Hellevig is always too optimistic about Russia"

”...But compared with the real results of the Russian economy my optimism seems very modest, as can be seen from below graph...”

GDP 2000 ($) GDP 2004 ($) GDP 2008 ($) GDP 2011 ($)0

200,000,000,000

400,000,000,000

600,000,000,000

800,000,000,000

1,000,000,000,000

1,200,000,000,000

1,400,000,000,000

1,600,000,000,000

1,800,000,000,000

2,000,000,000,000

RussiaFinland Sweden

BKT (dollareita)

BOOK: Why they, why not we?

“An Analysis of the Competitiveness of Finland and Russia"

“an analysis of the success factors of our

respective home countries"

What year did Finnish law start?

What year did Russian law start?

1991!

And what was the starting point?

”You cannot seriously think that in 10 years after the 70 years of Communist catastrophe you would just have thrown out that experience as a bad dream

and continued with orderly life as if nothing had happened!”

Law (justice) = social practices

• Law is the result of how people have learned to regulate their mutual interactions through historic times

• Provisions of written law are not self-propelling things, like robots or software that would carry a definite result once enacted

• In Russia people started in 1991 to build a totally new system of law on the ruins of the Soviet Communist anti-law system

• Consider what would happen in Brazil if there were to be an order to stop playing football and do ice hockey instead. How long would it take for them to learn that new game, the new hockey culture?

• In Soviet Russia all ties with the old law and practices where interrupted

• It was the stated aim of the Bolsheviks

• Following the teachings of Marx the law was canceled in Russia one sunny day in November 1917!

” Proletarian Communist Law”

”One of the main architects of Soviet no-law, Stuchka, proclaimed that the goal of the socialist revolution is to abolish law and to substitute it with the new socialist order”

And sure they were very successful in that endeavor! As we have seen.

• Soviet law = Anti-law system• Soviet Law = No-Law

• And now we have the question how Russian law is developing

• Answer: It is developing by leaps and bounds, in 20 years having come out from the black hole of Soviet law!

• But the culture of law, the social practices of law, are still young and need time to develop

• And what is the state of Russian law today?• 10 more years of stability and the Russian

system of law will be the law of a Normal Country

No law, no justice, what else was missing in Soviet Russia?• Independent judiciary?• Democracy?• Convertible currency?• Private property?• Freedom of choice?• Civil society?• Press freedom?

• And yet 10 years after the fall of USSR and emergence of new Russia Western governments and press invented the lie that Putin supposedly had destroyed all those non-existing institutions and freedoms

• This propaganda lie contains the assumption that the Soviet system in fact was quite beneficial and thanks to some finetuning of Yeltsin in 10 years emerged democracy, independent judiciary, civil society etc.

• And then, supposedly, came Putin and destroyed all that

In reality in 1990’s

• Due to the mindless perestroika of Gorbachev Russia was thrown into a total anarchy

• The Soviet system was based on a state planned economy enforced by command. In what must be the most idiotic policy ever, Gorbachev removed the element of command and control, but kept the state plan (did not free the economy)

• Compare with China, which did it all the other way around. – Yet nobody has claimed that the Chinese rulers overseeing the economic miracle destroyed the democracy of Mao

Yeltsin

• Did his best• And managed to turn the tide in decisive

factors of development of the nation• But Yeltsin’s power reached only to

managing the most fundamental functions of the state

• In practice full anarchy reigned in the county. All that was left of statehood was the presidency itself, a new national hymn (without lyrics), and a flag which most Russians didn’t even properly recognize

Putin took over a troubled country

• The problem is that people don’t understand, or do not want to understand, or do not want others to understand, that Putin became a president of a country without a real state, without any significant reach of the Government

• Problem worse, cause this is something that the president of Russia can, of course, not speak of much

• Critics say Putin has centralized government, when in fact he has created the rudiments of government from nil

• And now 12 years later Russia is on the threshold of becoming a Normal Country

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

5

10

15

20

25

30

35

Murders per 100 000 people

Cold Civil War

• The period prior to 2012 may be compared to that of a civil war

• A cold civil war, which now have been won by the forces of good

• But therefore Russia can only now start to conduct the policies and political programs of a Normal Country

Thanks to corruption, Russia did not fall a part in the anarchy of 1990’s!

• In the conditions of anarchy corruption was the only factor keeping the country going

• Corruption fullfilled the vacuum of statehood in Communist Russia and the Russia of Anarchy in 1990’s

• Those won that where foul enough to play the game

• Corruption became the norm of social behavior in the Soviet economy of scarcity

• And Gorbachev converted it to the only possible way of interaction

• As Putin has now established the fundaments of Russian statehood and government, the fight against corruption may start

• I am confident that we will see big improvements in this respect in the near future

• Transparency International is wrong• My own experience as a tax compliance lawyer and

director of an accounting firm provides me a totally different view of Russian reality

• Should I trust the American media or my own lying eyes?

• The so-called capital flight and corruption• A surprising correlation

AND WHERE ARE WE TODAY?

• Law, justice• Corruption• Law enforcement, Police• Bureaucracy• Inflation – Economic Policy• Taxation • Customs • Competence of workforce, intellectual infrastructure,

language skills• More long-term horizon in everything; shareholder value;

sustainable development

MYTHS AND MISUNDERSTANDINGS ABOUT RUSSIA

• The size of the ”middle class”• If admit of anything good, then: ”all only thanks to the rise of

price of oil”• ”Why has the economy not been diversified from oil and

natural resource dependency?”• ”To stabilize the budget, X price of oil is needed”• ”Support for Putin has plummeted”• ”Support for United Russia has plummeted”• The protest movement• Freedom of press, murder of journalists• Etc., etc.,

We thank you!