Democratist

Democracy. Russia. CIS.

Russia and the WTO: Not so fast, Seymour.

Posted by democratist on January 12, 2011

12th January 2011,

Last December’s agreement between Russia and the EU, and the subsequent speculation about potential accession to the WTO at some point in 2011, has prompted Democratist to cogitate upon the likely impact of international economic integration on Russia over the next few years.

While the agreement with the Europeans may have brought accession further towards reality, there remains a great deal of protectionist sentiment domestically within Russia. This is best exemplified by Putin’s own attempts last year to modernize domestic industry through a renewed emphasis on industrial policy (to be funded by raw materials rents). A lack of cash seems to have put paid to that strategy for the time being, but Democratist maintains that a rise in raw materials prices beyond a certain point will likely prompt a shift back towards protectionism.

However, while we cannot yet be fully sure that it will finally happen, the prospect of accession looks like being one of the Kremlin’s key trump cards for 2011. In the face of western investor scepticism, anger over the second Khordokovsky trial and the imprisonment of Boris Nemtsov, Medvedev will doubtless find it convenient to offer up the prospect of Russia’s eventual WTO accession as an indicator that the country is basically on the right, liberal path.

This will play well with many Western leaders as it appears to accord with liberal political theory. According to this perspective (often attributed in origin to Seymour Lipset’s 1959 classic Some Social Requisites of Democracy), WTO accession will act as an anchor for long-term reform and increase economic growth, leading to the consolidation of a democratically minded middle class. Seen in this light, the privatization program that began in Russia last year promises a lengthy pull-back by the state, and continuing rapprochement with the West as Russia seeks support for modernization.

But we might wish to refrain from opening the champagne for a second; Democratist has long argued that whether Putin or Medvedev wins the Presidential election in 2012, any liberalization in Russia will remain tightly constrained by the interests of the nomenklatura. The current government has demonstrated comprehensively over the past decade that the manipulation of public opinion is one of the few things they genuinely do well. In this regard, in contrast to the rosier expectations of some of our liberal friends, Democratist suspects it may take several decades for economic development to provide a basis for the promotion of the rule of law and a broader liberalization.

Additionally, WTO membership seems unlikely to do much to promote the diversification of the Russian economy away from reliance on raw materials without a concerted effort to tackle corruption. Given that the current regime has itself acted as an important facilitator and beneficiary of corruption since 2000, Democratist is of the opinion that change in this area will take a long time to emerge, and will face many serious setbacks. If parts of Russia’s backward (and still largely state-controlled) industrial sector start to lose out after the country joins the WTO, causing unemployment and unrest, this may also prompt a return to a greater reliance on industrial policy, or back to protectionism. 

As is so often the case, much depends on the price of hydrocarbons; Russia requires deep and potentially unpopular reforms to diversify its economy, but many among the elite seem to believe that, despite the apparent lessons of the Soviet period, the economy can be developed effectively (and painlessly) through state-led industrial policy. If the money becomes available again, this would presumably be the prefered option. However, if prices stagnate or decrease over the coming year or two, the prospects for economic reform within the context of WTO accession will be somewhat better (although they will still face resistance from elements within the elite).

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