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Professor Goldman: The Piratization of Russia

“Russia is not a normal country,” said Professor Marshall Goldman, an internationally recognized authority on Russian politics and economics, in his meeting with HBS students on February 9th. Professor Goldman of the Davis Center for Russian Studies at Harvard University came to campus to talk about his recent book “The Piratization of Russia: Russian Reform Goes Awry”.

The event, hosted by the Eastern European Association, attracted significant interest from the HBS community. Surrounded by dozens of students in a packed room at Cumnock Hall, Professor Goldman shared his prospective on the past and future of the Russian reforms, and answered a number of intriguing questions. His expert opinion was sought to add academic clarity to the recent publicized debate around ‘the real facts about Russia’.

In his lecture, Professor Goldman gave a critical assessment of the approach to the economic reforms taken by the Russian government after the collapse of Soviet Union. Citing the examples of Poland and China, he argued that more gradual liberalization and privatization would generate wider social benefits in a less corrupt environment.

In addition, Marshall Goldman didn’t miss the opportunity to pick on ‘the
guys across the river’, referring to Harvard Professors Andrei Shleifer and Jeffrey Sachs (now at Columbia) who consulted Russian authorities in early nineties and advocated ‘shock therapy’ reforms. He also quoted Shleifer’s recent publication about Russia, ‘A normal country’.
Professor Goldman talked at length about the genesis of the ‘oligarchs’, Russia’s largest and most controversial businessmen. In the last few years, Russia ‘delegated’ 19 billionaires to the Forbes’ World’s Richest People list – more than Britain or France, for instance. In examining this unique Russian phenomenon, Marshall Goldman emphasized that the ‘oligarchs’ propelled themselves to riches after the start of perestroika in 1987. Coming from the ranks of Soviet government officials or black market dealers, these people took advantage of immature regulatory environment to build wealth, first through financial and export-import operations, and then by privatizing the country’s natural resources and mass media. Oligarchs reached the peak of their influence in the late nineties after they ventured into politics and helped re-elect Boris Yeltsin the President of Russia. Ironically, the demise of the oligarchs follows the same route but in reverse: stripped of their media assets by President Putin, they lost their political weight, and are now gradually losing control over natural resources. The recent arrest of the oil tycoon Mikhail Khodorkovsky served as an obvious indication of this trend.

In examining the current situation in Russia, Professor Goldman deplored the excesses of the ‘rule of law’ and the cutbacks on the democratic freedoms, primarily freedom of speech. At the same time he admitted considerable advances made by Russia in the economic area. Fuelled by high commodity prices and liberal tax reforms (with income tax at 13% flat), the Russian economy developed briskly in the last five years, posting a whopping 7% GDP increase in 2003. Although this growth remains driven more by greater resource utilization than by factor productivity, Marshall Goldman was generally positive about the prospects of Russian businesses. In answering a student’s question ‘Is Russia a good place to invest?’, he said that most probably yes, pointing at the burgeoning consumer market, growing foreign investment and recent moves by Moody’s and Standard & Poor’s to raise Russian sovereign ratings to the investment grade.

In closing, Professor Goldman expressed his hope that Russia will manage to keep the current fine balance between both the liberal economic policies and sub-democratic political regime. He also invited HBS students to attend weekly academic seminars held at the Davis Center for Russian and Eurasian Studies at Harvard.

February 17, 2004
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