Property: An Economy Without Law

Grigory Yavlinsky: Property and vulnerability: expropriation can happen to anyone

Most of Russia’s population now understands the social order of our country to mean that certain individuals in power are exempt from any and all rules and restrictions: free to do whatever they want to any citizen. A side-effect of this is that any individual with something to lose is highly vulnerable.

A very harsh, if not brutal, foundation of legislation for criminal prosecution in the field of economic activity has been established in Russia. The quantity of restrictions that carry criminal penalties is incredibly large, by the standards of the industrialized world, given that the minimal value threshold for those penalties is extremely low.

On the other hand, most of economic practice has been extremely liberal – even anarchic – for many years. The level of law-abiding behavior among the economically active population was reduced to a minimum.

The combination of these two factors, along with the peculiarities of Russia’s law enforcement practice and the high level of corruption in the state apparatus, has produced a situation where legal protection for the interests of economically active citizens is a nonexistent category. The legal system -primarily the judicial system – isn’t very useful for resolving minor problems, since ensuring that court verdicts are handed down and enforced requires a disproportionate amount of time, resources, and energy. And resolving major problems – involving truly substantial property interests – lies outside the legal dimension entirely.

Moreover, in a situation where almost any economically active citizen can become the target of criminal prosecution, business owners can – and, to a very significant degree, should – regard the law enforcement system as a threat to their personal liberty and security. This probably applies equally to big business and medium-sized business, and, to a lesser extent, to the medium-level and senior bureaucracy. With regard to them, the system in question does not function as a mechanism for protecting the weak but law-abiding; it functions as an instrument for legalizing the rights of the strong.

Most of Russia’s population now understands the social order of our country to mean that certain individuals in power are exempt from any and all rules and restrictions: free to do whatever they want to “the small” or any citizen in particular. Aside-effect of this is that any individual with something to lose is highly vulnerable: from civil servants and business owners at any level, who have some amount of property or power, to the most deprived ordinary citizens, who might lose the roof over their heads, their health, or their physical liberty at any moment.

Presumably, the role that ought to be played by the system of public law in this process is actually performed by customs -otherwise known as “understandings” – which succeed, more or less, in regulating relations between individuals and groups. But in a country as vast and complex as Russia, such substitutes cannot provide a sufficiently firm and stable foundation for social relationships or the current balance of interests between particular groups, each of which acts according to its own customs and rules, or without any rules at all.

When applied to the economy, this means, for example, that the threat of expropriation (not necessarily official) is sensed by each and every participant in economic activity, in a completely clear and overt form. Even the most successful individuals understand that their prosperity is provisional, and if their assets happen to catch the eye of someone who is stronger and more influential at the moment, they won’t have any defense against inevitable requisition. However, even people who aren’t business owners understand that their ownership of any property is only provisional; that is, they own it until someone stronger and more aggressive wants to take it away, as long as the size of the property can cover the costs of the process of taking it away.

The most popular reaction to this instability is as follows: once people achieve a certain level of prosperity, they seek to safeguard themselves and their property by departing for more or less permanent residence abroad. This process has reached a fairly noticeable scale. Several million Russian citizens are now living in the European Union and North America.

For a number of reasons, however, emigration cannot be an effective solution for entrepreneurs, especially the most successful of them, who find themselves in an ambiguous position in Russia.

Firstly, money tends to run out; and establishing an autonomous business abroad (that is, a business not based on one’s capabilities in Russia) is problematic. None of the “fugitive” Russian business owners have managed to replicate even a tenth of their Russian success in the West (let alone the East). The best they can hope for is a modest income, by the standards of the entrepreneurial class, and the position of an outsider in local business circles.

Secondly, Russia’s weak protection for property rights is usually contrasted with the reliable, effective protection provided in Western countries – and this sometimes creates false impressions of how things really are in the West. Reliance on the law is a double-edged sword. You can rely on the law’s unconditional protection only if your own business dealings have been legally spotless – and there might be some serious difficulties with that. Moreover, the principle of everyone being equal before the law is a good thing, of course; but there is still the natural distinction between “one of us” and an outsider, as viewed by Westerners, including those who work in the law enforcement and judicial systems. If any Russian citizens intention business emigration assume that this is something they’ll never encounter, they risk being seriously disillusioned on finding that the law can be a weapon not only for defending property, but also for confiscating it.

Thirdly, leaving aside the problem of legal protection for property rights, there is also the problem of an émigré’s relations with the government and the local business community -which can and probably will turn out to be quite complicated, especially given the long-term trend of deteriorating relations between the Western establishment and the Russian political elite.

Thus, a strange situation has arisen – created by the Russian authorities themselves. It is primarily disadvantageous for the societal layer generally known as the elite: the layer of people who possess wealth and influence. These are the people who are most at risk of facing pressure from the security and law enforcement agencies, or de facto expropriation; consequently, they should be more aware than other citizens of the instability and abnormality of their current position. In the industrialized world, in states based on the rule of law, wealth and success bring a sense of security and confidence in the future; but in Russia, those very same things, in the overwhelming majority of cases, increase the risk of attracting major problems.

Vedomosti August 14, 2007

Translated by Elena Leonova.

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