This is a highly stimulating and insightful book about Russia's economic and legal system. Its key thesis is that financial internationalization does not strengthen property rights. On the contrary, “deepening financial internationalization and weak rule of law” go hand in hand (x). While Russia's financial openness evolved, its rule of law did not. “Putin's regime had successfully married political authoritarianism, economic statism, and full financial openness” (7).
Igor Logvinenko's fundamental idea is that local control is central and facilitated by global access. He opposes the “idea that interstate commerce will bring about democracy, safeguard freedom of the press [and] create mutual trust,” which “has been the official guiding principle of American foreign policy for decades” (124). He complains that most western advocates of free markets have made two fundamental errors. They “did not appreciate the primacy of local politics” and they wrongly assumed that the direction of influence would flow “from the rule-of-law economies to the rule-of-clout countries” (125). “Moscow has become an exporter of corrupt practices” (128).
This brief book of 134 pages of text consists of a strong introduction and conclusion, a conceptual first chapter, and then four chronological chapters. The best parts of the books are the introduction and conclusion as should be the case. It contains ample end-notes, a large bibliography, and index.
Logvinenko sees the Russian economic development in three episodes of property redistribution, which each receives one chapter. Initially, the insiders, the state manager directors, took over the state enterprises. Next, private oligarchs seized control in the mid-late 1990s, and in a third phase the Putin state oligarchs or cronies, (“stoligarchs” as Logvinenko calls them) took over. He claims that each episode evolved similarly with regard to foreign investors: “the winning interest group shut out foreign investment while they sought to gain control. Once control was consolidated, they integrated domestic and international and financial markets by facilitating foreign investors’ access to local assets” (6).
But this argument is too neat. The state enterprise managers acquired control in the Soviet period. The voucher privatization that involved 16,500 companies gradually undermined their control, while the financial crash of 1998 blew them out.
The oligarchs benefited from the voucher privatization and thrived from 1994 until 2003. The infamous loans-for-shares privatizations only transferred three companies to new owners. The oligarchs match the Logvinenko model the best, because they favored closed redistribution until 1999 and opened up after they had consolidated corporate control. Putin's cronies took over Gazprom in 2001 and Yukos in 2003.
Vladimir Putin let reforms persist until 2008, but then closed down and has gradually restricted the role of foreigners in the Russian economy. Logvinenko's chapter on the period 2009–2020 does not fit with his thesis of waves of new groups gaining local control and consolidating their power because Putin has consolidated power. He insists that Putin's Russia has relied on financial internationalization, but he uses anecdotes rather than statistics. The statistics indicate general decline, though the capital flight of Putin and his cronies continued. Since 2009 Russia's economy has been stagnant; its stock market has been moribund; Russia's foreign credits have been tiny; foreign direct investment has been even less; sectors such as media and communications have been closed to foreign investors. Logvinenko completed his book in 2021 before Russia's war against Ukraine, and I doubt that his claim that financial “internationalization is now hardwired into the Russian economy” would remain true (7).
This book has many merits, and I would emphasize two. First, the rule of law in a corrupt country cannot be built by offering the leading crooks safe property rights abroad. On the contrary, foreign mediators are more likely to benefit financially than build the rule of law. Logvinenko concludes: “Policies addressing the rise of globalized kleptocracies must begin in the West” (130).
Second, Russia “has been at the vanguard of globalized kleptocracies . . . but many other countries have followed its lead” (132). He argues that China has built a similar kleptocratic authoritarianism with a high degree of international economic integration. His analysis shows that the west should become much more restrictive towards state actors and oligarchs from lawless countries.
Logvinenko has opened a rich field of research and policy advising.
