A Diversified Economy Is Not for Rent

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The need for economic diversification has been a frequent refrain inside and outside the government in recent years.

Pet projects like the Superjet regional airliner or the federally supported nanotechnology program have been trumpeted as ways forward on this front, but they are isolated examples.

While the global economic crisis might increase the uncertainty surrounding these projects, ironically, it may also shift the economy away from the activity that has been one of the greatest obstacles to diversification: rent-taking.

As energy and commodities prices skyrocketed in recent years, the country's economy became one based on the collection of rents, in this case from the control of public institutions and natural resources.

Russia's location on top of an enormous wealth of oil, gas and mineral resources has been the main driver of growth in recent years. As much of the infrastructure for extracting these resources already existed when resource prices spiked, all that was left to do was sit back and collect the money.

The amount of money that poured in, in turn, generated a steep climb in the value of the ruble, further discouraging business development as domestic manufactures became uncompetitive. Value-added exports were simply too expensive and imports too cheap.

But the ruble has been sliding, and the Central Bank's announcement Monday that it was widening the band within which it would allow its value to rise or fall -- as if there were some debate about which way it would move -- means that the slide will likely continue.

The second form of economic rent, through control of public institutions, has arguably had the more stifling effect, in the form of corruption and untrammeled bureaucratic impediments to innovation and the establishment of new businesses.

The cost in bribes and time spent negotiating the country's bureaucratic labyrinth has proven too hefty for many businesspeople.

The biggest beneficiary of this system has been the state, and as long as commodities revenues kept pouring in, there was little impetus, or even opportunity, for the government to change things much.

With those revenues drying up and the ruble weakening, the impetus may finally be there.

Calls for serious measures to combat corruption and bureaucratic barriers have been taken up by President Dmitry Medvedev as part of his public political mantra.

Understandably, there has been skepticism about the level of Medvedev's commitment, but there might now be little choice.

The search for new sources of revenue makes innovation and the development of new businesses even more important in the immediate future. Hopefully, it will also help turn rent collection as the country's dominant economic activity into a thing of the past.