Authoritarians Can't Fight Crises
- By Alexei Bayer
- Dec. 15 2008 00:00
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Fortunately, over the past few years Russia has built a system tailor-made for handling economic crises like the current one. It has a vigorous prime minister with healthy authoritarian instincts. It also has a rubber-stamp parliament and a docile populace. Whereas the U.S. Congress took its own sweet time in October to pass a $700 billion bank rescue package and balked about saving the big three Detroit automakers, the Kremlin can simply order $36 billion cash infusions for the banking system and $200 billion anti-crisis packages.
Strangely, debates in Congress proved not to be such a waste of time. Faced with an imminent election, lawmakers had to reckon with the fact that paying for Wall Street excesses with public funds was not popular with voters. So Congress put restrictions on the bank rescue package and denied Treasury Secretary Henry Paulson full control over the money and immunity from future lawsuits. More recently, Congress forced Detroit executives to present specific plans on how they were going to make their companies more competitive and forced the companies' top brass to agree to a pay cut.
In Russia, in contrast, most deals that involve public money are done behind closed doors. Very little information trickles out as to why particular companies get bailed out and on what terms. There is no guarantee that government cronies are not being paid off, leaving everyone else holding the bag. Even if everything is done honestly and with the common good in mind -- never a likely scenario when public scrutiny is absent -- decision-making is confined to a narrow inner circle. So far, Russia has very little to show for the $150 billion in reserves that have been spent since August.
Suspicion of democracy's ability to handle urgent problems has ancient roots. This dates to the Peloponnesian War, in which wealthy, democratic Athens lost to a much poorer Sparta, which was a warrior state run on an authoritarian model. The willingness and ability of democratic countries to fight has been often cast into doubt, notably by Hitler. In fact, driven by the same doubts about democracy, Americans surrendered many of their freedoms for the promise of greater security after the terrorist attacks of Sept. 11, 2001.
It is a false tradeoff. Around the globe, open, democratic societies provide far greater security for their citizens than oppressive regimes. Since 2001, tight controls, illegal spying and unlawful imprisonment of foreign suspects added nothing to routine police methods to prevent terrorist attacks. On the contrary, terrorism is on the rise around the world.
The same goes for the economy. Economic freedom and free enterprise not only provide the highest standard of living to the largest number of people but also ensure sustainable economic growth. Government-controlled, planned economies bring stagnation, stifle innovation and result in economic blight.
In the United States, objections have been raised that the quasi-nationalization of banks and automakers, and reliance on government-directed public works in President-elect Barack Obama's economic plans, could impair the successful U.S. economic model. In Russia, where state-owned banks, notably Vneshekonombank, have provided loans to private companies and taken their shares as collateral, renationalization of some key private companies may be underway.
The global economic crisis may deteriorate sharply in 2009. Regardless of how the situation develops, the Kremlin will likely act decisively and opt for undemocratic, nontransparent statist solutions. This kind of decision-making is likely to result in serious mistakes -- at a time when the margin of error keeps diminishing with every passing day.
Alexei Bayer, a native Muscovite, is a New York-based economist.