The House That Putin Built

Based on his actions as president, Vladimir Putin seems convinced he can expand Russia's economy without having to bother with Western-style democracy.

He appears to be having some success. Sunday's presidential elections in Russia are anything but democratic, and yet Russia's economic reforms and growth under Mr. Putin are impressive.

Since the former KGB operative's election as president four years ago, Russia has introduced a flat income tax, significantly lowered its corporate profits tax, balanced its budget for several years, loosened currency controls, and is paying off its debt.

In short, Putin has replaced the chaos of the 1990s with fiscal restraint, order, and business incentives. Not surprisingly, the economy sprang to life, growing steadily since 1999 - last year by nearly 7 percent.

But the picture is not as encouraging as it looks, and poses the question: Wouldn't democracy make Russia's economy even stronger?

Several weaknesses threaten the progress made so far. Russia's economy is not very well diversified, and two-thirds of its growth comes from high global prices for oil and gas exports and favorable exchange rates.

At the same time, small and medium-sized businesses - which provide the majority of jobs in the West - are in their infancy, accounting for a staggeringly low 10 percent of jobs in Russia.

In fact, Russia's middle class is found not in the business world but in nonproductive state bureaucracy, which thrives on bribes from citizens and businesses alike, strangling the very enterprises the country needs to foster.

Countries such as South Korea, when it was under military control, and China today, prove that authoritarian rule and a growing economy are not mutually exclusive. But imagine how much stronger Russia could be if its bureaucrats were not extortioners, if its stock market was not yanked around by the indiscriminate arrest of a leading business figure, if the media could freely debate Chechnya (a huge drain on the budget), and much else.

It's a matter of speculation as to whether Putin's authoritarian tactics are a short-term strategy. Some argue his strong-arm approach is a necessary evil that will ease once he's finished his economic reforms in four years. Without reforms and a strong economy, there's no chance to bring Russia back to greatness, which is what every Russian leader wants.

But Putin must realize that true greatness involves the free flow of ideas and not just capital, the rule of law and not of fiat. If he does, Russia will prosper, instead of merely grow.

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