| Looking
At Russia ~ Investing In Russia ~ Page Two |
| First,
recognize that a government is not the same thing as the society it presumes
to represent. A government is a distinct entity, with a life and interests
of its own. It can be compared to businesses like GM or IBM,
but that's not really a good comparison; businesses can only stay in existence
as long as they create new wealth by offering goods and services at reasonable
prices. Government can also be compared to organizations like the Sierra
Club or the Red Cross, but that's not really a good comparison either;
service groups can only stay in existence as long as people voluntarily
contribute time and money to them. In fact, there's no voluntarism involved
in government at all. A government is actually best compared to a successful
crime syndicate. Putting aside arbitrary legal distinctions, the government
and the mafia are the same in that they both use force to extract revenue
from society; they're different in that there's actually a better exchange
with the mafia. No mafia would dream of taking 40% of anyone's income,
and then using most of that money to prevent the victim from earning more
income. Also, when there's a dispute with the mafia, it's usually possible
to enlist the aid of the government (who like to maintain a monopoly of
force in a given geographical area—indeed, that's the sine qua non of government),
or another mafia. |
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| However
there really is no such recourse when dealing with the State. Yes,
there are the courts. But they're a branch of the government, its judges
are its employees, and they interpret decisions according to its laws.
Entirely apart from that, they're obscenely expensive, take forever to
get into, and are then impossible to get out of. |
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| Reports
in the press emphasize that various mafias run Russia. I have no personal
anecdotes to support that contention, but I have no doubt it's true. Soviet
society was based on force and fear; it rewarded people not for productivity,
but for brutality. In the five days I spent in Moscow, the only Mafioso
to be seen were at a classy stripper bar where we decided to take in some
local color; it was easy to find, with about two or three dozen new Mercedes
and BMW's parked in front. A crew cut thug encouraged patrons to check
their heat before passing through a metal detector. A $10 entrance fee
gained the right to buy $10 drinks for yourself and the scantily clad ladies,
who would perform a table dance for $100. Interesting. But not as interesting
as watching the thuggish Mercedes-owners throw their money around. |
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| Where and
how do the Mafioso get their money? Basically by acting the part of
small competing governments. When that's not the case, there's no difference
between the Mafia and the government. |
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| As you
probably know, I believe the institutions of the nation-state, and
government itself, have already outlived what usefulness they may once
have had. They're purely coercive entities that live through the initiation
of force, and insofar as they produce any goods or services that people
want (e.g., roads, schools, police, currency, health care, courts)
it's only because they've muscled the free market out of the picture in
those areas. Their essential products are wars, persecutions, confiscations,
pogroms, taxation, inflation, regulation, and the like—all of which are
purely destructive. I believe people support the idea of government mainly
out of ignorance, stupidity, and simple inertia; government encourages
support by pandering to people's basest fears, and encouraging the moronic
notion that everyone can somehow live at the expense of everyone else. |
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| Of course,
even though all governments are the same in essence, they differ greatly
in practice, ranging from the relatively benign and ineffectual to truly
malevolent totalitarian regimes. This isn't the place for an extended discussion
of political theory. (If you're interested in a defense of the wild assertions
above, I refer you to Chapter x of CI90's, or the classic book The Market
for Liberty by Morris and Linda Tannehill; both are available from Laissez
Faire Books, http://lfb.org/ 1-800-326-0996. But I bring it up because
even the most cursory look at society in Russia, or absolutely any country
in the Third World, makes one ask what possible useful purpose government
in these places serve. And the answer to the question tells one a lot about
the local mafias. |
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| Governments
in these places, most emphatically, do very little in the way of building
or repairing roads or airports, educating children, delivering mail, making
trains run on time, putting out fires, operating modern telephones, or
providing decent medical services. These state monopolies, in which government
has absolutely no business in the first place, are always pitiful; and
even though they hemorrhage money, the money involved in actual services
is trivial compared to what the government takes in. |
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| And I have
never, ever, seen a Third World government protect citizens from common
crime or offer worthwhile court services, which are arguably the only legitimate
functions for the State. |
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| If you
look at Russia, or Congo, or Vietnam, or Kazakhstan, or a hundred other
sorry countries, what you see is the State extracting 30%, or 50%,
or 70% of the income of very poor societies, and giving back almost nothing
of value. Where does the money go? A lot of it goes for high living on
the part of those who are connected. Even more goes paying a substantial
portion of the population to harass the rest-- things like customs, immigration,
permits, licensing, state security, and miscellaneous regulation. Some
of these things generate some net revenue for the State, but their main
purposes (other than limiting competition to benefit cronies) is
to evidence control. The damage done to the economy vastly exceeds any
conceivable benefits. |
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| Like you,
I read all the articles, and listen to the broadcasts, from pundits
who claim to know what the government of Russia, or any other of these
benighted places, "should" do. I find them an exasperating waste
of time, because they don't understand that government action isn't the
cure; it is the problem. |
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| Meanwhile,
the Mafioso, like the State, are also running two types of operations.
One type is purely coercive—e.g., extortion, theft, protection, shakedowns,
and the protection of its territories from rival gangs—which are directly
analogous to those of the State. |
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| The other
type are black market related, which is to say non-coercive and desired
by the public, but made illegal, for whatever reasons, by the State, commonly
including smuggling, gambling, drugs, prostitution, and pornography. Many
people find some of these things morally repugnant; but many don't, as
evidenced by their perennial popularity. |
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| Unfortunately,
most people aren't moral philosophers, and figure that once they've broken
one law they might as well break another. Certainly, once you've broken
the arbitrary and pointless drug and money laundering laws you might as
well go in for murder and extortion—because the penalties for getting caught
are, perversely, far less severe. |
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| In any
event, a Mafia is only a state within a state. They rarely prosper
except in countries where there are a myriad of strictly enforced victimless
crime laws; in the US the Mafia was a trivial organization before Prohibition.
What actually holds civil society together is not a myriad of laws enforced
by the police. It's peer pressure, social opprobrium, and moral approbation. |
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| Well, sorry
to go off on a lengthy tangent. But these are the deep-rooted problems
that will keep Russia from becoming an investor's paradise, while it will
remain an excellent environment for speculators. For how long? There's
enough pent-up envy, buttressed by several generations of economic, political,
and social lies and misinformation, to make Russia an ideal incubator for
sociopaths like Lebed or Zhirenovsky for the indefinite future. |
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| But if you're
just a tourist taking in the sights of Moscow, these are not thoughts which
will come to mind. Moscow is the final, and unintentional, evolution of
Potemkin's Village. |
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| MOSCOW |
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| Moscow,
to my surprise, was basically indistinguishable from any other European
city. This was a far cry from my visit in April, 1976, when it resembled
an armed camp, with a military presence everywhere. Dismal, grim, gray,
shoddy, fearful, poor, ugly, nasty, and brutish are just a few of the adjectives
that come to mind describing the place. Back then, instead of stores and
restaurants, the dreary place featured paranoia, inconvenience and gloom.
Even as recently as 1991, when my wife, who speaks Russian, made a trip
here, you were well advised to bring your own food, and lots of one dollar
bills. Dollar bills don't go very far in Moscow today; you'll do better
to bring a role of hundreds, because it's one of the most expensive places
on the planet for a tourist who wants to live as he would in the West. |
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| But Moscow
isn't Russia. The city lives off its roughly 500,000 foreign residents,
each of whom has his own driver, housekeeper, translator, girlfriends,
secretaries, hangers-on, and what-not. Moscow has always been the epicenter
of any social, political, economic, or intellectual activity worth talking
about in Russia, mainly because (with the exception of St. Petersburg)
there was absolutely nothing of consequence outside the capital. Now, even
though other cities actually have things like stores and restaurants, the
amount of money flowing into Moscow sets it apart more than ever. |
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| Moscow
is a giant parasite. The city produces absolutely nothing of material
value; in fact, it produces only things of negative value-- taxes, laws,
and regulations. But, perversely, it's those very things that attract the
foreigners. That's not because they like them, but because they need to
manipulate them in order to do business in Russia. And the presence of
all these rich foreigners in this desperately poor country makes Moscow
a pocket of wealth. That's reinforced by the fact that—again because of
the taxes and laws—it's basically a one-way flow of funds from the provinces
to Moscow. And the same is true of people. Anyone with any drive or brains
tries to get to Moscow, because it's the only place where anything is happening. |
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| And when they
get to Moscow, they want to get in on the dollar economy. Rubles are only
for those peasants in the provinces. |
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