Russia’s future: capitalism or corruption?

We at the Mendeleyev Journal are committed capitalists for a simple reason: look at a map of the world and find a poor nation that is capitalist. Poor nations are poor because of poor decisions and yes, they must be blamed for bad decisions otherwise our lack of honesty will enable them to continue living in deception.

A nation’s GDP doesn’t change by wealth distribution, which seems kind of obvious. GDP does change however and if you look at a map, the higher GDP nations enjoy higher per capita income for citizens. The lowest GDP nations suffer with the lowest per capita income for citizens.

Cuba is a great example of how wealth distribution doesn’t work. Cuba often moans about the US economic boycott but Cuba somehow magically forgets their financial support from the Soviet Union. Cuba remained poor even when the Soviet Union was pouring funds into the island nation over the years–wealth redistribution did nothing to permanently improve the lives of Cubans on the street. Countries make choices and fates are determined by those choices.

We’re of the mind that there are moral obligations of capitalist countries, however are 1,000% convinced that government is the single worst organization to monitor and regulate because of the tendency to play favourites and corruption. Government is the easiest of all institutions to corrupt and corrupts more rapidly than any other institution in any society. Government however is the best (and worst) we have and therefore we rely on government to punish crime, protect property rights, and guarantee equal opportunity.

Small neighborhood market in older section of Moscow illustrates decline. (photo: Mendeleyev Journal)
Small neighborhood market in older section of Moscow illustrates decline. (photo: Mendeleyev Journal)

When government gets involved in the economy, as is classical in Russia or as in Washington more recently, economic freedom is restricted. This writer doesn’t need a share of Oprah’s money nor deserves any of it either–she is the one who earned it. But we do expect to have the same opportunity to try and achieve the same result. She however is far more talented and will probably always earn more and that is okay. Equal opportunity does not equate to equal distribution of the wealth created by someone else.

For capitalism to prosper for all citizens, corporations must be required to play on the same playing field as small businesses. That is a proper role of government in making sure that all have a chance to succeed. Large corporations must be held accountable to the same laws as everyone else. On that note, so must government and politicians. One of the hallmarks of a government off course is when government elites are allowed to operate and live by a different set of rules.

Writing in The Poverty of Nations: A Sustainable Solution, the authors illustrate how South Korea in the 1950s was poorer than most African nations but today South Korea is the 12th most prosperous nation and her citizens enjoy one of the highest per capita income in the region. Why? Economic choices. We at the Mendeleyev Journal believe that the world must firmly and unashamedly blame third world nations for being poor. We can help them but only if they understand that their choices determine their poverty or prosperity.

Russia, a country we love, is about to become poorer based on decisions to close media, restrict capitalism to only those closely associated with the Kremlin, and jail opposition leaders. Russia today is making poor choices and will pay the economic price.

Wealth redistribution has never worked to increase GDP, it has never worked to increase per capita income but it has proved time and time again to weaken a society and create brain and capital flight.

Chile and Argentina have vast amounts of natural resources and yet are poor. Switzerland has limited amounts of natural resources and is one of the most wealthy in the world. Those countries per capita incomes are reflected in choices their governments have made. Choices determine outcome.

One island: two nations. The Dominican Republic is on the upswing and beginning to prosper although it still has a ways to go. The DR has the second largest economy in the Caribbean today.

(photo: Wikimedia Commons)
(photo: Wikimedia Commons)

Meanwhile on the same island, Haiti is just a sugar cane away and is one of the poorest in the world and is becoming poorer by the minute. Choices. You can take a billion dollars and rain it over Haiti and in ten years they’ll be just as poor because of the system they’ve embraced. Meanwhile, don’t rain that billion over the DR and it will continue to improve anyway because of the system they’ve chosen.

Poor nations will improve when they allow citizens to have opportunity and freedom to earn without having to fight corruption and threat of confiscation.

Socialism consistently fails to increase incomes. If you own two shirts and give one away, you now have one shirt and the other person has one shirt. Nothing however has been done to increase income permanently for either. Your “GDP” remains frozen and neither has gained anything of value for the future other one person received a free shirt. Free markets when applied equally for all do increase incomes for all when capitalism is applied consistently by the rule of law.

Russia, unfortunately, still limits free markets to those in good standing with the government and any attempt to build a business in Russia must fight corruption which is a death trap for any economy.

Finally, the country of Georgia: Tiny in comparison to Russia but even with the war in 2008, the economy continues to expand and per capita income has risen consistently since 2000. In 2004 Georgia fired 15,000 policemen in one day. In the following month another 15,000 were fired. Then the country began to rehire and retrain their police force with the caveat that taking bribes would mean an express pass to prison. Not only did crime go down in the 90 day period when Georgia had a scant police presence, but corruption in everyday policing was dramatically reduced.

Photo: Dmitry Chistoprudov)
Georgian police photo: Dmitry Chistoprudov

Soon thereafter Georgia went after corrupt judges and enjoyed the same result. The reestablishment of a honest judiciary led to improvements in the business climate because businesses could no longer bribe their way to prosperity. The 2009 GDP fell briefly after the war of 2008 but in 2010 had bounced back with a 6.3% increase and GPD raised to 7% in 2011.

In spite of the enmity between the two nations these days, Russia should take note of Georgia’s success because wide-scale corruption still hampers the Russian economy. Under President Medvedev the government was making headway in reducing corruption however it is on the rise again under the Putin administration which frankly seems to sweep it under the rug while making pronouncements about the evils of corruption.

Rarely do we recommend books on this site but one of the best we’ve seen to address poverty on a worldwide scale is The Poverty of Nations: A Sustainable Solution by Wayne Grudem and Barry Asmus. It is a worthy read and highly recommended for those who are brave enough to face the truth about the human condition and poverty.

The Poverty of Nations