On The Top Of Putin's Agenda

Vladimir Putin is taking over Russia's presidency at a most opportune time. The economy is growing for the first time in nearly a decade, thanks to the rise in oil prices. And recent elections for the Duma have improved the chances for tax and legal reform. If Putin can make just two or three major fixes, there is a decent chance that Russia can finally take the road to sustained growth.

It is clear that the crony capitalist system that replaced communism is not working. It may have succeeded in breaking up concentrated bureaucratic power, but it consolidated power among a handful of corrupt tycoons. The same method of barter and personal relations that greased communism remains. And Russia's highly literate population and technologically advanced scientific community remain locked into a system that prevents them from reaching their potential. In a world economy increasingly driven by information, Russia has tremendous intellectual capital that is going to waste.

Putin's first step should be to push through the Duma a simplification of the tax system that significantly lowers taxes. One reason there is so much corruption in Russia is that taxes are prohibitively high and ambiguous at the same time.

Privatizing land is a second priority. Amazing as it seems, Russia's Duma, dominated by the Communists until the last election, has blocked the private ownership of farmland.

Perhaps most important, Putin must make explicit the roles of both the state and foreign investment in Russia. If the state is to play a strong role in the economy, he must say where and how. He must also define anew the place of foreign investment and make sure the courts enforce valid contracts.

Those who were optimistic about Russia have been proven consistently wrong over the years. This is the best time in a decade for Russia to finally prove them right.

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