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Putin Fights Corruption. Good Luck With That.

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Bloomberg News delivered a scoop from Moscow: After a long break, President Vladimir Putin met with his economic advisers and asked them to come up with ideas for coping with Western sanctions. He tentatively approved a plan involving deregulation and a crackdown on corruption. That sounds great. Yet it most likely will turn out to be no more than a sop for beleaguered modernizers as the economy sinks.

Igor Yurgens, the head of a Moscow research organization and one of the so-called "system liberals," a group of modernization-oriented economists close to Prime Minister Dmitry Medvedev who had prominent roles during his brief presidency, recently described Russia's opaque political balance this way:

Progressives and conservatives, or reactionaries and liberals, call these two forces what you like, live parallel lives. For a while they co-existed as two parties in relative balance under Vladimir Putin. The military-political bloc with the oil and gas lobby, professing conservatism and paternalism, with its interests, its influential people in the administration and its own spokesmen -- and the economic bloc looking toward Europe and modernization, which still remains an influential party within the establishment, holding some desirable positions.

In fact, the modernizers have been in retreat at least since the Ukraine crisis erupted. Putin had lost interest in opening the Russian economy. Instead, he pushed for a return to "traditional values," suspicion of the West and limited self-reliance. Then he turned to orchestrating the Crimea annexation and the campaign to legitimize it, including support for a pro-Russian rebellion in east Ukraine, which soon got out of hand. Economic concerns were put on the back burner. Most Russians backed the shift.

Medvedev became irrelevant. The only policy his government has undertaken in recent months was to develop Russia's ridiculous food embargo in response to Western sanctions and the draconian new taxes on small businesses and real estate owners. Central Bank of Russia Governor Elvira Nabiullina, a "system liberal," has presided helplessly -- or, more likely, complicitly -- over the ruble's fall. Others pillars of the "European" party -- Herman Gref, chief executive of state-owned Sberbank, and former Finance Minister Alexei Kudrin -- have issued dire warnings, but Putin has ignored them. 

The Bloomberg article conveys the enormous relief of the quasi-liberal camp at being asked for its opinions. They offered Putin two options: The first involving a crackdown on low-level corruption, which takes the form of abusive fire-safety, sanitary, tax and other inspections of private businesses. The second directed at the big state-financed projects that could help prevent a recession. Putin supposedly liked the first scenario better. Now the "system liberals" expect him to expound on it in his annual address to parliament, which could take place at the end of the month.

It isn't clear how far Putin is prepared to go to alleviate pressure on Russian business. Any genuine anti-corruption campaign would have to begin by going after the president's billionaire friends, who benefit from most of the lucrative government orders. Taking them on would also neutralize many of the Western sanctions: These oligarchs are affected by the travel-ban and asset-freeze lists. Action against them is definitely not on the agenda, however.

Nor is a radical simplification of government along the lines of the reforms carried out by libertarian Kakha Bendukidze in Georgia 10 years ago. Bendukidze, who died last week just as the Ukrainian government was about to offer him a consulting position, had much more moderate advice for Russia than he did for Georgia, which abolished ministries to eradicate corruption, eliminate excessive regulation and cut costs.

"One just needs to write down a list of places where a person comes into contact with the state and try to make at least three of them better," Bendukidze said in an  interview published posthumously. "Then one needs to sell it to people loudly. I don't see any other way to do it." 

That may be what the "system liberals" are counting on. They are now searching for a catchy phrase to sell the effort to Russians. One suggestion, "Economic Freedom," is mentioned in the news story. Another, "Money Underfoot," is a way of explaining that eliminating small-time corruption could channel billions of dollars into the legitimate economy. If Putin buys into these suggestions, the liberals will be back in the game. They will have made themselves useful to the president by helping solve Russia's financial problems, allowing the Kremlin to pursue  its destructive foreign policies and increase Russia's military might.

Putin would be right to liberalize the economy and slim down government. The economic situation has deteriorated sufficiently to make these steps essential if Russia hopes to avoid a major decline in living standards. However, these measures would go against everything Putin and his "war party" have done. It's impossible to pursue libertarian economics while living in international isolation and conducting costly undeclared wars. At best, the proposal from the "system liberals" will give rise to yet another ineffective anti-corruption campaign. As Bendukidze often pointed out, corruption starts at the top, and it's useless to start fighting it from the bottom.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net