Permanent Crisis in Russia: Systemic Roots

For diverse ethical, political and cultural reasons Russia and China have chosen to construct market systems that are incompatible with the generally competitive principles sometimes advocated by international institutions like the World Bank and IMF. The generally competitive paradigm requires unfettered individual utility seeking, where participants abide by the fairness principle of the golden rule, buttressed by the rule of law. Russia and China have embraced the laissez-faire aspect of general competition, but rejected the golden rule, and the rule of law creating a system with acute institutional and moral hazards that have not only impaired productivity and efficiency, but destabilized the economy as well. This new Russian and Chinese model can be called authoritarian laissez-faire because it empowers various state dependent elites to freely and anti-productively maximize their own utility at the expense of others. The model superficially looks much like other market economies, but by modifying just a few axioms of the laws of demand, supply and equilibration, policymakers have created culturally approved systems with perverse properties that are resistant to constructive reform. Neither Russia nor China will be able to successfully compete with golden rule abiding market systems until they embrace the generally competitive rule of law, regardless of how statistics are doctored, or policymakers tinker with privatization, liberalization and stabilization.