This is a delightful story of just how right it can be done when a
country gets the opportunity to shift into the modern world. It only
needs the will to do it right even if mistakes are inevitable. Every
new leader emerging from the Arab spring needs to make a long visit
to the Baltic and learn first hand what worked.
We all want these nascent societies to succeed and it is not to much
to ask for respectful imitation. The Japanese practically invented
respectful imitation.
Yet thugs still grasp and extort for the privilege of breathing their
air. The people themselves need to understand that they can call the
shots and make it work. The advent of modern communication is now
making just that plausible.
Corruption doesn’t
pay: Why capitalism worked in the Baltic states
GWYN MORGAN
Last updated Sunday,
Oct. 21 2012, 9:41 PM EDT
My Oct. 8
column described a recent expedition that took my wife and me to
Russia and Estonia, Latvia and Lithuania, a tour that left us with
puzzling questions. Chief among them: Why has moving from socialism
to capitalism proven so disappointing for Russians, and so rewarding
for those in the former Soviet-controlled Baltic states?
- New EU states struggle to spend Brussels billions
- Chrystia Freeland Latvia shows how Europe can save itself
- The cost of a strong dollar and weak demand
The answer lies in the
two fundamental requirements for the transformation from socialist
repression to a free-market capitalist economy. First, a
thoughtful, transparent and unbiased privatization process is
required to make the move from state-controlled socialism. Second,
the rule of law must be enforced against corruption.
Russia’s transition
from socialism to capitalism failed on both counts. In an
ill-considered privatization process, vouchers exchangeable for
shares in huge oil, mining, and other industrial companies were
distributed to citizens who had no concept of private ownership.
Chaos reigned as some people even traded vouchers for shots of vodka
in bars; many vouchers were bought for a pittance by men who
instantly became fabulously wealthy. Several Russians told us that
these so-called oligarchs gained their private jets, yachts and
international palaces “over the backs of the Russian people,”
thus becoming symbols of capitalism’s failure.
But even if the
privatization debacle had been avoided, the country would have
been doomed by entrenched government corruption. Transparency
International ranks 183 countries for public-sector corruption. In
its most recent ranking, the 10 best are New Zealand, Denmark,
Finland, Sweden, Singapore, Norway, the Netherlands, Australia,
Switzerland and Canada. (The United States ranks 24th.) Near the
bottom is Russia, at No. 143, in the same league as Sierra Leone,
Nigeria and Uganda.
To get almost anything
done in Russia, the palms of crooked government officials must be
greased. No wonder Russians are cynical: They hoped capitalism would
bring prosperity, only to find themselves pawns of the same corrupt
elite that ruled in the past.
The privatization
process in the Baltic republics was more carefully thought out. The
first priority was home ownership, for example, but people couldn’t
afford to buy their apartments from the government. Estonia’s
solution was a transfer of home titles based on how long people had
lived and worked in the country. Where pre-Soviet ownership of
houses and farms could be traced, title was transferred back to the
original owners or their descendants.
While the
privatization of other assets and businesses in Estonia utilized a
voucher system similar to that in Russia, a stepped process yielded
better value for the public treasury while generally avoiding the
unfair enrichment of individuals.
Lithuania’s
transition to capitalism followed a similarly successful process.
Latvia’s privatization also followed the same basic template,
although many Latvians believe the sale of the country’s larger
base of industrial assets involved corruption that unfairly enriched
insiders.
It’s not surprising
that the post-privatization success of the three Baltic republics and
that of Russia mirror their Transparency International rankings.
Estonia ranks almost the same as the United States at No. 29,
Lithuania ranks 50th and Latvia sits at No. 61 – all vastly better
than Russia’s dismal showing.
The people of the
Baltic states revel in their hard-won personal and economic freedoms.
Gaining membership in the European Union was a huge milestone,
symbolizing their final step in “rejoining” Europe after decades
of Russian repression. Those long years of enforced socialism
taught them that hope and prosperity does not lie in government
programs, but rather in their own creativity, determination and work
ethic.
Comparing her country
with its Scandinavian neighbours, one Estonian told me: “We
lost four decades, but will catch up.” I have no doubt they will.
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