Last week I showed how America still has the world’s largest economy. On the heels of that, I read a Vanity Fair article entitled “The Wrath of Putin”. The article details the relationship between recently elected (again) President Vladimir Putin and Mikhail Khodorkovsky, former Yukos head and owner.
Essentially Khodorkovsky, who was the richest man in Russia at the time of his arrest in 2003, began to call into question Russian business practices after Putin’s initial election win. Khodorkovsky wants Russia to join the modern world – a place where the rule of law trumps bureaucracy.
Putin, not liking this, appeared to have trumped up some charges and put Khodorkovsky in jail, (conceivably forever, although after Putin’s win the Russian prosecutor will “study” the case) looted his company and caused many other Yukos employees to flee Russia. In the meantime, Khodorkovsky has become the opposition voice the Putin’s government.
I encourage you to read the whole article; however, my purpose for sharing it is that it does a good job of illustrating the problem with many burgeoning economies – bureaucratic corruption that leads to a breakdown in the rule of law and looting at the top.
Without the rule of law and bureaucratic threats, the following can take place:
- Civil unrest
- Stifling entrepreneurship
- Capital flight
- Brain drain
- Massive misallocation of capital
- Central planning
Until that gets cleaned up in emerging economies, America’s position won’t change.
