The Heritage Foundation has just released the results of its 2009 Index of Economic Freedom.
Russia ranks #146 out of 179 nations under study, the bottom 20% of all countries in the world, and #41 out of 43 nations in its region — the bottom 5% of that group. Russia’s score on the index of 50.8, ten points below the world average, is virtually indistinguishable from that of Haiti, and well behind such nations as Djibouti and Syria.
Only 33 countries on the planet are less economically free than Russia, yet it holds a seat on the G-8. Go figure. The lowest of the G-8 other than Russia was Italy at #76. India is 123rd, Brazil 105th. Georgia is 32nd and the highest former Soviet republic is Estonia at 13th. Plainly, Russia is totally unqualified for G-8 membership.
Poland, for instance, scored a 60.3, placing it 82nd on the list, the upper half of the world, and 35th in its group, eight places ahead of Russia. Poland posted $13.9 billion in net foreign direct investment, or $365 per capita. With nearly quadruple Poland’s population and vast oil reserves that Poland lacks, Russia had only $28.7 billion in net FDI or a puny $205 per capita, over 40% less than Poland.
HF’s commentary on Russia’s results tells the tale:
Russia’s financial sector is not fully developed and is subject to government influence. Supervision and transparency are insufficient, although regulation improved in 2006. The more than 1,000 licensed and registered banks are generally small and undercapitalized, but consolidation is underway. The Central Bank of Russia regulates the banking sector, which is dominated by two state-owned banks. Foreign banks may establish subsidiaries, but the government has not permitted foreign banks to set up branches in Russia. As of 2007, there were 857 insurance companies, 27 of which are foreign-controlled. Capital markets are relatively small but growing and are dominated by energy companies.
Protection of private property is weak. The judicial system is unpredictable, corrupt, and unable to handle technically sophisticated cases. Contracts are difficult to enforce, and an ancient antipathy to them continues to impede Russian integration into the West. Mortgage lending is in its initial stages. Violations of intellectual property rights continue to be a serious problem.
Freedom From Corruption
Corruption is perceived as pervasive. Russia ranks 143rd out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007. Corruption remains all-encompassing, both in the number of instances and in the size of bribes sought. Manifestations include misuse of budgetary resources, theft of government property, kickbacks in the procurement process, extortion, and official collusion in criminal acts. Customs officials are extremely inconsistent in their application of the law.
Russia’s relatively rigid labor regulations discourage overall employment and productivity growth. The non-salary cost of employing a worker is high, and the difficulty of firing a worker creates a disincentive for additional hiring. Regulations related to the number of work hours are rigid.