Tuesday, June 29, 2010

Russian Spies: OK But Keystone Cops?

Contemporary Russia is a KGB state, as the cover of The Economist informed its readers a while back. Vladimir Putin cut his teeth as a KGB operative in Berlin. Much of the Russian state, finance, and industry is run by former KGB agents. The official website of the KGB’s successor organization, the FSB, trumpets the bravery and bravado of agents who thwarted and continue to foil the West’s evil plans. Why should we be surprised that Russian agents are spying in the United States, some apparently under deep cover? In fact, the story makes eminent sense. Putin and the KGB resurgence dates back to the 2000, the year the arrested agents began their deep cover in the United States. Only back then, Russia had less cash than it has today.

What is unexpected is what the new Russian spies appear to be doing. Infiltration of Think Tanks would not seem to yield secret information of value. Our Think Tanks compete among themselves for the attention of policy makers with their prolific working papers and publications. Any respectable foreigner can walk in the front door and ask for such information without much of a fuss. Not knowing about our nuclear secrets, I cannot comment on what Russian spies can learn by learning them. The accounts in today’s press remind one of Graham Greene’s Our Man in Havana, which describes the machinations of a “spy” who fabricates elaborate plots, secret drops, and the like to justify the money he receives. Russia’s spies seem to face a similar problem in convincing their superiors in Moscow to buy them houses and reimburse their vacation travel.

When more comes out, I may stand corrected, but my first impression is that of a Keystone Cops movie.

Saturday, June 26, 2010

Medvedev in Silicon Valley: Do Not Fall For It

The Russian President visited Silicon Valley last Wednesday (June 23). His aim: To establish a Russian silicon valley outside of Moscow. He wanted the assistance and capital of Silicon valley. As usual, Medvedev emphasized that a rule of law would be established in Russia to safeguard foreign investment. Our experience to date in Russia is that promises of a rule of law are cheap. Delivering on that promise is expensive. As I write this piece, Khodorkovsky is still in jail in Siberia, now accused of stealing virtually all the revenue ever generated by Yukos Oil company. BP, ExxonMobil and other energy concerns are rewarded for their billions of dollars investment with de facto expropriation by environmental or tax authorities. Since Russian independence, there are few, if any, western companies, that have earned returns on investment commensurate with the risk. Under Putin, the largest and potentially most-profitable companies are now run by the state either directly or indirectly. The Russian mindset has always been to reserve the real profits for ourselves. If a western venture is about to earn a substantial profit, we must find a way to take it away.

I assume that these lessons are not lost on Silicon Valley. My advice is for them to stay away until that goal on the distant horizon is reached -- a true rule of law.

Thursday, June 24, 2010

Why the Worst Rise to the Top: Hayek, Stalin and Bukharin

Hayek in his renowned Road to Serfdom argued that administered economies tend toward dictatorship and that the dictator is unlikely to be benevolent. Indeed, benevolent dictators are a rarity, which does not prevent some development economists from pitching benevolent dictatorship as the quickest path to growth.

My “Politics, Murder, and Love in Stalin’s Kremlin: The Story of Nikolai Bukharin and Anna Larina” (Hoover Press, 2010) is one of the first case studies of why the “worst gets to the top.” It uses archival evidence of verbatim party debates, transcripts of interrogations, and correspondence to describe the uneven struggle for power between Stalin and Bukharin, the proponent of a form of market socialism. This case study shows that the “soft” Bukharin was no match whatsoever for Stalin who was prepared to use any and all means for as long as needed to win. Whereas Bukharin used theoretical arguments, Stalin used intimidation, appointments, and the distribution of spoils.

My account shows that until July 1928 Bukharin had a considerable following in his fight against Stalin’s application of force to the countryside. Bukharin fought Stalin to a standstill in the July 1928 plenum, but was tricked into signing a “unity statement” to show the party that the Politburo was united. Bukharin knowing that Stalin would renege on the compromises he made at the plenum was tricked into meeting with a disgraced ally of Trotsky in which he revealed the deep fissures within the Politburo to an outsider. Stalin’s agents knew of the meeting, and Stalin now had the evidence he needed. Bukharin was charged with “fighting against the will of the party.” With such a charge pinned on him, the disgraced Bukharin’s political career was over. Thereafter, he public comments in party forums were meet with jeers and disdain.

After his decisive political defeat in 1929, Bukharin attempted to withdraw from public life. He refused to see his former allies. It was his hope that “good behavior” would save his life. This hope was dashed with his death sentence in March of 1938 at the final Moscow Show Trial.