A system is needed to keep Putin and his oligarchs afloat

A single arrest in a Tuscan port is rarely international news. But the decision of the Italian police to seize Scheherezade last Friday in Marina de Carrara was different.

For starters, Scheherezade is not a person, but a 459 foot luxury superyacht. And for another, US officials say its true owner, through a haze of intermediaries, will likely be Russia’s President Vladimir V. Putin.

Police seizures of huge luxury yachts in European ports have become the most visible symbol of the West’s attempt to crack down on Putin and his inner circle in response to Russia’s invasion of Ukraine.

But they are also particularly visible evidence of the corruption of the Russian ruling class. The Scheherezade has gilded plumbing, helicopter landing pads, and a dance floor that converts into a swimming pool — the latter of which raises the unexpected question of whether Putin is a fan of the classic film “It’s a Wonderful Life.” All of this would, of course, be well beyond the scope of a government salary.

And so the glitzy boat is a useful concrete reminder of what Russian experts have been saying for years: that it is impossible to understand Putin’s regime without understanding the corruption it has in turn created, fueled, shaped and limited. And that may one day turn out to be his downfall.

Mapping out the details of that corruption would be the job of a lifetime. But two simple insights can help you understand the big picture. The first applies to systemic corruption wherever it occurs: it is not primarily a problem of individual immorality, but of a trap for collective action. And the second is true of Russia: it fell into that trap as a result of its flawed and ultimately incomplete transition to democracy in the 1990s.

A collective action problem

We tend to see corruption as a lack of morality, when a greedy person decides to take advantage by directing public funds for personal gain. But while that’s not entirely untrue, it misses the most important point: namely, that corruption is a group activity. You need bribers and bribers, bribers of resources and resellers of resources, look-the-other-weighers and ask-a-share-of-the-takers.

When that kind of corrupt network behavior becomes rife, it creates its own parallel system of rewards and punishments.

“It differs from systemic corruption in that it is the expected behavior,” said Anna Persson, a political scientist at the University of Gothenburg, Sweden, who studies corruption. “These expectations actually make it very difficult for all individuals to resist corruption because it is very expensive in all sorts of ways to resist that kind of system.”

Those who refuse to participate in the parallel economy of favors and bribes are passed over for promotion, cut off from benefits, and ousted from power. Meanwhile, those adept at corruption rise through the ranks, given more authority, more resources to distribute to cronies, and more opportunities to punish anyone who poses a threat to them. The result is a system in which power and wealth accrue to those who want to play the corruption game, and those who aren’t are left behind.

Corruption “serves as a regressive tax, it’s like Robin Hood in reverse,” Persson told me. “All resources are being moved to the top of the system at the expense of the majority of the population.”

The most obvious evidence of that corrupt dynamic in Russia is the luxury properties and mega yachts of senior officials and their closest associates. But the damage is deeper, reaching into the lives of ordinary people, depriving them not only of government services and goods that end up in private pockets, but often of their basic rights as well.

Ivan Golunov, one of Russia’s best-known investigative journalists, spent years doggedly reporting corruption in Moscow’s city government, uncovering evidence of crony deals, missing money and failed public services. In 2019, he was arrested on trumped-up drug charges, beaten and jailed.

After an unprecedented outcry in the Russian media and abroad, he was released and the charges were dropped. But the message was clear: those who try to break the culture of corruption risk losing their safety, freedom or even life.

A little bit of democracy, but not enough

But why did corruption in Russia get so bad? The answer, and perhaps a counter-intuitive answer, lies in democratization.

Or rather, not enough, said Kelly McMann, a political scientist at Case Western Reserve University who studies corruption and is one of the executives of V-Dem, a long-running study of the nature and strength of democracy worldwide.

There was corruption in the Soviet Union. But after its dissolution in 1991, the sudden explosion of freedom of expression and association in Russia and the other former Soviet countries and satellites brought new opportunities, not only for political and economic development, but also for crime and corruption.

“Freedoms of speech and association should not only be used for good things, they can also be used for illegal activities,” McMann said. “If people can get together and talk more easily, they can plan corrupt activities.”

That wouldn’t have been so bad if democratization had also led to executive control, an independent judiciary to investigate and prosecute crimes. “In order for capitalism to have functioning markets, you also have to build institutions. You need banks that can provide credit, you need a strong legal system that protects property.” said McMan.

Estonia followed that path. After the fall of the Soviet Union, Estonia’s new democratically elected parliament strengthened the judiciary and introduced new controls on the executive branch. That’s where the corruption came in.

But in Russia, the government heeded the urging of Western advisers to squeeze the state out of the economy as much as possible to allow free markets to thrive. Institutions and restrictions fell by the wayside. In that vacuum, parallel structures of corruption flourished, pushing honest politicians out of government and honest companies out of the market.

By the late 1990s, official corruption had blossomed at all levels of government. In 1999, as President Boris Yeltsin’s presidency began to weaken, elites pressured him to leave office on their terms. If Yeltsin were to anoint their hand-picked successor, they would ensure that he and his family are not prosecuted for embezzlement of government funds.

He agreed. In August 1999, Yeltsin presented that successor: a young former KGB agent from St. Petersburg, Vladimir Putin.

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