COMMENTARY -- Economics 101: Don't jail job creators
August 13, 2013 10:10 AM

The Russian economy is not doing well. Reports Bloomberg News, “Russia’s economy unexpectedly slowed in the second quarter to extend a slide that’s stoking concern the world’s biggest energy exporter may be entering a recession.”

Although USA Today sarcastically remarked, “Russia’s GDP growth is whatever (President) Vladimir Putin says it is,” even the official statistics are not good. According to Bloomberg, the government’s Federal Statistics Service reports that GDP grew only 1.2 percent from a year earlier. Based on the classic definition of two straight quarters of negative growth, Russia may already be in a recession.

Faced with an impending economic crisis, the Kremlin settled on a novel stimulus program, one that seemed to have eluded the George W. Bush and Barack Obama administrations. They are releasing from the gulag small-business owners and entrepreneurs who were locked up on bogus charges designed to let the Kremlin or its cronies gain control of those businesses, which were then usually looted.

The New York Times reports that a “business owner in Russia has a better chance of ending up in the penal colony system once known as the gulag than a common burglar does.”

Official figures show that burglary and robbery are prosecuted less than “economic crimes,” which run a wide gamut from embezzlement to tax evasion, according to the Times. At least one out of every 10 inmates is a white-collar convict, according to the newspaper. A jailed self-employed upholsterer interviewed by the Times had his business confiscated and his stock sold off to a competitor for “copyright infringement.”

The Times says more than 110,000 people are serving time for economic crimes and another 2,500 are in jail awaiting trial on those charges. Since Russia’s entrepreneurial class is only about 3 million to begin with, the threat of being jailed and having one’s business confiscated has had a markedly depressing effect on innovation and entrepreneurship.

According to the newspaper, the Kremlin has appointed an ombudsman for entrepreneurs’ rights to begin amnesties for the jailed entrepreneurs who lost businesses in hopes that they’ll start new ones and begin hiring people, pay taxes and maybe help stave off a recession.

The ombudsman, Boris Titov, admits that the government “overreacted” during Putin’s first 12 years in power as president and prime minister.

If Putin wants to free his economy from the vagaries of oil and national gas prices, he’ll protect his small-business class, not plunder and prosecute it. This is a lesson so obvious that Western business schools don’t even bother to teach it.

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