Hostname: page-component-cb9f654ff-qc88w Total loading time: 0 Render date: 2025-08-05T10:15:47.182Z Has data issue: false hasContentIssue false
  • English
  • Français

The Escape from Institution-Building in a Globalized World: Lessons from Russia

Published online by Cambridge University Press:  08 June 2017

Gulnaz Sharafutdinova  and
Karen Dawisha
Get access Rights & Permissions [Opens in a new window]

Abstract

Strong institutions and accountable governments are imperative for any country’s long-term prosperity. Yet the development of such institutions has presented a continuous challenge for many countries around the world. Using Russia as a case, this study brings attention to the unexpected negative impact of global interdependence and shows that institutional arbitrage opportunities have enabled economic actors to solve for institutional weaknesses and constraints in the domestic realm by using foreign institutions, thereby limiting the emergence of a domestic rule of law regime. We argue that such opportunities lower the propensity of asset-holders, normally interested in strong institutions at home, to organize collective action to lobby for better institutions. We demonstrate the main ways through which Russia’s capital-owners make use of foreign legal and financial infrastructures such as capital flight, the use of foreign corporate structures, offshore financial centers, real estate markets, the round-tripping of foreign direct investment, and reliance on foreign law in contract-writing and foreign courts in dispute-resolution.

Information

Type
Articles
Information
Perspectives on Politics , Volume 15 , Issue 2 , June 2017 , pp. 361 - 378
Copyright
Copyright © American Political Science Association 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Abalkin, A. and Whalley, J., eds. 1999. “The Problem of Capital Flight from Russia.” World Economy 22(3): 421–44.Google Scholar
Acemoglu, Daron and Robinson, James A.. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishing.Google Scholar
Acemoglu, Daron, Johnson, Simon, and Robinson, James A.. 2005. “Institutions as a Fundamental Cause of Long-run growth.” Handbook of Economic Growth 1: 385–472.Google Scholar
Åslund, Anders. 2002. Building Capitalism: The Transformation of the Former Soviet Bloc. New York: Cambridge University Press.Google Scholar
Barnes, Andrew Scott. 2006. Owning Russia: The Struggle over Factories, Farms, and Power. Ithaca, NY: Cornell University Press.Google Scholar
Bates, Robert H. and Lien, Da-Hsiang Donald. 1985. “A Note on Taxation, Development and Representative Government.” Politics and Society 14: 53–70.CrossRefGoogle Scholar
Becker, Jo and Myers, Steven Lee. 2014. “Putin’s Friend Profits in Purge of Schoolbooks.” New York Times, November 1. Available at http://www.nytimes.com/2014/11/02/world/europe/putins-friend-profits-in-purge-of-schoolbooks.html?_r=0.Google Scholar
Belton, Catherine and Buckley, Neil. 2014. “Businessmen Are ‘Serfs’ in Putin’s Russia, Warns Sergei Pugachev.” Financial Times. October 8. Available at http://www.ft.com/intl/cms/s/0/ab541ee8-4e4c-11e4-bfda-00144feab7de.html#axzz3jOciy6hU.Google Scholar
Boisot, Max and Meyer, Marshall W.. 2008. “Which Way through the Open Door? Reflections on the Internationalization of Chinese Firms.” Management and Organization Review 4(3): 349–65.Google Scholar
Boix, Carles. 2003. Democracy and Redistribution. Cambridge: Cambridge University Press.Google Scholar
Boycko, Maxim, Shleifer, Andrei, and Vishny, Robert. 1997. Privatizing Russia. Boston: MIT Press.Google Scholar
Bunce, Valerie and Wolchik, Sharon. 2006. “International Diffusion and Postcommunist Electoral Revolutions.” Communist and Post-Communist Studies 39(September): 283–304.Google Scholar
Caeser, , Ed. 2015. “House of Secrets: Who Owns London’s Most Expensive Mansion?” New Yorker, June 1. Available at: http://www.newyorker.com/magazine/2015/06/01/house-of-secrets.Google Scholar
Cai, Hongbin and Treisman, Daniel. 2005. “Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy.” American Economic Review 95(3): 817–30.CrossRefGoogle Scholar
Caprio, Lorenzo, Faccio, Mara, and McConnell, John J.. 2011. “Sheltering Corporate Assets from Political Extraction.” Journal of Law, Economics and Organization 29(2): 300–32.Google Scholar
Cope, Christopher. 2011. “Russian Telecoms Giants Battle in the Isle of Man Courts”; July. Available at http://www.applebyglobal.com/articles-2011/russian-telecoms-giants-battle-in-the-isle-of-man-courts-by-christopher-cope.pdf.pdf.Google Scholar
Croft, Jane. 2014. “Three Quarters of Litigants in UK Commercial Court Are Foreign.” Financial Times, May 29. Available at http://www.ft.com/intl/cms/s/0/4c33f0c0-e716-11e3-88be-00144feabdc0.html#axzz3NDmTEx3R.Google Scholar
Darden, Keith and Grzymala-Busse, Anna. 2006. “The Great Divide: Literacy, Nationalism, and the Communist Collapse.” World Politics, 59(01): 83–115.Google Scholar
Dawisha, Karen. 2015. Putin’s Kleptocracy: Who Owns Russia. New York: Simon and Schuster.Google Scholar
de Willebois, E. V. D. D., Sharman, J. C., Harrison, R., Park, J. W., and Halter, E.. 2011. The Puppet Masters: How the Corrupt Use Legal Structures To Hide Stolen Assets and What To Do about It. Washington, DC: World Bank Publications.Google Scholar
Dellepiane-Avellaneda, Sebastian. 2010. “Good Governance, Institutions and Economie Development: Beyond the Conventional Wisdom.” British Journal of Political Science 195–224.CrossRefGoogle Scholar
Dixon, Adam. 2010. “Variegated Capitalism and the Geography of Finance: Toward a Common Agenda.” Progress in Human Geography 35(2): 193–210.Google Scholar
Dmitrieva, Olga and Yuferova, Yadviga, 2011. “Why Are Russians Moving to Britain.” Daily Telegraph, April 27. Available at http://www.telegraph.co.uk/sponsored/rbth/society/8476412/Why-are-Russians-moving-to-Britain.html.Google Scholar
Duvanova, Dinissa. 2007. “Bureaucratic Corruption and Collective Action: Business Associations in the Postcommunist Transition.” Comparative Politics 39(4): 441–61.Google Scholar
Duvanova, Dinissa. 2013. Building Business in Post-Communist Russia, Eastern Europe, and Eurasia: Collective Goods, Selective Incentives, and Predatory States. Cambridge: Cambridge University Press.Google Scholar
Easterly, William. 2008. “Design and Reform of Institutions in LDCs and Transition Economies Insitutions: Top Down or Bottom Up?” American Economic Review 98(2): 95.Google Scholar
European Investment Bank, 2013. Small and Medium Entrepreneurship in Russia. Luxembuorg. November, 3. Available at http://www.eib.org/attachments/efs/econ_study_small_and_medium_entrepreneurship_in_russia_en.pdf.Google Scholar
Farrell, Henry and Newman, Abraham L.. 2014. “Domestic Institutions beyond the Nation-State: Charting the New Interdependence Approach” World Politics 66(2): 331–63.CrossRefGoogle Scholar
Fish, Steven M. 2005. Democracy Derailed in Russia: The Failure of Open Politics. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Frye, Timothy. 2002. “Capture or Exchange? Business Lobbying in Russia.” Europe-Asia Studies 54(7): 1017–36.Google Scholar
Gans-Morse, Jordan. 2012.“Threats to Property Rights in Russia: From Private Coercion to State Aggression.” Post-Soviet Affairs 28(3): 263–95.Google Scholar
Gaur, Ajai S. and Lu, Jane W.. 2007. “Ownership Strategies and Survival of Foreign Subsidiaries: Impacts of Institutional Distance and Experience.” Journal of Management 33(1): 84–110.Google Scholar
Gingerich, Daniel W. 2013. Governance indicators and the level of analysis problem: empirical findings from South America. British Journal of Political Science 43(03), pp. 505–540.Google Scholar
Global Development Finance 2008: The Role of International Banking. The World Bank 2008. Available at: http://siteresources.worldbank.org/INTGDF2008/Resources/gdf_complete_web-appended-6-12.pdf.Google Scholar
Golikova, Victoria, Karhunen, Päivi, and Kosonen, Riitta. 2013. “Internationalizaion of Russian Firms as Institutional Arbitrage: The Case of Finland.” Available at http://www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_01144.pdf.CrossRefGoogle Scholar
Gradstein, Mark. 2007. “Inequality, Democracy and the Protection of Property Rights.” Economic Journal 117: 252–69.Google Scholar
Guriev, Sergei and Rachinsky, Andrei. 2004. “Ownership Concentration in Russian Industry.” Background paper. Country Economic Memorandum for Russia. Washington, DC: World Bank.Google Scholar
Haberly, Daniel and Wójcik, Dariusz. 2013. “Regional Blocks and Imperial Legacies: Mapping the Global Offshore FDI Network.” Working Papers in Employment, Work and Finance, No. 13–07. Oxford: School of Geography and the Environment.Google Scholar
Haberly, Daniel and Wójcik, Dariusz. 2014. “Tax Havens and the Production of Offshore FDI: An Empirical Analysis.” Journal of Economic Geography 15(1): 75–101.Google Scholar
Hale, Henry. 2014. Patronal Politics: Eurasian Regime Dynamics in Comparative Perspective. Cambridge: Cambridge University Press.Google Scholar
Hall, Zoe Dare. 2015. “Cannes Lays Out the Red Carpet for Film-goers and Property Buyers.” Financial Times, May 15.Google Scholar
Hanson, Philip. 2010. “Russia’s Inward and Outward Foreign Direct Investment: Insights into the Economy.” Eurasian Geography and Economics 51(5): 632–52.Google Scholar
Hellman, Joel S., Jones, Geraint, and Kaufmann, Daniel. 2000. “Seize the State, Seize the Day.” Policy Research Working Paper 2444. Washington, DC: World Bank Group.Google Scholar
Hendley, Kathryn. 2006. “Assessing the Rule of Law in Russia.” Cardozo Journal of International and Comparative Law 14(2): 347–91.Google Scholar
Hendley, Kathryn. 2009. “Telephone Law’ and the ‘Rule of Law’: The Russian Case.” Hague Journal on the Rule of Law, 1(2): 241–262.Google Scholar
Hendley, Kathryn, Murrell, Peter, and Ryterman, Randi. 2001. “Law Works in Russia: The Role of Law in Interenterprise Transactions.” Assessing the Value of Law in Transition Economies. Ann Arbor: University of Michigan Press.Google Scholar
Henry, James S. 2012. “The Price of Offshore Revisited: New Estimates for ‘Missing’ Global Private Wealth, Income, Inequality, and Lost Taxes.” Tax Justice Network. Available at http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf.Google Scholar
Hirschman, Albert O. 1970. Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States. Cambridge: Harvard University Press.Google Scholar
Hollingsworth, Mark and Lansley, Stewart. 2010. London-grad: From Russia with Cash. The Inside Story of the Oligarchs. London: Fourth Estate.Google Scholar
Huntington, Samuel P. 1993. The Third Wave: Democratization in the Late Twentieth Century. Norman, OK: University of Oklahoma Press.Google Scholar
Ju, Jiandong and Wei, Shang-Jin. 2010. “Domestic Institutions and the Bypass Effect of Financial Globalization.” American Economic Journal: Economic Policy 2(4): 173–204.Google Scholar
Junisbai, Barbara. 2012. “Improbable but Potentially Pivotal Oppositions: Privatization, Capitalists, and Political Contestation in the Post-Soviet Autocracies.” Perspectives on Politics 10(4): 891–916.Google Scholar
Kar, Dev and Freitas, Sarah. 2013. Russia: Illicit Financial Flows and the Role of the Underground Economy, Global Financial Integrity Report. Available at http://www.gfintegrity.org/wp-content/uploads/2013/02/Russia_Illicit_Financial_Flows_and_the_Role_of_the_Underground_Economy-HighRes.pdf.Google Scholar
Karhunen, Päivi and Ledyaeva, Svetlana. 2012. “Corruption Distance, Anti-Corruption Laws and International Ownership Strategies in Russia.” Journal of International Management 18(2): 196–208.Google Scholar
Kheyfets, Boris A. 2010. “Antiofshornoe nastuplenie mirovogo soobshchestva i rossiyskaia politika.” Finansy i biudzhet: Problemy i reshenia 2: 12–17. Available at http://www.imepi-eurasia.ru/baner/finance.pdf.Google Scholar
Le, Quan Vu and Zak, Paul J., 2006. Political risk and capital flight. Journal of International Money and Finance, 25(2), pp.308–329.Google Scholar
Leaver, Adam and Johal, Sukhdev. 2007. “Is the Stock Market a Disciplinary Institution? French Giant Firms and the Regime of Accumulation.” New Political Economy 12(3): 349–68.Google Scholar
Ledeneva, Alena V. 2013. Can Russia modernise?: sistema, power networks and informal governance. Cambridge University Press.Google Scholar
Ledyaeva, Svetlana, Karhunen, Päivi, and Whalley, John. 2013. “If Foreign Investment Is Not Foreign: Round-Trip versus Genuine Foreign Investment in Russia.” No. 2013-05. Available at https://tippie.uiowa.edu/economics/tow/papers/ledyaeva-spring2013.pdf.Google Scholar
Ledyaeva, Svetlana, Karhunen, Päivi, Kosonen, Riitta, Helsinki-Espoo, , and Whalley, John. 2013. “Foreign Investment from Offshore Jurisdictions into Russia.” Russian Analytical Digest, Issue 140, Center for Security Studies, ETH Zürich. Available at http://www.css.ethz.ch/publications/pdfs/RAD-140-2-6.pdf Google Scholar
Logvinenko, Igor. 2013. “Having It All: Immobile Assets, Financial Openness, and Authoritarian Endurance in Russia.” Unpublished manuscript, Wellesley College.Google Scholar
Loungani, Prakash and Mauro, Paolo. 2001. “Capital Flight from Russia.” World Economy 24(5): 689–706.Google Scholar
MacShane, Denis. 2014. “London-grad: British Capital under Russian Influence.” Available at http://www.theglobalist.com/london-grad-under-how-much-russian-influence-is-the-british-capital/12.Google Scholar
Mantzavinos, C. 2001. Individuals, Markets and Institutions. Cambridge: Cambridge University Press.Google Scholar
Markus, Stanislav. 2015. Property, Predation, and Protection: Piranha Capitalism in Russia and Ukraine. Cambridge: Cambridge University Press.Google Scholar
Markus, Stanislav. 2012. “Secure Property as a Bottom-up Process: Firms, Stakeholders, and Predators in Weak States.” World Politics 64(2): 242–77.Google Scholar
Markus, Stanislav. 2007. “Capitalists of All Russia, Unite! Business Mobilization under Debilitated Dirigisme.” Polity 39(3): 277–304.Google Scholar
Mazumdar, Siddharth. 2014. “BRICS: From FDI Destination to Departure Point.” The Economic Times. February 10. Available at http://articles.economictimes.indiatimes.com/2014-02-10/news/47201740_1_bric-countries-bric-nations-world-investment-report.Google Scholar
Mizobata, Satoshi. 2014. “Emerging Multinationals in Russia.” KIER Discussion Paper 899. Available at http://repository.kulib.kyoto-u.ac.jp/dspace/bitstream/2433/189401/1/DP899.pdf.Google Scholar
Morck, R., Yeung, B., and Zhao, M.. 2008. “Perspectives on China’s Outward Foreign Direct Investment.” Journal of International Business Studies 39(3): 337–50.Google Scholar
Myers, Steven Lee and Becker, Jo. 2014. “Even Loyalty No Guarantee against Putin.” New York Times, December 26. Available at http://www.nytimes.com/2014/12/27/world/even-loyalty-no-guarantee-against-putin.html?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news&_r=0#story-continues-1.Google Scholar
Narizhnaya, Kristina. 2011. “Britanskie sudy boriutsia za zakonnost’ v Rossii.” May 13, 2011. Available at: http://inosmi.ru/europe/20110513/169329255.html.Google Scholar
Nemtsov, Boris and Martynyuk, Leonid. 2013. Nezavisimyy Ekspertnyy Doklad. Zimnyaya olimpiada v subtropikakh. November. Available at: http://www.putin-itogi.ru/zimnyaya-olimpiada-v-subtropikax/.Google Scholar
North, Douglass C. 1990. Institutions, Iinstitutional Change and Economic Performance. Cambridge University Press.Google Scholar
North, Douglass C. and Weingast, Barry R.. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England.” Journal of Economic History 49(4): 803–32.Google Scholar
Nougayrède, Delphine, 2014. “Outsourcing Law in Post-Soviet Russia.” Journal of Eurasian Law 3(6): 1–74. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2433771 Google Scholar
Olson, Mancur. 2000. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic Books.Google Scholar
Palan, Ronen, Murphy, Richard, and Chavagneux, Christian. 2010. Tax Havens: How Globalization Really Works. Ithaca, NY: Cornell University Press.Google Scholar
Peck, Jamie and Theodore, Nik. 2007. “Variegated Capitalism.” Progress in Human Geography 31(6): 731–772.Google Scholar
Pelto, Elina, Vahtra, Peeter and Liuhto, Kari. 2004. “Cyprus Investment Flows to Central and Eastern Europe—Russia’s Direct and Indirect Investments via Cyprus to CEE.” Journal of Business Economics and Management 5(1): 3–13.Google Scholar
Piper, Elizabeth. 2014. “Crunch Time: As Sanctions Bite, Putin Ally Gets into Apples.” Reuters, December 28. Available at http://www.reuters.com/investigates/special-report/comrade-capitalism-apples/.Google Scholar
Pipes, Richard. 2005. Russian Conservatism and Its Critics: A Study in Political Culture. New Haven, CT: Yale University Press.Google Scholar
Pyle, William. 2009. “Organized Business, Political Competition, and Property Rights: Evidence from the Russia Federation.” Journal of Law, Economics and Organization 27(1): 2–31.Google Scholar
Reddaway, Peter and Glinski, Dmitri. 2001. The Tragedy of Russia’s Reforms: Market Bolshevism Against Democracy. US Institute of Peace Press.Google Scholar
Rochlitz, Michael. 2014a. “Corporate Raiding and the Role of the State in Russia.” Post-Soviet Affairs 30(2–3): 89–114.Google Scholar
Rochlitz, Michael. 2014b. “At the Crossroads: Putin’s Third Presidential Term and Russia’s Institutions.” Political Studies Review. Available at http://onlinelibrary.wiley.com/doi/10.1111/1478-9302.12057/abstract.Google Scholar
Rodrik, Dani, Subramanian, Arvind, and Trebbi, Francesco. 2004. “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development.” Journal of Economic Growth 9(2): 131–65.Google Scholar
Rogers, Carlyle K. 2015 “Vladimir Putin and ‘de-offshorization.’” Cayman Financial Review, January 30. Available at http://www.compasscayman.com/cfr/2015/01/30/Vladimir-Putin-and-%E2%80%98de-offshorization%E2%80%99-/.Google Scholar
“Russian Arbitration Day 2015.” June 1, 2015. Available at: http://www.lcia.org//News/russian-arbitration-day-2015.aspx.Google Scholar
Sestanovich, Stephen. 2015. “Has Russia Gone Rogue: Senate Hearing on Russian Strategy and Military Operation.” Accessed on December 10, 2015 at http://www.cfr.org/russian-federation/has-russia-gone-rogue/p37098.Google Scholar
Sharafutdinova, Gulnaz. 2010. Political Consequences of Crony Capitalism inside Russia. Notre Dame, IN: University of Notre Dame Press.Google Scholar
Sharafutdinova, Gulnaz and Kisunko, Gregory. 2014. “Governors and Governing Institutions: A Comparative Study of State-Business Relations in Russia.” Policy Research Working Paper 7038, September. World Bank Group.CrossRefGoogle Scholar
Shleifer, Andrei and Vishny, Robert W., 1998. The Grabbing Hand: Government Pathologies and Their Cures. New York: Cambridge University Press.Google Scholar
Sinuraya, T. 2007. “Russia: Legality of Russian Offshore Companies and Accounts in Regard to the Problem of Revenue Collection in Russia.” Journal of Financial Crime 7(1): 89–94.CrossRefGoogle Scholar
Sokolov, Aleksandr. 2012. “Zatraty na Olimpiadu Sochi—2014 rekordnyye za vsyu Istoriyu Olimpiyskikh igr,” Initsiativnaya gruppa po provedeniyu referenduma, August 16. Available at http://igpr.ru/articles/zatraty_na_olimpiadu_v_sochi.Google Scholar
Sonin, Konstantin. 2003. “Why the Rich May Favor Poor Protection of Property Rights.” Journal of Comparative Economics 31(4): 715–31.Google Scholar
Steptoe & Johnson LLP 2008. “Why Are Russian Cases Litigated and/or Arbitrated in England and Wales?” October. Available at http://www.steptoe.com/publications-6451.html.Google Scholar
Stiglitz, Joseph and Hoff, Karla. 2004. “After the Big Bang? Obstacles to the Emergence of the Rule of Law in Post-Communist Russia.” American Economic Review 94(3): 753–63.Google Scholar
Tikhomirov, Vladimir. 1997. “Capital Flight from Post-Soviet Russia.” Europe-Asia Studies, 49(4): 591–615.Google Scholar
Treisman, Daniel. 2010. “Is Russia Cursed by Oil?” Journal of International Affairs 63(2): 85.Google Scholar
Uegaki, Akira. 2006. “Capital Flight from Russia.” Slavic Eurasian Studies, 11. Available at http://src-h.slav.hokudai.ac.jp/coe21/publish/no11_ses/04_uegaki.pdf.Google Scholar
Volkov, Vadim. 2002. Violent Entrepreneurs: The Use of Force in the Making of Russian Capitalism. Ithaca, NY: Cornell University Press.Google Scholar
Witt, Michael A. and Lewin, Arie Y.. 2007. “Outward Foreign Direct Investment as Escape Response to Home Country Institutional Constraints.” Journal of International Business Studies 38: 579–94.Google Scholar
World Bank. 2002. World Development Report 2002: Building Institutions for Markets. New York: Oxford University Press.Google Scholar
Yakovlev, Andrei, Sobolev, Anton, and Kazun, Anton. 2014. “Means of Production versus Means of Coercion: Can Russian Business Limit the Violence of a Predatory State?” Post-Soviet Affairs 30(2–3), 171–94.Google Scholar