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Russia's economy won't be fixed by the removal of sanctions

It is the country's capacity to change from within that will determine its economic prospects.

Vladimir Putin has probably never looked forward to any year as much as he is looking forward to 2017. With Donald Trump settling into the White House and Europe in political disarray, the Russian President will feel that his decision to face down the west over Syria and Ukraine has been vindicated. His fortunes will continue to rise if, as expected, the French Presidential election in May becomes a run-off between two pro-Putin right-wingers, François Fillon and Marine Le Pen. With a bit of luck he might even see the back of his staunchest opponent, Angela Merkel, when Germany votes in the autumn.

After two years of recession, Putin has reason to hope that at some point this year western economic sanctions imposed after the annexation of Crimea will be eased, if not lifted altogether. Yet any euphoria would be misplaced. At best, sanctions relief will help Russia to return to the state of economic stagnation that prevailed before the Ukraine crisis when annual growth had already slumped to 1.3 per cent, despite high oil prices. The World Bank is currently projecting growth rates of 1.5 per cent to 1.8 per cent over the next three years – well below the global average and nowhere close to the 7-8 per cent growth that was typical of Putin’s first two terms in office. This will limit his ability to restore the domestic bargain by which Russians accepted the loss of political freedom in exchange for a rapid expansion of living standards.

Although, like all countries, Russia is affected by global economic conditions, its biggest problems are homegrown. Chief among them is a business environment that stifles enterprises and deters investment. The impact can be measured in net outflows of capital running to tens of billions of dollars each year. Put simply, those who make money in Russia try to move it abroad as soon as they can, while foreign companies willing to invest in Russia are too few to make up the difference. The result is that Russia is starved of the investment and technology it needs to modernise its economy and reduce its dependence on natural resources.

A major challenge to improvement of the Russian business sector is the weakness of property rights and uncertainty over the rule of law. Entrepreneurs are often reluctant to establish new businesses or expand existing ones in case they attract the attentions of criminals and opportunists who use powerful connections to seize property in a widespread practice known as reiderstvo, or corporate raiding. In contrast to the western-style of corporate raiding, in which hostile takeovers are pursued by legal means, reiderstvo relies mainly on a post-Soviet mix of corruption and criminality.

The typical raid involves the arrest of a business owner on false charges of tax evasion or some other economic crime, facilitated with bribes to local law enforcement officials. While the victim is safely out of the way in pre-trial detention, ownership is changed with the help of forged papers and a corrupt judge prepared to certify them. Sometimes armed thugs are hired to take physical control of the targeted business. By the time the real owner is free, their assets have been taken and no legal remedy is available.

The scale of this problem is vast and apparently growing, affecting businesses of all sizes. As President Putin himself acknowledged, of the 200,000 economic crimes investigated in 2014, only 15 per cent resulted in a conviction while 83 per cent led to someone losing their business. He concluded: "The vast majority … got harassed, intimidated, robbed and then released." Of course, the Russian President is hardly blameless. The two most infamous examples of reiderstvo – the seizures of Yukos Oil and Hermitage Capital – were orchestrated at the highest levels of the Russian state. While Putin clearly understands that the national economic interest demands an end to this epidemic of property seizures, nothing will change unless an example is set at the top.

Increasingly, cases involving reiderstvo make their way into western courts and international tribunals where property rights can be effectively enforced. London has become perhaps the main international centre for hearing cases of this sort because many Russian business contracts include clauses allowing disputes to be settled in the English Commercial Court or the London Court of International Arbitration. Ireland is another jurisdiction in which major reiderstvo cases, historic and current, have recently come to court.

The US Congress has also recognised the challenge this presents, not just to the Russian economy, but also to international judicial cooperation. Last autumn, the Lantos Commission for Human Rights, an official arm the House of Representatives, organised a briefing on Russia’s misuse of Interpol arrest warrants to harass and demoralise victims of corporate raiding in exile. Despite President Trump’s declared willingness to remove sanctions and restore friendly ties with the Kremlin, Russia’s corrupt business culture will remain a serious impediment to economic cooperation with the US.

In economic terms, Russia is now at a fork in the road. Alexei Kudrin, the former Finance Minister who retains some influence as an adviser to Putin, has proposed a reform plan designed to achieve average growth rates of 4 per cent through an expansion of the private sector. Central to Kudrin’s vision is the creation of a judicial system capable of defending property rights. A rival plan supported by prominent conservatives calls for higher borrowing to fund state spending without any serious structural reform. As long as Russian businesses feel the need to outsource the rule of law to foreign courts in the absence of a better domestic alternative, there will be a cap on growth and Russia will be unable to recover its status as an emerging nation. It is Russia’s capacity to change from within, not the issue of sanctions, that will determine its economic prospects.

David Clark was Robin Cook’s special adviser at the Foreign Office 1997-2001.

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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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