The Foreign Service Journal, April 2007

— the telecommunications sector, for example—will be preserved. In the process of redistributing assets, however, the regime has jeopar- dized its continuity. By undermin- ing property rights, it has left itself with no guarantee that the new rul- ing team will not start the cycle over again, with a fresh round of privati- zation creating a new oligarchy that will also be temporary. The limits of Russian bureau- cratic capitalism are now becoming clear, too. Despite nominal contin- uing economic growth at a rate of about 6.8 percent per year, the Russian economy is los- ing steam due to the fact that reforms are stalled, attempts to diversify have failed and growth is based more on consumption than investment. Under the cir- cumstances, the government is increasingly torn by internal rivalries, a search for scape- goats and vain attempts to project self-confidence. While it makes a show of being mighty and powerful, the Russian state has proved too weak to keep its commitments to business and society, and too feeble to maintain order based on the rule of law. Meanwhile, arbitrary, inter- ventionist behavior is scaring off potential investors. Foreign invest- ment is still coming in, to be sure; but Russian cash is fleeing in the form of the drive by the country’s mega-companies to acquire assets in the West, now politely called “export of capital.” Until recently the elite considered over-reliance on natural resource exports to be a weakness, recognizing that this strategy testifies to the government’s failure to develop a diversified, competitive, high-tech economy. F O C U S A P R I L 2 0 0 7 / F O R E I G N S E R V I C E J O U R N A L 27 A significant portion of the Russian elite is trying to have it both ways: integration with the West for themselves and their families, but not for the rest of society.