Who would imagine international bankers running a natural experiment for us, free of charge? And yet, they did, in the mid-2000s in China and Russia.
China became a member of the World Trade Organization (WTO) on December 11, 2001, and, after a five-year gradual entrance, foreign banks are going to have full-scale access to China's financial markets in late 2006. U.S., Japanese, European, and other foreign banks are lining up to swarm China.
Russia's accession process to the World Trade Organization started on June 16, 1993, and has been dragging out ever since. It was supposed to be finalized by July 2006, when Russia, as befitting its inaugural presidency of the Group of Eight, will host the G8 summit in St. Petersburg. But the issue of foreign banks' access to Russia stalled the WTO entry many a time, until it has surfaced as an unsurmountable barrier in March 2006. So much so that Russia would rather give up its accession to the WTO than give in to admitting foreign banks.
China vs. Russia vis-a-vis the WTO
The WTO membership is the collective practical judgement of the international business community, free of social science dogmas, that a given country is a market-worthy economy. In September 2004, when Cambodia joined the WTO, we wrote, prematurely: "Two countries stay out and stand out, unsure to join and unqualified to enter the WTO: Russia and Saudi Arabia." (1) Meanwhile, Saudi Arabia was admitted on December 15, 2005. This is a useful, if accidental, reference point because one can hardly attribute the different treatment of Saudi Arabia and Russia to oil. In 2006, the WTO counts 149 member countries. After Saudi Arabia's entry, Russia remains the only major developed economy inadequate to join the WTO. (2)
In November 2002, we tried to explain the difference between Russia and China vis-a-vis the WTO. (3) China is an illiberal market economy while Russia is a liberal non-market, socialist economy. International business actors can live with some government restriction of the markets, which limits their freedom of action, but not with the absence of markets and with ubiquitous redistribution of their earnings by domestic actors who use and abuse economic freedom.
In a recent article, Vernon L. Smith pinned down the specific redistributive mechanism wherein the third party, such as employers, insurance companies, and the government in the U.S. health care system, is footing the bill.
Here is a bare-bones way to think about this situation: A is the customer, B is the service provider. B informs A what A should buy from B, and a third entity, C, pays for it from a common pool of funds. Stated this way, the problem has no known economic solution because there is no equilibrium. There is no automatic balance between willingness to pay by the consumer and willingness to accept by the producer that constrains and limits the choices of each. (4)
Supply and demand prices and market equilibrium are impossible here. Socialist income redistribution prevails. Chapter 1, part II of From Predation to Prosperity showed that an isomorphic system of income redistribution has evolved in post-central plan Russia on a national scale, encompassing the entire network of enterprises. The enterprise network charges its expenses to the government and extracts payments through the specific channels of tax non-remittance, forced monetization, and subsidized bank credit. This is a system of aggregate third party billing, the economy-wide socialism from below, which differs in this respect from sectoral (e.g., health care) third party paying, sectoral socialism from above. (5) China imposed government controls exactly in order to prevent the evolution of this economy-wide subsidy enforcing system, while Russia liberalized and privatized this system.
The natural experiment that surfaced in 2006 points to a specific systemic difference between China and Russia vis-a-vis WTO. Letting or not letting foreign banks compete in a country against domestic banks or their ersatz pretenders reveals the core of the economic system of the country. (6) U.S., Japanese, European, and other international bankers, just by pursuing their daily business of global expansion and without viewing this as a social science experiment, actually tested the ground in China and Russia and unearthed what each country stands upon. This is how they unintentionally ran a natural experiment. (7)
It is convenient to review this experiment by starting with the background noise, the potpourri of news reports, and then submit a unique and unified systemic explanation that fits both China and Russia.
In the news
"As China gets set to throw open its doors to foreign banks by the end of the year, there is a gold rush among global banks to claim their stake in China's fast-growing financial services market." (8)
"The most recent major initiative to improve the functioning of the banking sector started in late 2003, when the government decided to recapitalize two of the four major state-owned commercial banks and introduce changes in legal structure, corporate governance, and risk management, with the goal of bringing in strategic investors and eventually listing the banks. This effort has been partly motivated by the prospects of facing increased competition when, at the end of 2006 under the World Trade Organization agreement, the sector will be opened to foreign banks." (9)
"In the last year, China has seen an influx of about $15 billion from foreign banks with large players such as Bank of America and Goldman Sachs investing over $3 billion each to buy small 10 percent stakes in two of the Big 4 Chinese banks." (10)
"China Construction Bank and Bank of China (...) introduced strategic investors with a minority ownership share. By offering an ownership stake, the banks generally expect to diversify the ownership structure, enhance their capital strength, take advantage of the partner's management and technology expertise, and launch joint operations in selected areas:
- China Construction Bank (CCB). In a deal announced in June 2005 and completed in the second half of 2005, the Bank of America Corporation (BoA) and Temasek invested $3.0 billion and $2.5 billion for approximately 9 and 6 percent ownership shares, respectively. (...) BoA has a non-exclusive option to increase its steak to 19.9 percent at the IPO share price. (...)
- Bank of China (BOC). In August and September 2005, the BOC announced the entry of several investors--an investor group (Royal Bank of Scotland, RBS, with Merril Lynch, and Li Ka-shing) announced a combined investment of $3.1 billion for a 10 percent ownership share, Temasek announced an investment of similar size, and United Bank of Switzerland was to buy a 1.6 percent share for $0.5 billion. (...) BOC's partnership with UBS in investment banking and securities was also announced.
The CCB listed its shares in 2005, and the BOC appears to be on track to do so in 2006. The CCB had a successful initial public offering of its shares in Hong Kong in October 2005, raising approximately $9 billion of new capital. The BOC has been preparing its listing as well and appears to be on track to have its shares listed in Hong Kong in 2006." (11)
"Large international players, like Citigroup, have experience in maneuvering the Chinese market and stand to benefit from burgeoning credit card market, as well as other consumer finance and wealth management products. Citigroup, earlier this week, opened its first private banking office in Mainland China." (12)
"Industrial and Commercial Bank of China (ICBC) has been working on operational restructuring for some time before the restructuring plan was approved. The business model and asset structure of the ICBC have changed in recent years, with a decrease in the share of commercial loans in total assets and a substantial increase of residential mortgages and consumer loans (...) The ICBC was transformed into a shareholding company and announced entry of strategic investors in the second half of 2005. In January 2006, a definite agreement was signed with Goldman Sachs, Allianz, and American express, calling for a combined investment of $3.78 billion in the form of subscription to newly issued ordinary shares. (...) The banks's stock should also be ultimately listed (...)
Progress in reforming other institutions providing financial services in agricultural areas may help formulate reform plans for Agricultural Bank of China. Pilot reforms of rural credit cooperatives (RCCs) that were started in 2003 in eight provinces were extended nationwide in June 2004. The restructuring and consolidation of the RCCs (some into rural commercial banks) has been financed by the central bank, the Ministry of Finance, and local governments. The total number of RCCs is targeted to be reduced from 30,000 in 2004 to around 10,000 (including about 200 rural commercial banks) by end-2007, when the major part of RCC reform is expected to be completed. (...)
Foreign ownership participation in smaller Chinese banks has increased substantially as well. In 2004, five Chinese banks, including the Bank of Communications, Shenzhen Development Bank, and Xi'an City Commercial Bank, brought in foreign strategic investors, doubling the number of Chinese banks with foreign equity participation. The partnership between HSBC and the Bank of Communications, China's fifth largest bank, has been the most important step. The Bank of Communications also successfully completed an IPO on the Hong Kong market in June 2005 and has been viewed as a model for shareholding reform for the four large state-owned commercial banks. In 2005 and 2006, a number of further deals were announced, including China Minsheng Banking Corporation, Huaxia Bank, Bohai Bank, Guandong Development Bank, Bank of Beijing, and Hangzhou City Commercial Bank. In fact, only few joint-stock commercial banks and large city commercial banks do not have a foreign strategic partner." (13)
"However, the ownership shares of foreign strategic investors are relatively small and their management involvement minimal. Ownership regulations limit the share of a single foreign owner to 20 percent of capital, and most deals leave foreign investors with about 10 percent ownership share." (14) "Global banks aren't going to be satisfied with just a small piece of the pie. The goal is to supplant the banks that are already there." (15)
"As part of China's entry into the World Trade Organization, China will allow foreign banks to operate in any part of the country--opening up the possibility for global banks to expand within a market made up of 1.3 billion people. (...) In the short-term, global banks see plenty of potential for profit from underwriting and investment banking fees as the Chinese markets open up and a fresh wave of initial public offerings, including banks, hit the markets. But the real attraction, experts say, is the large untapped market for consumer-based financial services such as credit cards, mortgages, and car loans. According to a report by consulting firm McKinsey & Co., by 2013, China's consumer credit market will account for about 14 percent of profits, up from a mere 4 percent current." (16)
"Large state-owned commercial banks (SCBs) have continued losing their lending market share to other financial institutions in provinces with more profitable enterprises in recent years. On the positive side, share of state-owned enterprises in output does not appear to have a significant impact on SCB lending, suggesting that the SCB's focus on state-owned enterprise lending might be weaker in recent years." (17)
"Russia is the biggest economy not yet to be a member of the 149-nation WTO, but has struck all necessary bilateral deals with other members apart from U.S., Australia, and Colombia. (...) Russian President Vladimir Putin accused the U.S. of artificially holding back progress in talks on Russia's accession to the World Trade Organization. (...) Agreement with Washington has been held up over U.S. demands for Moscow to allow foreign banks to open direct branches, not just Russian subsidiary companies as now." (18)
"Talks with Washington, regarded as the biggest challenge, have snagged on U.S. calls for Russia to open up its financial sector by allowing foreign banks to open branches rather than subsidiaries. Russia is concerned any concessions would expose its weak financial sector--it has over 1,200 banks--to foreign takeovers. Officials point out that Citigroup has carved out a strong market position in Russia under the existing rules. (...)
The Russian President's remarks prompted the top U.S. trade official to issue a quick response. (...) "The remaining issues with Russia's accession--both bilateral and multilateral--are not new problems and they are not dissimilar to those issues addressed by others who have acceded to the WTO," U.S. Trade Representative Rob Portman said in a statement released in Washington." (19)
"Secretary of State Condoleezza Rice rejected Russian President Vladimir Putin's assertion that Washington was hampering Russian efforts to negotiate entry to the World Trade Organization. "We would like to see Russia a member of the WTO but the agreement has to conform to WTO rules and it has to be something that will pass congressional scrutiny and conforms to international rules," Rice told reporters. (...) But Russian Economy Minister German Gref said (...) "A tense negotiation process is going on. (...) Problem number 1 remains financial services," he said." (20)
"President Vladimir Putin alarmed financial markets in December when he said the activity of branches of foreign banks working in Russia must be banned, a remark seen by the business community as threatening to foreign operators in Russia.
Mr. Gref said Russia had difficulty understanding the U.S. side at times and had exhausted its potential for compromises. He said Russia particularly did not understand the U.S. position on financial services. "We see this stubborn position not being resolved by now," he said. Washington wants Moscow to allow foreign bank branches in Russia, but Moscow says it will only endorse banking subsidiaries to protect its weak and fragmented financial sector.
Finance Minister Alexei Kudrin said that Russia would raise the share of foreign ownership of banks to 50 percent of its banking system's aggregate capital, but that Moscow was not ready yet to allow foreign banks to establish local branches." (21)
"The Russian President said, "The negotiation process is being artificially held back." He added that Russia was still interested in WTO membership but "only on economically beneficial conditions." (22)
"Putin said Russia would not join the WTO without the right terms. "For us it is not a question of whether or not we join the WTO," he said. "Right now, it is more important for us on what terms we join." (23)
"Putin reiterated Moscow's position that foreign banks should not be allowed to open directly owned branches in Russia. He said that would not allow Russia to control flows of capital in and out of the country." (24)
It is for a reason that in both China's and Russia's parts of the above potpourri, their respective denouements played in the penultimate paragraphs while the last paragraphs sounded like an anti-climax. In fact, the last paragraphs carry the systemic clue to explaining the experiment.
Reconciliation. A unique and unified explanation
The point of the natural experiment is systemic compatibility in China and systemic incompatibility in Russia of an additional institution, namely foreign banks.
The following is a unique and unified explanation which makes it both necessary and sufficient. In both China and Russia, letting or not letting foreign banks operate in the country is not just a matter of haggling and compromises with WTO conditions. Rather, it is a matter of systemic compatibility or incompatibility with the existing economic system including the economic interests of the government and enterprises.
China is not conceding its financial markets and banking to the WTO. China is interested in foreign banks and other financial intermediaries for the benefit of its systemic evolution and long-term economic growth. China's two-track economic strategy has been phasing out the inherited and subsidized state sector and phasing in the new-entrant market sector, free of subsidies and other income redistribution. These outgoing and incoming sectors have been separated by credit and banking, among other walls.
One of the successes of this ongoing strategy is the decreasing credit market share of inherited state enterprises and their servicing state-owned commercial banks in favor of provincial and local new-entrant enterprises and banks, such as Township and Village Enterprises and their corresponding provincial, municipal, and rural commercial and cooperative banks and credit unions. (25) The second track phases out the first track.
Now foreign banks will enter the second track of China's economy and complement and supplant the second track's financial intermediaries. They will complement and supplant lending to the newfangled enterprises at the provincial and local level and complement the system with consumer credit and retail banking. The latter will close an important gap in China's financial markets because urban and rural commercial and cooperative banks and credit unions owned by local governments, local enterprise groups, and urban and rural cooperatives were founded for issuing credit to enterprises, not households. Foreign banks will retail credit, especially mortgage lending, and offer other financial services to households and thus complete a broad financial market.
Everyone in China is interested in developing this new financial segment, not only the household sector and the government but also the second-track, new-entrant enterprise sector. The latter will benefit from the expanding demand for its output such as building and home construction, automobiles, home appliances, other consumer durables, electronics, and various consumer goods purchased on credit. Between foreign banks and China's government, enterprises, and households, this is the most mutually beneficial market development, a natural experiment for globalization texts.
Most importantly, foreign banks will complement and supplant financial intermediaries in the second track, new-entrant market sector of China's economy. Foreign banks will offer a safer-insured and a higher-return vehicle for the prodigious savings of Chinese households and diversify credit and other financial services for newfangled market enterprises. Competition will help streamline domestic banks on the second track. Some of them may downsize or fade away when households and enterprises transfer their deposits to foreign banks. Along the way, foreign banks will assume profitable assets of these second track banks. This orderly process of moving liabilities and assets in tandem will minimize bank failures. The central government has credibly demonstrated its aversion to bailouts of any second-track financial institutions and its position that weeding weak intermediaries strengthens the market. (26) Thus foreign banks will unintentionally implement what China's government is doing itself, but faster and better, namely reform and modernization of China's banks and financial markets in general.
Apart from some IPO preparation and underwriting, the old, first track of China's economy, with its inherited state-owned enterprises and their servicing state-owned commercial banks, will be closed to foreign bank infusion, to mutual satisfaction. The government may simply forbid its own enterprises to borrow from foreign banks, as part of general credit ceilings and other controls of state-owned enterprises. A restriction along these lines will not violate any WTO rules because this is simply a matter of internal corporate governance. The owner dictates how much and where its enterprises can borrow. This would be an extension of the rule separating the two tracks of the economy, including banning financial relations between the first track enterprises and the second track banks. But even without a restriction conjured up above as a mental experiment, foreign banks will not venture into the first track lending. They won't want to risk an exposure to non-performing loans collateralized by obsolete assets and underlaid by the present value of non-profitable state enterprises. Foreign banks are not in the business of issuing subsidized credit.
In all, foreign banks will complement the existing economic system in China's and enhance its capacity and efficiency.
Russia's economic system in its present form is incompatible with foreign banks and cannot sustain them.
First, since the onset of the current system in January 1992, Russia's banks issued credit for enterprise payments, not for investment. They transmit central bank monetization to subsidized enterprise credit by multiplying it through enterprise and household deposits. Banks roll over and expand subsidized enterprise loans, nominally performing as long as credit rollover and expansion continue, but in reality these loans are sunk. The purpose of this function of the banking system is to enable enterprise tax remittance to the government. In so doing, banks primarily re-intermediate between enterprises within the subsidized enterprise network. To the extent that banks also intermediate between households and enterprises, they provide subsidized enterprise credit for payments by repressing deposit interest rates and thus transfer income from households to enterprises. (27)
Household deposits are secured by valueless assets of subsidized enterprises and by government bonds prone to default. Even when deposits are insured, as in the case of the national Savings Bank owned by the Central Bank, the cap is low and only the nominal value is insured. Add periodic forfeiture of the value of household deposits due to spikes of inflation and/or commercial bank failures, e.g., in 1992 and 1998, and it becomes clear why Russian households prefer to hold their savings with their own branches of the U.S. Federal Reserve, that is in dollars under mattresses.
If, by any stretch of imagination, foreign banks enter the scene en masse, Russian households will immediately move their deposits to well-insured, market interest-paying international banks. Ironically, in 2006, when Russia's economy has nearly recovered from the great contraction of the 1990s, this flight of deposits would shake the system even more than it would in the 1990s. In 1992, on the eve of Russia's accession process to the WTO and after the spike of extreme inflation, household deposits comprised less than 20 percent of total deposits while enterprise and government deposits, over 80 percent. In 1998, on the eve of the great default, household deposits constituted about 40 percent of total deposits, enterprise and government deposits, 60 percent. In the beginning of 2006, after several years of economic growth, rising real household incomes, and declining inflation, household deposits constituted to 67 percent of total deposits and enterprise and government deposits, 33 percent. (28)
Again, domestic Russian banks are transmitters of subsidized credit to enterprises, re-intermediators of payments between enterprises, and facilitators of tax remittance to the government. Should households transfer their deposits to foreign banks, the three pillars of Russia's economic system will collapse: subsidized credit, subsidized payments, and subsidized tax remittance. On the upside, the subsidized enterprise network will break down and independent, regenerated market enterprises may arise from its rubble. On the downside, the government will default on its external and internal debts and various social upheavals may follow. Although the long-run benefits will exceed the costs, there are less costly ways of dismantling the existing enterprise network. (29) Immediately thereafter, letting foreign banks into the country will intermediate the new emerging market system.
Second, since the adjustment of Russia's economic system in January 1999, banks implement a unique fiscal function delegated to them by the Central Bank in lieu of the fiscal authority. Banks monitor and enforce mandated repatriation of foreign exchange revenues by Russia's enterprises from their export proceeds. This affects primarily oil companies, the natural gas corporation, and other major natural resource producers. Unlike transmitting subsidized credit to enterprises from the Central Bank and transferring it from households, this fiscal function is not voluntary. Banks have to perform it lest they lose their operating license. Mandated repatriation of foreign exchange revenues refills enterprise money balances which facilitates payments, enables the government to enforce tax remittance, and, accidentally and indirectly, spawns economic recovery. (30)
Foreign banks don't have a comparative advantage in monitoring and enforcing mandated repatriation of foreign exchange revenues by Russian exporters. This is not an issue of standard capital controls typical in many countries. International banks have vast experience in working in countries which exercise the usual control of inflows and outflows on the capital account. This is a routine function of their branches in many countries. They could readily incorporate these functions in their operations in Russia. Monitoring and reporting to the Central Bank and to the fiscal authority on money transfers into and out of the country above certain amounts, ensuring a longer-tem deposit maturity of specific inflows to prevent a sudden outflow panic and a currency crisis, and stopping capital outflows above certain caps can be done routinely. Moreover, foreign banks can perform these functions better than domestic banks because the former are less connected with domestic enterprises and more transparent than the latter.
Russian capital outflow is different from the standard pattern. In most countries, including China, capital outflow represents investment into foreign assets of domestic savings, primarily broad household savings, after payments and after taxes. It is non-redistributive and it also indirectly stimulates domestic production when it enhances domestic incentives to produce by offering safer investment with higher returns to income earners. Russian capital outflow is primarily that of exporting enterprises before payments to suppliers and before calculating and remitting taxes. It is redistributive, subsidy-laden, and counter-productive. It reduces tax remittance, jams payments, contracts output, increases subsidies, and bankrupts the government.
Russia's specific specimen of capital controls requires different expertise and enforcement power than foreign banks can master. It requires coordinating physical amounts of exports and their world market values with the flows of funds. Only banks which simultaneously manage payments between enterprises, including wholesale operations, and transmit subsidized credit to enterprises and their tax remittance to the government, mediating between the latter two flows, can enforce monitoring and mandated repatriation of export revenues. (31) These are Russian banks, not foreign banks.
If the government opens Russia to foreign banks and they open branches in Russia, Russian export enterprises will immediately transfer their accounts to foreign banks. These enterprises will thus escape control of their foreign exchange revenues and avoid mandated repatriation of these earnings and the ensuing tax remittance. Payments between enterprises will fall into long and large arrears and chronic tax non-remittance of the 1990s will resume economy-wide. The government will face large budget deficits and eventual default on its external and internal debt. In addition, the dwindling supply of dollars will depreciate the exchange rate of the ruble, and the Central Bank will have to dispose of its plentiful foreign exchange reserves to support the currency against a rapid devaluation. Another combination of default and devaluation will loom on the horizon.
In all, foreign banks are an alien body which Russia's economic system and its government must reject lest they perish.
This concludes the natural experiment of China vs. Russia, courtesy of international bankers.
2. Vietnam's accession reached the final stage on March 27, 2006. Other remaining non-members are Afghanistan, Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Cape Verde, Equatorial Guinea, Ethiopia, Holy See, Iran, Iraq, Kazakhstan, Laos, Lebanon, Libya, Montenegro, Samoa, Sao Tome and Principe, Serbia, Seychelles, Sudan, Tajikistan, Tonga, Ukraine, Uzbekistan, Vanuatu, and Yemen. See http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm .
3. http://www.russianeconomy.org/comments/111302.html : "China is a market economy and Russia is a socialist economy. The one-dimensional judgement of Western governments, which views the market economy as a residual of government control, finds the opposite. But the practical judgment of the same Western governments and the global business community at large sets the matters straight. This is why China is inside the WTO, along with real market economies, and Russia is the odd man out. The global business community effectively acts on the principles of the new, multi-dimensional paradigm. For global industrialists and investors, there is no cognitive dissonance. They know the market economy when they see one. And they know socialism for what it's worth."
4. Vernon L. Smith, "Trust the Customer!" The Wall Street Journal, March 8, 2006, p. A20.
5. See http://www.russianeconomy.org/predation/pdf/pendulum.pdf , "Free and Not So Free to Charge: The Pendulum of Russia's Economy, 1992-2004," pp. 2-4 and passim.
6. This point explains the agenda of our book Fixing Russia's Banks: A Proposal for Growth and various chapters of From Predation to Prosperity, especially chapter 4, "The Evolution of Private Income," and its addendum, "Fixing China's Banks, Not Russia's." Foreign banks validate the existence of competitive private finance, which is a foundation of the market economy. For a latest extensive analysis of China's banks, see also Richard Podpiera, "Progress in China's Banking Sector Reform: Has Bank Behavior Changed?" IMF Working Paper WP/06/71 (March 2006).
7. For a discussion and fascinating examples of natural experiments on a national scale, unintentionally conducted by investors and other actors on the financial markets see Milton Friedman, "A Natural Experiment in Monetary Policy Covering Three Episodes of Growth and Decline in the Economy and the Stock Market," Journal of Economic Perspectives 19, no 4 (Fall 2005), p. 146.
8. "Banks' Obsession with China May Be Overblown," CNN Money.com, March 30,2006, at http://money.cnn.com/2006/03/30/news/companies/china_banks/index.htm .
9. Richard Podpiera, "Progress in China's Banking," p. 3.
11. Richard Podpiera, "Progress in China's Banking," pp. 6-7.
12. "Banks' Obsession with China."
13. Richard Podpiera, "Progress in China's Banking," pp. 7-9.
14. Ibid., p. 9.
15. "Banks' Obsession with China."
17. Richard Podpiera, "Progress in China's Banking," pp. 18-19.
18. "US Delaying Russia's WTO Membership," Financial Times, March 29, 2006.
19. "US Demands Set Back Russia's WTO Bid," The New York Times, March 29, 2006.
20. "Rice says US Not Trying to Slow Russia WTO Entry," The New York Times, March 30, 2006.
21. "Russia Sees U.S. as Barrier to WTO," The Washington Times, February 18, 2006.
22. "US Delaying Russia's WTO Membership," Financial Times, March 29, 2006.
23. "U.S. demands Set Back Russia's WTO Bid," Reuters, March 30, 2006.
24. "Putin Says U.S. Holding Up Russia's WTO Bid," Associate Press, March 31, 2006.
26. For facts and discussion, see Ibid.
27. For evidence and detailed analysis, see From Predation to Prosperity, chapter 1, part II, "Free and Not So Free to Charge: The Pendulum of Russia's Economy, 1992-2004," and addendum to chapter 4, "Fixing China's Banks, Not Russia's."
29. One possible proposal, which needs updating, can be found in our Fixing Russia's Banks: A Proposal for Growth, pp. 91-98. A policy proposal suitable for the current situation follows in the forthcoming chapters of From Predation to Prosperity.
30. For a detailed discussion, see http://www.russianeconomy.org/comments/01102006.pdf , "An Accidental Illiberal Recovery: Russia, 1999-2005." This is an update on the last sections of "Free and Not So Free to Charge: The Pendulum of Russia's Economy, 1992-2004," chapter 1, part II of From Predation to Prosperity.