From current-day Russia to Porfirio’s Mexico

Abstract

Good economic institutions promote prosperity. Yet bad institutions can persist because they induce patterns of distribution that benefit certain groups, which accordingly have a vested interest in the status quo. InWithout a Map: Political Tactics and Economic Reform in Russia, Andrei Shleifer and Daniel Treisman show how politicians in Russia used a specific kind of deal, a mixture of expropriation and co-optation, to destroy these vested interests in the transition to a market economy. In this essay I show that there are close analogies between institutional change in contemporary Russia, and that which occurred in nineteenth-century Latin America, particularly in Mexico during thePorfiriato. After developing the analogy I draw some conclusions from the Mexican experience for the long-run implications of Shleifer-Treisman deals. The good news is that sustained economic growth is possible with the institutions that Russia seems to have developed. The bad news is that these may lead to extreme social conflict and ultimately revolution. I argue that there are two mitigating factors in Russia that provide grounds for optimism that revolution may be avoided. First, Russia is a democracy; second, the role of foreign investment is limited.