Clearly, Russian businessmen -- and 13 of Russia's
governors are major businessmen -- go into politics because they
have to. But if their companies need political protection, why don't
they simply go and buy it? All they would have to do is pay off a
governor or finance a candidate. Yet it seems that not all veniality
is created equal. If it were possible to buy a politician once and
for all, businessmen would not have had to run for governor, or now
push to be appointed. But there is no way to buy someone forever,
and that means you have to pay for each and every decision, which
costs a lot more as time goes by because the further along the
business project is, the more it costs the businessmen to exit. In
other words, the politician's bargaining position when naming the
price for a political decision becomes increasingly strong as time
passes. To avoid the spiraling costs, businessmen become
governors.
Nobel Prize winning economist Ronald Coase was the
first to explain the "boundaries of the firm" by focusing on the
cost of signing and enforcing contracts. If contracts could indeed
be signed without expending time and energy, and if these contracts
described all possible circumstances and could be enforced without
any cost, why would we need firms at all? What would be the
difference between producing something inside the firm and
contracting for a service or product from outside the firm? A world
without transaction costs would not have any production units.
The difficulties related to concluding contracts
with politicians determine the "political boundaries of the firm." A
businessman has to decide whether to sponsor a politician --
something like buying a product from an outside supplier -- or
whether to become governor himself and produce political influence
in-house. When the costs of sponsorship and lobbying are too high,
businessmen turn into governors. Not surprisingly, these governors
come mostly from the natural resource sectors, where business needs
political protection most.
Businessmen who have become politicians in order to
expand or maintain their business are found in other places besides
Russia. They exist everywhere politicians do not cherish their
reputations in the eyes of their sponsors or their voters and where
politicians cannot make binding campaign promises, such as in Latin
America, for instance. In developed democratic countries, this
phenomenon is practically a thing of the past. However,
interestingly enough, the situation in the United States a century
ago was quite different. Railroad barons and other major businessmen
became governors and senators.
Thus, there is nothing particularly distressing
about these businessmen-cum-governors. Their existence merely
indicates how weak Russia's economic institutions are. Once these
institutions are up and running, once the judicial system starts
functioning properly and voters wake up, everything will wind up in
its right place. Businessmen will take care of business, and
politicians, politics. Perhaps in a hundred years or so.
Konstantin Sonin is a professor at the New
Economic School/CEFIR.
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