Photo: Antonis Shen (flickr)

If salaries are increasing, do people really care about democracy? Today's Economist takes an in depth look at what Putin has really done for the Russian economy.

When asked by a foreign journalist about the lack of political competition and dialog, Putin responded: “The salaries here are going up by 16 percent. There's the answer to your question.” According to this article, Putin cannot fairly claim to be the main cause of this economic success.

The rapid growth is not meeting Russia's full potential and simultaneously trapping them into a dangerous dependency on energy. The economic growth has also been accompanied by rampant corruption. Are you wondering which country equals Russia in corruption levels? Togo. Despite this fact, foreign capital and investment continues to rise at a pace that would be unheard of for that small African nation.

The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7 percent in 1999 to 31.6 percent in 2007. Natural resources account for 80 percent of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.

To appreciate the impact oil prices have on the economy, compare real GDP growth of about 7 percent with growth measured in international prices. In dollar terms, says Rory MacFarquhar of Goldman Sachs, Russia's economy has grown on average by 27 percent a year, the fastest of any big economy since 2000. The flow of petrodollars is fanning a massive consumption boom, making Russia the sixth-biggest market in Europe. Disposable incomes (and retail trade) have been growing twice as fast as GDP.

The problem, says Peter Aven, the head of Alfa Bank, is that Russia has failed to convert the oil stimulus into domestic production. Imports are growing much faster than manufacturing. The rapid real appreciation of the rouble is hurting Russia's producers, and many goods are of poor quality. This is why Algeria says it wants to return 15 military jets it purchased from Russia.

The Center for Global Development released a great report last week on practical ways the international community can support democracy in transitioning states.

In terms of practical policy recommendations, the authors outline that the aid community must try to eliminate huge economic disparities within countries. They also point out that the international aid community must support increased checks and balances against executive figures in new democracies. Third, the authors stress not just the importance of aid but also the role of opening our own borders to trade and cultural exchange programs with transitioning countries.

As many countries across the globe struggle with democratic transitions, this is a relevant publication for anyone interested in economic development and democracy.