Time is running out for economic reform in Russia

Editor's Note: Pavel Ivlev is founder and chairman of the Committee for Russian Economic Freedom.

By Pavel Ivlev - Special to CNN

Anti-government protests have gripped Russia since the fraudulent elections of last year. In what was the largest demonstration since the collapse of the Soviet Union, more than 60,000 people marched in Moscow last month to rail against the government’s corruption and election rigging. The movement has been growing ever since. The demonstrations signal the rise of a reinvigorated civil society in Russia - a new generation willing to stand up against the corrupt elements of the state.

But more than just a rigged election, Russians are protesting the inability of the current regime to lead the nation on a path of modernization. While various statistics show that wages on the whole are rising, millions of Russians are in fact experiencing worsening inequality, decreasing opportunities and a repudiation of basic free market principles.

Moscow’s delegation to the World Economic Forum in Davos this week, however, has the ability to change that. Executives from VTB Bank, Renaissance Capital, Troika Dialogue Group and the newly created Russia Direct Investment Fund could open their companies to billions in investments  – and bring more opportunities to Russian entrepreneurs - by pressing the current regime to impose basic changes to the way business is done. Protecting contracts and intellectual property, ensuring judicial independence and ending bureaucratic corruption are but a few ideas.

In recent years, the Kremlin has doubled down on its exploitative policies and its dependence on energy exports. Prime Minister Vladimir Putin has established a self-reinforcing system whereby state-owned corporations, loyal billionaires and friends, and proxies of the leadership keep a stranglehold on the wealth and critical assets of the economy.

The problem with Russia’s failure to reform is that Kremlin remains vulnerable to unpredictable swings in global commodity prices. Russia depends so much on high commodity prices that to avoid plunging into deep debt in the next five years, oil prices must surpass $140 per barrel. (Crude was trading at $100 a barrel this week).

But what has really brought the protesters out into the streets is not a lack of economic diversification but rather pervasive corruption. Perfected at the highest levels of Russian government, and most notably expressed in the Yukos and Magnitsky cases, the average citizen has experienced the brutality of corruption carried out day-to-day by an omnipresent and thuggish bureaucracy. Each year an estimated 15-20 percent of Russia’s economic output goes towards some sort of bribe - whether paying off tax authorities, the police or other local officials - thus creating a significant drag on small businesses and innovation.

While other emerging economies are set to experience double-digit growth over the next decade, the Russian economy weakening. Its stock markets are trading at a severe discount and investors are taking tens of billions of dollars out of the country each year. An estimated $80 billion was lost this way in 2011.

We saw a glimmer of hope last year when Russia finally joined the World Trade Organization after working towards that goal for the better part of two decades. But freer trade is only one part of the solution. Russia needs to be a place where foreign companies feel safe to invest - confident that their executives won’t be threatened or arrested and that their assets won’t be stolen.

There is little optimism that the current Russian government is capable of making the necessary economic reforms before it is too late. Russia’s business leaders at Davos, and business leaders from around the world whose products may soon be available to 140 million new consumers, must urge the Kremlin to stop flouting the rules of the free market and embrace a path to true modernization.

After all, this is in Russia’s self-interest. Opening Russia’s economy to a genuinely competitive environment with true rule of law would end capital flight, encourage foreign investment and make Russia the envy, and not the laggard, of the community of nations.

The livelihoods of millions of Russian people depend on it.

The views expressed in this article are solely those of Pavel Ivlev.