The Heritage Foundation - 03.10.2004

Russian Elections and Beyond: Economics, Politics and Foreign Affairs




Participating: 
Hosted by Ariel Cohen - Research Fellow, Institute for International Studies, The Heritage Foundation
Keynote Speaker: Yulia Latynina - prominent Russian investigative journalist and writer 

Panel I
Kalman Mizsei - Assistant Administrator and Director, Regional Bureau for Europe and the CIS, UNDP
Donald N. Jensen - Director of Communications, RFE/RL
Nikolai V. Zlobin - CDI Senior Fellow, Russian Scholar

Panel II
Angela Stent - National Intelligence Officer for Russia and Eurasia, National Intelligence Council 
Celeste Wallander - Trustee Fellow and Director, Russian and Eurasian Program, CSIS
Marc Zlotnik - Senior Analyst, CIA
Alexey Malashenko - Scholar-in-Residence, Ethnicity and Nation-Building Program Co-Chair, Carnegie Moscow
Doug Seay - Professional Staff Member, House International Relations Committee 

Panel I: Russian Elections and Beyond
Latynina: There is a gap between what Putin’s promised and what he has delivered. For instance, Putin promised peace in Chechnya, but Chechnya is still ruled by Russia's corrupt, inefficient, violent military. Putin has, in fact, purposely inhibited the creation of a more professional army, because he fears a military coup.

Putin promised to fight corruption but himself manipulates the political system to remove rivals. Some corrupt ministers were recently fired, but the new ones are also corrupt. This high-level corruption communicates to government at all levels that corruption is an acceptable practice. Corrupt government has prevented the creation of a real middle class, because it constantly harasses businesses; for instance, bribes cost an estimated $40 billion last year. Putin has created a middle class of bureaucrat-racketeers who support him “just as the middle class of Germany adored Hitler.” Putin also promised to restore Russia’s international prestige, but a corrupt government can never gain such prestige.

Khodorkovsky’s arrest caused a $14 billion “capital flight“ in the 3rd and 4th quarter of 2003. This is the price Putin has paid for scaring off challengers. Now, his only threats come from government officials around him, who are “very incompetent and very greedy.”

Mizsei: Russia has not progressed economically since independence. From 1991-2001, GDP dropped 20%, compared to Poland, where GDP rose over 50%. Russia has a relatively high score (.78) on the UNDP’s Human Development Index (“HDI”, a measure of a country’s human resources) compared to South Africa (.684), but South Africa has a higher “real GDP”. Russia’s HDI rank from 1991-2001 among the nations of the world dropped from 37th to 63rd, while Poland’s rose from 48th to 35th. Russia has experienced heavy population loss, and a loss in life expectancy.

Optimistic views of the economy, spread by investment bankers, focus on Russia’s growth, but two-thirds of that growth comes only from a favorable exchange rate and high oil and gas prices (oil and gas deliver 25% of government revenue). Comparing growth among small-to-medium business enterprises (SMEs), a good proxy for economic development, the EU has seen 72% growth and the U.S. has seen 52%, while Russia has seen only 10%.

Zlobin: Russia is a free-market economy within an authoritarian system. The upcoming election is discussed more in the U.S. than in Russia and Russians don’t see Putin’s Cabinet reshuffle as noteworthy, but as a routine exercise of power. In the election, the main danger to Putin is not losing the vote, but failing to get at least a 50% turnout rate, without which he loses. But, even if he loses the election, a government and Duma loyal to him are ready to assume control. If this happens, pay more attention to Cabinet chief-of-staff Dmitry Kozak than to Prime Minister Fradkov.

The nomenclatura and lobbyists dominate government; there is no real political class. For instance, the Speaker of the Duma recently proclaimed, “the Duma is not a place for political debate,” and a candidate nominally opposing Putin in the election has said he’ll vote for him.

Putin’s power base is unstable, based on oil prices. His reforms have been successful because they didn’t take power away from the state. If prices drop and he tries reforms, he’ll encounter much more opposition. His political agenda doesn’t really encourage reform, and we’ll likely be having the same debate about Russia at the end of his second term.

Jensen: In Russia, sovereignty and ownership are fused. From the tsars to Putin, there has been a fundamental blurring of the line between money and power. 

Commercial business procedures and “incentives” substitute for the law. The state is significantly controlled by corporations, and corruption isn’t a threat to the system, it’s part of the system. Commercial goals and actors are increasingly center stage in Russian foreign policy. For example, some predict Russia will likely withdraw its troops from Georgia this year simply because there’s no economic incentive for keeping them there. The interests of private entities have become a key factor in every policy question.


Panel II: Russian foreign policy
Wallander: Russia continues to move towards and away from the West. Russia wants to demonstrate it can still determine its own national interests. For instance, it would like to strengthen its national economy, making it less susceptible to external pressures (e.g. from the IMF and WTO). But, as it has melded state and private economic interests, it has limited the transparency of the process, and tried to shut down foreign investment.

Some observers think that Putin is following a “Peter the Great” model, increasing growth while maintaining absolute domestic control over important assets and terms of integration into the international economy. 

Zlotnik: Over the past four years, Putin has become more his own person. He has more self-confidence, gained in part from Russia’s economic growth. He has distanced himself from Yeltsin, surrounding himself with people loyal only to him.

There are, in effect, two Putins: “the new Soviet man,” who promotes a “Fortress Russia mentality,” and a pragmatist, who sees a need for modernization. Putin sees Russia’s power coming from its size, strategic location, UN Security Council seat, energy potential and nuclear weapons. The first Putin is lately more dominant. In contrast to Yeltsin, Putin has boosted military spending. He has been ambivalent toward the West; he wants to learn and benefit from its success, but fears it as an enemy.

Malashenko: In a 2003 visit to Malaysia, Putin proposed that Russia join the Organization of Islamic Conferences. This proposal shows Putin’s reaction against Western modernizing influences: he is demonstrating a preference for dealing with totalitarian governments, rather than democracies, and he proclaims that Russia is a power still able to pursue policy independent of Western approval. It is also a pragmatic gesture showing respect for the power of Muslim economies.

Although Putin doesn’t aim to expand Russia’s sphere of influence in Eurasia, he does see Russia potentially serving as a bridge between the West and the Muslim world. This is impractical. There is too much friction between Russia and Muslim areas like Afghanistan and Chechnya, and over oil, and Chechen terrorism may evolve into more general Islamic terrorism against Russia (e.g. from Dagestan). 

Seay: The popular consensus in the U.S. on Russia has always been wrong, and the previous panelists are mistaken when they refer to Russian authoritarianism. 

Fundamentally, U.S. foreign policy should serve U.S. interests, and not be so concerned with other countries’ welfare. Speaking practically, we don’t have the tools to influence Russian domestic policy. In any case, Putin has essentially acted in line with U.S. interests. When he took office, he inherited economic chaos, seceding states, and powerful opposition from the Communist party. He has combated these problems, focusing first on economic development. He has a great grasp of the reforms needed, and in his new Cabinet, the economic reformers have maintained power. He has reduced Communist power, and will next tackle the radical nationalists. 

Putin sees himself as successor to Peter the Great, and his ultimate goal is to integrate Russia into the West. Unfortunately, he’s working from the top down, rather than building civil society from the bottom up. Putin hasn’t strongly opposed U.S. bases in Central Asia, Ballistic Missile Defense or NATO expansion. While there are some very unfortunate things he’s doing domestically, his second term will be the one in which he’ll be able to do what he wants.

Stent: As a reminder, Peter the Great said that Russia would need the West for a few years, and would then turn its back on it. 

Putin came in to power to be the “un-Yeltsin”. The U.S. should realize it has a limited partnership with Russia (primarily in the war on terror), and should avoid “exaggerated expectations.” Although much of Putin’s relationship to the U.S. and Britain is personal, his failure to explain the limitations of Russia’s turn toward the West has created some public resentment.

In the absence of shared fundamental values, there’s only so far that partnership can go. Some issues between Russia and the U.S. remain unresolved: the expansion of NATO and the EU in to the Baltics; Transnistria; commitments under the CFE treaty, and Russia’s interests in Ukraine and Georgia. Difficulties with Kaliningrad have been temporarily resolved by a new visa regime, but it remains a haven for infectious disease, trafficking and corruption.

In any case, Russia won’t be at the top of the U.S. agenda in 2004, and policy toward Russia will be static. 

Jensen: A final question: is Putin strong or weak? In his limited exercise of state power, such as control of oil and gas interests, he has shown strength, but does he have the ability to stimulate real, lasting change? Something to think about.

- Prepared by David Shulman, NCSJ Program Assistant