Alternative Insight
Putin - Whither Goeth He and Russia?
Less than two years to go to learn an answer to the question: Will Vladimir Putin attempt to change the Russian constitution and again seek the presidency? Will Russia continue its economic advances if Putin leaves office?
No nation is more identified with its leader than Russia. Without being granted autocratic powers, Putin created a dictatorial persona, reflected by the Russian Parliament almost always ratifying his proposals. Although Putin's detractors have accused him of being a totalitarian tyrant, he has not used any institution - military, church, financial - to achieve his extraordinary power. His massive support comes from the most vital constituency of any state; its population - and for good reason - the non-political Putin has been one of the more clever leaders in modern history, parlaying oil and gas reserves to guide a nation from ruin to survival and giving a desperate populace renewed hopes for the future. Nevertheless, what will he do in 2008? Will he permit his "managed democracy" to become a mis-managed oligarchy? Like film Sheriff Gary Cooper, Vladimir Putin acts calmly and deliberately and speaks laconically. He claims he won't seek the presidency again, but can the Russians believe him?Putin's Russia
Putin was elected to presidential office in the year 2000 after the Russian ruble had gone from 6 rubles/dollar to 28 rubles/dollar during the Yeltsin administration. Except for slight gyrations, the Putin administration has kept the ruble at 28/dollar. In October 1998, the Russian stock market hit a low of 37; November 2006 figure is at ~1700. Inflation has been reduced from a rate of 18.6% in 2001 to about 10% in November 2006. Certainly the huge increases in gas and oil prices have contributed to Russia's turnaround, but Vladimir Putin still shares credit for the advances. His essential contribution is mentioned in a report:The Virtual Economy Revisited: Resource Rents and Russian Economy-Clifford G. Gaddy and Barry W. Ickes, Nov. '06.
Note: Rent in this sense is commodity profit and rent-sharing is foregoing profits to others.In 1990s, the system was bottom up. The resource industries were in private hands. What emerged was the virtual economy. The virtual economy was about informal rent-sharing.
Why did the owners of the resource companies share their rents? It was because they had no secure de facto [economic] property rights to what they legally owned. They needed friends and allies. The rents they shared were a form of investing in relational capital. To avoid losing all their wealth, the owners of resource companies - the so-called oligarchs - shared some of their rent locally as a means of guaranteeing that they could keep the rest.
Putin inherited this system. To him it was unacceptable, for reasons separate from any adverse impact it may have had on aggregate economic performance. He did not like it because such a huge amount of wealth was controlled and produced in so few companies, with the rest of the economy dependent on them. He could not control, much less run, the country without being able to steer those flows to where he wanted - and, conversely, to prevent them from being used to establish a power independent of the center.
When Putin acceded to the presidency, the oligarchs were on the verge of buying the state. As he came in, they were busy buying it up in regional chunks. He undercut that in two ways. First, he removed the object of purchase (the governors). Second, he presented a credible threat to the oligarchs' property rights (using Berezovsky/Gusinsky as examples).
Putin's greatest challenge to the oligarchs was in bringing Yukos to near bankruptcy. A Brookings Foreign Policy study - Energy Security of the Russian Federation concludes that:
The YUKOS affair was a classic example and outcome of this behind-the-scenes competition. In its early stages, the crisis over YUKOS was widely perceived as a clash between the economic interests of the siloviki and the oligarchs (private businessmen- usually bankers-who had acquired energy assets through Yeltsin's privatization program in the 1990s) and their various supporters. But it became increasingly clear that the real issue at the heart of the YUKOS affair was the redistribution of Russia's oil assets and windfall profits. This was underscored and exposed by the eventual incorporation of YUKOS' major production subsidiary Yuganskeneftegaz into the state-dominated oil company Rosneft.
Putin's Russia's is summarized in the statistics of the following graph and table. Note the up tick in life expectancy after 2003.
Russia's foreign debt has been repaid and investment is growing. Foreign policy is independent and approved by the Russian population. Previous massive social problems, such as loss of pensions, extensive poverty, criminal rule, have been alleviated.
It's difficult to identify Putin's Russia with another word but success. However, Russia's Putin is more controversial.
Russia's Putin
Putin has his critics, but his principal opposition, who are liberal free marketers, use the democracy and freedom words to discredit him. Putin's "managed democracy" is not the paradigm of democratic action, but his detractors ignore some significant reasons for their president's attitudes.Under Yeltsin, Russia saw democracy and freedom become a means for a few to exploit many and allow the many to complain without the government heeding the complaints. It should also be noted that it took the new U.S. democracy 80 years to abolish slavery, 130 years to allow voting rights for women and 170 years before all Americans had equal civil rights. Yet, the pure democracy advocates want Putin to go from Yeltsin's wild capitalism era to absolute democracy in five years. Actually, it's a matter of perspective. Putin's advocates term themselves realists, believe that Russia has unique characteristics that impose a different system than totally democratic, and have answers to his opponents' charges.
- Charge: Putin has weakened the Duma.
Reply: The reason the Duma has become less important in politics is because its members are mainly from Putin's United Russia Party and are in agreement with the president.- Charge: Putin did away with direct election of governors in order to remove personal opponents and exercise more control.
Reply: Under Yeltsin, who made deals to win approval from leaders of republics, fifty-seven of the eighty-nine of the Russian Federation Republics had constitutions that went beyond that allowed in the Federal constitution. Many governors controlled the media and voting, behaved as Mafia chiefs and governed their republics as private fiefdoms and separate countries. Nominated governors must still be confirmed by regional legislatures. Other nations, such as India, also have appointed governors.- Charge: Putin has stifled opposition by gaining media control.
Reply: Putin reacted to attempts to use media only to discredit the government and promote opposition agendas, many of which his followers believe are aligned with U.S. interests. Only three of about twenty television stations are under government ownership .- Charge: Putin has undermined democracy by regulating the activities of non-governmental organizations ( NGO'S).
Reply: The proposed amendments to Russian laws on non-governmental organizations are designed to counteract terrorism and money laundering and prevent foreign financing of NGO political activities.- Charge: Putin interfered in the Ukraine election.
Reply: True, but only because the United States and Israel interfered in the same election. Putin has charged that American elections are no better than in Afghanistan and voters are intimidated.- Charge: Putin wants to absorb Ossetia from Georgia.
Reply: Putin claims he does not want to increase Russian territory. He only wants the Russians in Ossetia to be treated fairly.- Charge: Russia's tactics have been criminal in Chechnya.
Reply: Putin's Russia inherited the Chechnya problem and, as in most rebellions, excesses occur on all sides. However, Chechnya is now pacified.What is said
The challenge to Putin and Russia's future is typified by a New York Times (NYT) editorial.Mr. Putin's Legacy, NYT, November 14,2006
The Russian Constitution limits a president to two terms, which would mean a natural conclusion to Vladimir Putin's presidency in 2008, and so far, Mr. Putin says he will abide by the legal limit. But there are growing calls - spontaneous or orchestrated by the Kremlin - to change the Constitution.Given his sway over the Russian Parliament, Mr. Putin would have no trouble warping the Constitution. It would be a tragic mistake. History will judge him by how well he helps Russia move from its totalitarian past to a democratic future. His record is not encouraging.
Mr. Putin likes to boast about Russia's economy, which will grow - thanks to high oil prices - at 6.6 percent this year. Russia has paid off almost all of its Soviet debt, and life is improving. All of this has made Mr. Putin very popular with Russians. But many of them seem unconcerned about their declining freedoms. The government has muscled out independent news media and jailed political rivals, and never stops trying to muffle groups that do not follow the Kremlin line.
At his latest three-hour town meeting, Mr. Putin was lionized. Arkady Kokayev, a truck driver, phoned in to ask, "What will happen to us and this country after you leave?" Mr. Putin assured him that all would be well, and that while he would respect the Constitution, he would still "influence the life in our country" after leaving office.
That is an admirable pledge. We hope for the sake of Russia's democracy that he will keep it.
A credible reply to the New York Times editorial came from Dr. Nikolai Zlobin, Senior Fellow and Director of Russian and Asian Programs, World security Institute, at a meeting of the Jamestown Foundation, Nov. 12, 2006. Dr. Zlobin, never identified as an enthusiastic supporter of President Putin, became entranced with the Russian president after being invited to spend time and informally talk with him at a government social function. The highlights of Dr. Zlobin's conversation with Vladimir Putin:
- Dr. Zlobin received a note, signed by Putin, in which the Russian president claims he will not change the constitution or run again.
- Putin refrains from attachment to any political organization.
- Putin claims others around him are trying to build political careers on his efforts.
- Putin claims he makes decisions on what is good for Russia.
- The Russian political establishment and Putin are separate entities.
- Putin feels he is free and doesn't owe anything to anyone.
- Putin believes there is no politics in Russia.
- Putin does not want to be president
Dr. Zlobin's most interesting comment, to which many are in agreement, is that after Putin leaves office, Russia will probably become a criminal society and the trend to democracy will collapse. Evidently, the NYT is challenging the wrong person and is showing limited knowledge of Russia's future.
What will Putin do?
The only person who knows whether or not Vladimir Putin's decision will try to stay in office is "hold the cards close to the vest" Vladimir Putin. He has clearly stated he has no inclination to pursue the highest public office in the land. However, he has not rejected high private office, such as chairman of Gazprom or Lukoil. Considering that Putin assisted Germany's ex-chancellor Gerhard Schroeder to obtain the chairmanship of the North European Gas Pipeline Company, it seems Putin favors that direction for retired government executives.Nevertheless, some of Putin's words have escaped media scrutiny. He boasted that he has high approval of the Russian people and intimated if future legislators act contrary to the wishes of the Russians and use the national resources for their own benefit, he might return to undo their wicked tendencies - and this is a likely case.
Putin invested his last years in achieving specific objectives:
- Undoing as much as possible the "shock therapy" by which the Yeltsin government allowed a privileged group to control the economy and impoverish the masses.
- Stabilizing an unstable nation.
- Setting a course of economic growth which will eventually enable Russia to become closer to the GDP of the western nations
- Formulating a foreign policy that makes Russia a major player on the world stage.
The Russian president has laid the groundwork to achieve his objectives. However, his short term objectives might not translate into long-term progress for his nation. Russia has factors that limit its growth. Its manufacturing is outdated and it cannot easily use its resource revenues to revitalize heavy industries to compete on with western nations and Asian "tigers" that have efficient factories, well organized distribution, sales and marketing organizations and satisfied customers. Resource extraction isn't forever and is considered an industry for a Third World country. Russia has limited potential for increasing oil production and no spare export capacity. However, gas reserves are huge, and gas production and distribution will add some years to Russia's growth.
Clifford G. Gaddy and Barry W. Ickes have a pessimistic view.
Putin is alarmed. Having written a dissertation on the topic, he is aware of the importance of "reproduction of the raw materials base." His solution certainly appears to be even more centralization. In the short and medium term, things may look good - because of the prospect of high oil prices. But in the long term, the outlook is pessimistic if centralization is the policy. Such a strategy risks recreating the problems that led to stagnation of the sector in the mid-1980s, namely the risk of large investment errors. - The Virtual Economy Revisited: Resource Rents and the Russian Economy - Clifford G. Gaddy and Barry W. Ickes, Nov. 2006.
Vladimir Putin expects future governments will continue and further his objectives. If that does not happen, the public will clamor for Putin's return, and, since his pride refuses to permit his efforts to be demeaned and undermined, Putin could heed the call - with one caveat. Putin, as any nation's president, understands the wheeling-dealing, political machinations, corruption and criminal activities that guide public life. He will hesitate if he feels he can be trapped into a situation in which his reputation or life are threatened? He will proceed with caution, and only return to public life after he verifies that he has the backing to succeed. His path to the office would probably be similar to the manner in which he first achieved the presidency during the Yeltsin era - receive an appointment as Prime Minister and then gain the presidency after the president resigns. It's a plausible scenario.
Look for the scenario to happen within two years after Putin leaves the presidential office. Sorrowfully, it might not help a Russia that has resource extraction supporting most of the economy, and is a latecomer to global markets where competitive industrial products can only be obtained with either super efficiency or low, very low wages.
alternativeinsight
december, 2006
