Russia in the next decade

Western media coverage of Russia nowadays is almost universally negative and in some cases with considerable justification. But there is also prejudice and ignorance.

A recent study by British Telecom reported that Western business executives have only a "rudimentary knowledge" of the country's booming market. BT's chief for Russia and the CIS said that "stereotypes are still dominant in Western minds and executives".

Stereotyping also occurs in the political arena.

Surveys suggest that most Russians feel that the country needs an effective political opposition and believe that the media has a role to play in facilitating good government. But, the chaotic Yeltsin years have also led to a reaction. People want someone to put trust in and to restore order and Vladimir Putin, who has done this, is very popular.

Putin has rolled back many counterweights to presidential power. Rather than being elected, regional governors are now selected by the president, although this must be confirmed by the regional legislature. Changes to the election rules make it very difficult for small political parties to win seats in the lower house of Russia’s parliament, known as the State Duma, and in regional legislatures; and the upper house of parliament, known as the Federation Council, is no longer made up of elected regional governors but two appointees from each region - one is chosen by the Putin appointed regional governor and the other by the regional legislature.

Putin has also brought quite a few people to Moscow from his home town of St. Petersburg to help him run the country. However, there are stubborn areas of independence - as the following examples suggest.

Yury Luzhkov, the veteran mayor of Moscow, was recently nominated by Putin to another term. Nevertheless, at Luzhkov’s recent swearing in ceremony, Putin made some critical comments. One political analyst said that Putin had to pay respect to Luzhkov, who is popular with Muscovites, in his official speech, but that he gave way to his personal feelings after that.

When Boris Yeltsin told Russia’s regions to take as much power as they liked, the mainly Muslim region of Tatarstan did, and negotiated an unusual power sharing agreement with Moscow. Recently the State Duma voted to approve a new power-sharing treaty with Tatarstan, months after the Federation Council had rejected a similar deal which gives the region special concessions in such things as language and control of energy resources. While Tatarstan is somewhat unique, it does demonstrate that Moscow’s power is not all-pervasive.

And a Communist Party candidate recently won Volgograd's election. The new 31-year-old mayor is seen as parts of a new generation of pragmatists, rather than an ideologue.

Serious opposition to Putin and the dominant United Russia political party is very fragmented between a number of parties and individuals who find it difficult to work together. Some of these individuals are relatively well known, such as Garry Kasparov (former chess champion) and Grigory Yavlinsky, who is likely to be the Yabloko candidate at the presidential election in March next year.

There is also harassment, although it is not consistent. Opposition marches are sometimes broken-up; and police recently prevented Kasparov and others from catching their flight to one of these, saying they needed to check whether their tickets and passports were counterfeit.

The general atmosphere of popular apathy and official intolerance leads to situations, for example, where opposition activists say that it is very hard to find printing firms willing to produce anti-Kremlin literature for them.

The major television channels are either controlled by the state or businesses loyal to the Kremlin. The state-owned television channels ignored the Volgograd mayoral election results, while NTV showed brief footage of the mayor accepting flowers and had a voiceover saying that he was Communist.

Commentator Alexei Pankin says that the Yelstin administration’s “almost limitless tolerance for pluralism in the media” led to an explosion in media outlets, but it also occurred at a time of extreme general economic hardship. With few financial resources and advertising revenue, “journalists sold their much-loved pluralism to the highest bidder”. But while the improved economic situation has now boosted advertising revenues and foreign investment in the media, official tolerance has fallen. Consequently, magazines which “cover mostly lifestyle topics” are flourishing while the political media keeps its head down.

Official corruption is a major issue which Putin clearly wants to tackle, but it is proving very resistant. Following the recent 2014 Winter Olympics win for Sochi, he asked the Prosecutor General's Office to allow "no embezzlement of state resources under any circumstances".

Russia also has it own version of Australia’s so-called “history wars”. Putin has said Russians should be proud of their history. In practical terms, this view has emerged in draft school book, A Modern History of Russia, 1945-2006: A Teachers' Manual. The manual talks about the need "to create a strong civic outlook in each graduate". In an attempt to reassure critics at a June conference of teachers, a presidential aide said that there would be revisions and corrections before the book was finalised, but elsewhere he said: "You can vent your spleen as much as you like, but you will teach children in line with the books you are given and in the way Russia needs."

In contrast to the lack of life in the Russian political scene, the economy has, with the help of higher oil prices, bounced back from the nadir of 1998. Monetary and fiscal policies are generally seen as conservative. Budget surpluses are large even though expenditure has increased; inflation is about 8 per cent; and the Central Bank has the world's third-largest gold and foreign exchange reserves.

Many of the debates about Russian economic policy echo those we have or have had in Australia.

The state electricity utility is being broken-up and privatised; and there is a Telstra-like debate in the fixed-line telecommunications arena.

Russian is in talks to join the World Trade Organisation and this is giving some impetus to reducing protectionism. Yet, as in most countries, there are limits. Russia will, for example, continue to offer some sort of protection for parts of its aircraft manufacturing sector.

Konstantin Sonin, a professor at the New Economic School/CEFIR, writes that a study of the results of administrative reforms conducted over the last four years showed improved regulatory conditions for small and medium-size businesses during Putin's presidency. There are fewer arbitrary audits and reviews, and it is easier and cheaper to register ownership and rental of property. But, as always - though almost certainly with more justification than in Australia - the tax authorities are considered to be particularly troublesome.

The 1990s saw an explosion of new financial entities parading as banks, and the murder of Andrei Kozlov, a senior central bank official, last year is reportedly linked to his efforts to clean-up the banking sector. The other result of his efforts was a move by some State Duma deputies to strip the Central Bank of its control over bank licences on the grounds that it was being too tough. Some of this debate is not too dissimilar to that we have had in Australia in the past about our financial system.

The idea of encouraging high-tech industries in order reduce the dependence of the economy on volatile commodity prices should sound familiar to an Australian audience. The government has set up a Russian Nanotechnology Corporation as part of an attempt to build an “innovative, high-tech economy". As always, as soon as a substantial amount of public money are available for something, everyone wants to get in on the act and it seems that, in the words of one commentator, “universities and institutes are all hurrying to create nanotechnology departments and laboratories, and governors are holding conferences on regional nanotechnology conditions”.

Oil and gas accounts for more than 20 per cent of Russian GDP and about 65 per cent of exports. Russia has the world’s largest natural gas reserves, the eighth-largest oil reserves, and is the world’s second largest oil exporter.

Russia is reasserting its control over its oil and gas resources after what Putin has called "colonialist" deals when Russia was weak and oil prices low. However, not all oil companies are going the way of Yukos which has ended back in government hands and whose boss, Mikhail Khordokovsky, now sits in jail. Large non-government oil companies, such as LUkoil and the less transparent Surgutneftgaz are also significant players.

Those oil resources that are being returned to government control are generally going to state-owned Rosneft, while state-controlled Gazprom controls gas production, transport and export. Both have clearly decided that there are benefits in working with foreign companies, but will have ultimate control of any project in Russia.

Russian gas accounts for about a quarter of EU gas consumption, and this is increasing rapidly. Russian concern about the vulnerability of its gas export routes through Poland and the Ukraine means it is seeking alternative export routes. Gazprom, in a joint venture with German companies, is building a pipeline to run under the Baltic Sea, thus bypassing transit countries; and another pipeline may take gas under the Black Sea.

Russia oil and gas exports to China are presently small, but a significantly enhanced Russia-China relationship on energy is unavoidable, and this may have implications outside the field of economics.

So Russia is presently a hybrid economy. The government is consolidating its control over the part of the parts of the economy that it considers most important for Russia’s future. But outside of these strategic areas, liberalisation will continue, and the service sector will continue to expand at a rapid pace.

Russia’s foreign and defence policies are also more understandable than portrayed by most Western media.

In 1812, General Caulaincourt, who had been French Ambassador to Moscow, had a five hour conversation with Napoleon Bonaparte trying to persuade him not to invade Russia; many years later Hermann Goering had a conversation of similar length on the same issue with Hitler; and, according to Colin Powell, as Secretary of State he spent two and a half hours with the George W. Bush trying to persuade him not to invade Iraq.

Russia, no-more than any other country, cannot afford to assume that other countries will not abuse their power and do something silly - and there are many ways of doing this other than an outright invasion.

Like most people in almost all countries, most Russians find it difficult to see things from the other side. In a recent survey, more than 60 per cent of young Russians said they sympathise with Putin’s calling the collapse of the Soviet Union the 20th century’s “greatest geopolitical catastrophe”. Another survey has found that just 10 per cent of young Russians think Russia should apologise for the Baltic occupation.

When Napoleon complained to Caulaincourt that “Europe” could not see that Russia was the real enemy, he replied: “As a matter of fact, it is Your Majesty who is the cause of everyone’s anxiety and prevents them from seeing other dangers. The governments are afraid there is going to be a World State.”

At the Munich security conference earlier this year, Putin said the US “has overstepped its borders in all spheres” and “has imposed itself on other states”. “This is a world of one master, one sovereign”, he said. Putin’s comment would not have been unpopular with Russians, and clearly indicate the thrust of Russian policy.

Finally, even if Putin remains president after March 2008 - and he says that he will not, and the present constitution says that he cannot - the rising middle-class has sufficient opportunities to bring about greater participatory democracy when it chooses to do so. And let me emphasis this point: when it chooses to do so. There is no ideology in Russia to stand in the way of a European-style democracy. There are something like 12,000 elected bodies in Russia, and without a common ideology these bodies will make pragmatic, locally based (and often corrupt) decisions - but they will make real decisions.