Dead-End Russia

President Dmitri Medvedev has publicly stated that Russia needs to change course if it does not want to end up as a third-world country. Igor Shuvalov, the first deputy prime minister, recently told investors that although Russia had suffered its worse recession in a decade, it would be transformed into a “new country” by 2020 through innovation and investment in “human capital.” He said the investment climate would be significantly improved within a year through a reduction of red tape and a clean-up of the court system.

The problem is that we’ve heard this before. When Vladimir Putin moved into the Kremlin a decade ago he promised to ensure the rule of law and to tackle corruption. But under his watch there has been no progress toward an independent judiciary, and the corrupt bureaucracy has been allowed to expand.

It was under Mr. Putin that assets were taken from Yukos, Shell and BP. It was under Mr. Putin that a growing number of journalists such as Anna Politkovskaya were killed with impunity. It is little wonder, therefore, that investors are skeptical about new pledges to tackle rampant corruption or diversify the economy away from a raw-materials base.

As the oil price rose during Mr. Putin’s term, he was able to ensure pensions and wages were paid on time. But he completely failed to encourage investment in new industries, technologies or infrastructure.

Now Russia is facing crunch time. The funds that were accumulated during the good years are about to run out. Top companies like Gazprom are close to bankruptcy and face huge problems due to the lack of investment in the energy sector. State-controlled conglomerates and banks have been propped up by the state but small and medium enterprises, essential for future growth, have been neglected.

Much of Russia’ infrastructure is crumbling. There are hundreds of monocities — company towns dependent on one enterprise — without a future. There is a massive rich-poor gap and an even bigger gap between the regions. There has been a growing number of protests, from Kaliningrad to Vladivostok, over social and economic conditions. Even the elite do not believe in the future of Russia. They do not keep their money in the country and they send their children abroad to be educated.

A recent report by the Institute of Contemporary Development, an influential think-tank close to Mr. Medvedev, called for a number of reforms. To encourage political competition, it said there should be a return to the system of electing governors and senators, practices abolished by Mr. Putin when he was president. The report also called for greater freedom in the media (the state controls 93 percent of all media outlets) to help expose corruption and encourage political debate.

Unfortunately, but not surprisingly, the report found zero resonance in the media. The ruling United Russia party, controlled by Mr. Putin, saw no need for change either. The Duma is a rubber stamp for the executive and most deputies are more interested in enriching themselves than controlling the government.

Some observers think that the United States and the European Union could press Russia to change its ways. President Obama, however, has set his hopes on securing Moscow’s assistance in dealing with his twin foreign policy challenges, Iran and Afghanistan. But there is no evidence that Moscow is ready, able or willing to deliver on either issue.

At the E.U.-Russia summit in Stockholm last November, José Manuel Barroso, the president of the European Commission, promised to help Russia with its modernization agenda. But negotiations between the E.U. and Russia for a new partnership agreement are making glacial progress. Russia cannot make up its mind whether to join the World Trade Organization. Russia’s distorted world view also makes it difficult to move to a win-win scenario in energy.

Thinking in Russia’s elites is still dominated by a win-lose mentality, especially when it comes to pipelines and Ukraine, Belarus and Georgia. Both Mr. Putin and Mr. Medvedev talk of Russia’s right to have a sphere of influence in Eastern Europe. There is no understanding that a ring of stable, prosperous and democratic neighbors would actually be in the long-term interests of Russia.

But maybe they do comprehend that such a development would lead many more in Russia to question Putin-Medvedev policies. Speculation about splits in the tandem is just that — speculation. Mr. Medvedev owes his position 100 percent to Mr. Putin. It suits both to play the “good cop, bad cop” role from time to time, but in reality there are no fundamental differences between the two.

The prospects for change in Russia, therefore, are bleak. But public opinion is becoming increasingly resentful of government inaction and the situation could become explosive in the near future. The outside world can only influence developments at the margins. Still, we should not weaken our support for the liberal, democratic forces seeking to change the system. Their fight is ours.

Fraser Cameron

№2(41), 2010