Subject: RE: 9220-3 (Aslund)
Date: Tue, 16 Aug 2005
From: Vladimir Ivanenko <Vladimir.Ivanenko@bof.fi>
I have expected that JRL request to comment on the latest piece by Anders Åslund would elicit lukewarm response by two reasons. First, from academic point, his paper is uninformative, as it does not offer any new insight about the future Russia's development. Åslund's interpretation of well-known events borders on being irrelevant; he conjectures mostly citing evidence that does not substantiate his claims. Second, and more importantly, Åslund's work is a political "hot potato". The topic that he takes is likely to caution his fellow political analysts from open commenting. It is nothing else as an attempt to drum up American support for open interference in the Russian political process. Leaving moral considerations aside, it suffices to say that such appeal is based on false premises. Let me show first that my interpretation of Åslund's goal is correct and, then, provide brief critical assessment of the Åslund's reasoning.
Åslund advocates a more proactive U.S. policy towards Russia using two arguments. First, he presents a medley of facts and speculations that are supposed to show that the Putin Administration is weak. This part of the paper intends to prove that direct interference is likely to work. The second part refers to American attempts to export democracy elsewhere that Åslund argues is the main goal of the U.S. foreign policy today. These two parts imply that the U.S. government needs to focus on the goal of bringing democracy to Russia. In the last part, Åslund comments on potential methodologies that the U.S. government may use including subversive actions (extra-legal interference in polling monitoring or support of radical youth movements).
Before I start analyzing the argument, a digression is useful. Reading the text, I recalled how a few Russia's pundits discussed in 2000 that Yeltsin did not retire in earnest but retreated to command inexperienced and faithful Putin from behind the scene. That conjecture did not materialize. Now, Åslund finds himself in the same old shoes professing another radical view: he believes that Putin is ready to lose power. However, the evidence that Åslund cites is inconclusive at best.
His "Four Putin's disasters" are indicative. Åslund claims that they are so catastrophic that the Putin Administration is about to collapse. In my interpretation, none is as serious as to bring about Putin's downfall individually or through combined effect.
Failure 1: YuKOS affair. Negative consequences of the state attack on YuKOS have been more limited than expected. Currently, its impact on business climate is virtually zero. Foreign investors flock back, stock market performs well, the level of FDI grows and Russian credit rating is improving. On the positive side, the YuKOS affair has sent an effective signal to businesspeople - pay taxes and do not bribe. Tax collection has picked up and firms have reduced tax avoidance since 2003 (see the latest fiscal report). The level of corruption has fallen by 20 percent while the risk premium associated with bribing has grown (see the recent InDem report). As a side comment, the InDem respondents do not reckon corruption as being higher today than in the Yeltsin times contrary to what Åslund writes (re: "the Kremlin has never been as pervasively corrupt as it is today").
Failure 2: Chechnya. The situation in Caucasus is serious but it does not threaten the stability of the Putin Administration in itself. Polls tell that Russians do not expect quick solution to this problem and are not going to blame Putin for this low-level war.
Failure 3: unsuccessful meddling in Ukraine. Russian interference in the Ukrainian election has definitely been fruitless but its fallout has been less dramatic than expected. In fact, it is a blessing in disguise. The ascendance of an unfriendly regime in Kyiv has freed Russia from the necessity to support this republic at all cost. Besides, Russians have witnessed first-hand what the "export of democracy" means in practice and developed stronger aversion to extra-legal power wrangling.
Failure 4: social benefit reform. Cutting social benefits is unpopular in every country to say the least. This measure is often a necessity driven by budget failures. The Russian situation differs in this respect because Russia has money. Actually, the fact that the Putin Administration has initiated social reform is indicative of its strength and not weakness. The reform's policy objectives go beyond budgetary savings - it is aimed primarily at enhancing productivity of service sectors (public transportation, utilities, and residential services). However painful and inept was handling of the initial stage of reform, it is slowly recognized as being essential.
Having observed the evidence, I conclude that the Åslund's doomsday account of systemic failures of the Putin Administration is unsubstantiated. On the contrary, I see that the Putin Administration is so stable that it can experiment with somewhat exotic political initiatives. Åslund cites the creation of Public Chamber as a futile attempt to gain legitimacy. On the contrary, I am apprehensive of this development. It fits well the Putin's goals exposed in his state of nation address of April 25. Moreover, I argue that Putin identifies correctly the main challenges of Russia today - political pessimism, high mistrust and corrupt practices - and that he attempts to handle them. Here, the analysis becomes more complicated because while Putin's objectives are clear, it is not obvious if he follows the optimal strategy. In fact, he might have no better options today.
Åslund also notes correctly Russia's institutional problems. He is right claiming that Russia cannot stay long without a vibrant democratic system. Data support his inference that legislature and judiciary exercise only token control over the executive branch of power. However, Åslund's analysis of Putin's reaction to these failings indicates either his lack of understanding or reliance on false information. He claims that Putin maintains status quo because he is bent on authoritarianism. True, Putin thinks that democratic institutions are of secondary importance but his words and actions should be analyzed within the context of current Russian situation. Strict adherence to democratic procedures prevents conflicts among political players who follow "the rules of the game". If they do not, nothing prevents the abuse of democratic procedures. Thus, rebalancing powers to the point when the rules are widely recognized is the first step that the Putin Administration should take. In this way, it accepts greater responsibility and behaves more authoritarian. Currently, the Kremlin enjoys the highest level of public trust among public agencies and its greater power may be a sensible approach that increases public trust in the system in the short run. However, the Putin Administration plays a dangerous gamble. Greater accountability to the center alleviates the problem of mistrust and have positive effect on local corruption. Yet, it does not increase accountability in itself because this move simply shifts the incidence of power abuse from regions to the center. In the end, the Putin Administration (or its successor) will face the problem of how to raise its own accountability. Currently, Putin experiments with surrogates of independent political activity (Public Chamber, creation of youth movements, state sponsoring of NGOs) that may stir political activism or discredit the idea. Enhancing the status of political parties holds more promise of raising political accountability. Current re-nationalization of energy sectors is not an outwardly wrong idea either because it creates incentive for bureaucrats to serve the state and not to cater private interests for a bribe.
These and other observations suggest that the Putin Administration has a strategy that it pursues consistently. Such inference does not correspond to the Åslund's exposition of disoriented and dysfunctional government ready to fall any moment. I cannot claim that Putin will succeed improving institutional situation through his current policies. Curbing authoritarian tendencies is the problem that the next president will surely confront. Yet, it is safe to state that Åslund's prophesy of Putin's collapse before 2008 is not going to happen.
Vlad Ivanenko, PhD economics
University of Western Ontario, Canada
Visiting Researcher, Bank of Finland
Institute for Economies in Transition (BOFIT)
E-mail: ivanenko60@yahoo.com
Webpage:
http://publish.uwo.ca/~vivanen/.