Sunday, November 09, 2008

Putin's Russia

‘For Russians a strong state is not an anomaly that should be got rid of. Quite on the contrary, they see it as a source and guarantor of order and the initiator and driving force of any change….I am not calling for totalitarianism…A strong state power in Russia is a democratic, law based, workable federal state.

Vladimir Putin, 1999.

‘To grow further it [the Russian economy] will have to dismantle the lawless system Mr Putin has created’.

Economist, 1st March 2008

Historical Background: Russia has tended to have an authoritarian political culture, most popularly associated with Ivan the Terrible who became Tzar of all Russia in 1547. Ivan was intelligent and impulsive though some said mentally ill at times. He succeeded in expanding Russia into a major empire of a billion acres; Russia is still the biggest country in the world- 6.6.6mn square miles. His reputation has perhaps been unearned in respect of his character for, whilst he was a strong, autocratic ruler, he was not especially cruel. The same cannot be said for the man who eventually helped sweep away the machinery of the imperial court: Joseph Stalin.

Stalin: The son of an alcoholic cobbler in Gori, Georgia, Joseph Dzugashvilli, was an outstandingly bright young scholar and a charismatic leader of his peer group, [as well as, incidentally, a noted singer, often employed to sing at weddings]. Urged on by his resourceful and indefatigable mother, he managed to study for a time in the Tbilisi seminary as a trainee priest where studies resembled a form of highly programmed mind control- a precursor perhaps for his governing style from the Kremlin. He soon became engaged in gangster-terrorist activities-robbing banks and running protection rackets- to help finance those who would overthrow the Tzars in favour of a Marxist Russia.

He helped Lenin achieve this result and when Lenin died, cleverly manipulated his way into a position of power from whence he worked to eliminate his rivals until he had made his role of Secretary of the Soviet Communist Party, effectively that of dictator. He insisted his vision of ‘socialism in one country’ should be the template for the world revolution to be pursued in the names of Marx and Lenin.

Lenin had effectively retained the relatively well organised and established Tzarist police, the Okhrana- turning them into the ‘Cheka’ in 1917. The role of the secret police-more like an internal Bolshevik army- was to defend the revolution and police important parts of the new state like the forced labour camps. As Stalin’s rule evolved he used the secret police-now called the NKVD and later the KGB- to enforce his collectivisation of agriculture and suppress resistance to the resultant famine which accounted for hundreds of thousands of peasants. Vast numbers were employed, on flimsy punitive pretexts as virtual slave labour on state driven enterprises designed to establish the foundations of heavy industry in a mainly rural country.

There was no political freedom allowed in terms of democracy-despite an ostensibly highly democratic constitution- and cultural endeavour was kept rigidly to the support of the supposed ideological underpinnings of the state. The whole of the Union of Soviet Socialist Republics, the USSR, as it was christened in 1922, became the instrument for the fulfilment of a tyrant’s dream of ‘socialism’. During the war the Soviet people suffered to an even greater degree but they fought for the survival of their ‘Russian’ homeland rather than any worldwide revolution.

At the end of the war, the Soviet Union was now a great power which Stalin advanced into Eastern Europe and beyond, precipitating the ‘Cold War’ as the west mobilised to defend itself against what it feared might prove to be a military as well as ideological onslaught. Stalin died in 1953 of a stroke; amazingly, given the murderous nature of his rule, thousands visited his coffin in tears. He was succeeded by Khrushchev (1953-64) who, in a sharp departure from Soviet practice, denounced Stalin’s methods of governance, though did not do much to change them. Nor did his successors, Leonid Breznhev (1964-82), Andropov (1982-84) and Chernenko (1984-85). However, the next person in charge of the Soviet Communist Party was a remarkable man intent upon drastic change: Mikhail Gorbachev (1985-90).

Soviet Economy: the economy of the USSR was centrally planned, under its Gosplan agency, and a series of 5 year plans from 1928 laid the foundations of a modern economy. But the market had been excluded; all decisions were taken centrally: amounts to produce, amounts to consume, varieties of product and so forth. This worked well enough to establish the basic requirements of mining, iron smelting, basic manufacturing and so forth as the astonishing performance of the USSR in the 1941-45 war demonstrated. It also enabled high quality science based activities like nuclear weaponry and space exploration to progress to a degree which seriously worried the west in the 1950s. However, the Soviet economy was fundamentally weak as central planning is seriously flawed as a means of organising economics. Friedrich Hayek, in The Road to Serfdom pointed out that central planners just could not cope with their tasks.

‘Given that there were well over 12 million products in the USSR, some of which came in hundreds if not thousands of varieties, the volume of information within the planning system was- according to economists- exceeding the number of atoms in the universe.’
A Heywood, 1994, Political Ideas and Concepts, p272.

Decline of the Command Economies: Slowly the logic-or rather illogic- of this arrangement began to cause the economies of the ‘Eastern block’ of command economies, to slow down. Shortages were rife and western products highly regarded, so that visitors would be offered prices on the demin jeans and Beatles records. Because of waiting lists for wanted goods, shop assistants, a job with a low status in the west, had extremely high ratings in the east. Moreover, queuing was so ubiquitous a requirement in eastern block countries, that some people could make a living out of charging for queuing on behalf of others.

Inefficient operations were carried by the centralised system, fuel was wasted prodigally; no-one cared about their part of the economy as it was so vast and impersonal. An illicit black economy, of course, thrived in all communist countries. One other consequence was that politically driven targets, like defence, received priority, while consumers suffered. Potential dissent was contained by the dominance of the communist party, whose committees shadowed all the official ones. Nomination of candidates almost never extended beyond the single person favoured by the party. Democracy was a sham. But it was all overseen by the threat of the Red Army; the 1956 invasion of Hungary and the 1969 one of Czeckoslovakia proving the threat was real enough.

Slowly these economies ground to a paralysing halt, unable to compete with the more vibrant economies of the west. What was worse for the communist leaders was that their countries were now ‘more porous’; their citizens were aware of the west and the fact that the workers there did not live in poverty and desperation. Dissatisfaction was not long in asserting itself and throughout Eastern Europe in 1989, a series of revolutions occurred as former elements of the Soviet empire-sensing Soviet weakness, shrugged off Moscow’s control and resolved to become genuinely independent. This was the situation Gorbachev was forced to confront. Without the means to enforce any authority over former territories, or even over his own people, Gorbachev opted to compromise towards a liberal set of responses.

In his excellent book Russian Politics Today, Michael Waller, assesses the impact of communism in these Soviet dominated countries and notes that polls show that modern Russians still claim that life under the old regime was better. This is because over time the system did contribute some genuine benefits: everyone was in work, even if wages were low (differentials, moreover were nowhere near as great as in the west) and there was little in the shops to buy; the health service was good and was free; education was comprehensive and free; people living in towns and cities had access to more resources than when they lived in the countryside; and most people had access to cultural resources like libraries, books, television and even the theatre.

Moreover, prices of basic food were deliberately kept low while accommodation and fuel costs were ‘nominal’ according to Waller. Benefits like pensions, maternity pay, summer camps and the like were also free and administered by the trade unions. When looking back it seems citizens of the new post 1991 Russia forgot the very low levels at which living standards formerly rested nor the fact that several families often had to share the same small apartment.

Glasnost: the word means ‘voice’ in Russian, something for which Gorbachev called in March 1986. Initially Gorbachev intended merely to offer more transparency into government but this soon evolved into a spotlight on the past with Stalin’s victims like Bukharin rehabilitated and criticisms of the saintly Lenin made. Pressure grew to rename streets and towns by their pre-1917 names- e.g. Leningrad became St Petersburg again in 1991. Also circulation of political comment burgeoned and in March 1989 elections for parliament became genuine instead of prearranged. Debates in the Congress of People’s Deputies became unrestrained by fears of arrest and imprisonment.

Perestroika: meaning ‘restructuring’ is usually understood to refer to the economy;
most importantly it embraced the notion of choice. Enterprises were freed of ministerial control making them autonomous and responsible for their own success or failure. Additionally, all those small operations- moonlighting, illegal entrepreneurs, were made legal. A law in 1986 made it possible to be a private tradesman quite legally.

Federalism Unravels: Stalin’s 1936 constitution allowed substantial powers to the 15 republics of the USSR, including the right to secession. In practice this meant nothing; borders were ignored by the party and by state planners who treated the USSR as a unitary whole. Separatist tendencies were harshly suppressed. Gorbachev took steps to end the Cold War with the west, refusing to assist communist regimes as they faced domestic revolt. Within the more encouraging atmosphere initiated by Gorbachev, the constituent republics now experienced overwhelming surges of new found identity, leading to the eventual post- collapse creation out of the USSR of: Latvia, Lithuania, Estonia, Armenia, Azerbaijan, Kazakstan, Kirgyzstan, Moldava, Belorussia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan and Georgia.

Attempted Coup: in August 1991 some senior Soviet officials attempted to win back the Stalinist system by deposing Gorbachev. Ultra reformist Boris Yeltsin-newly elected president of the Russian Republic in June 1991- led the popular defence of the new order symbolised by the seat of the Russian parliament and presidency, the White House. The collapse of the coup ended any residual authority of the communist party and left Yeltsin poised to succeed Gorbachev as the USSR was dissolved 31st December 1991. Given his position as the main leader of Russia, once Gorbachev was cast aside, he was able to direct future reforms as he thought fit.

Economy: Yeltsin abolished Gosplan in January 1992 and freed prices from official control at the same time. The latter was part of a ‘shock therapy’ designed, with advice from western economists, to catalyse the new economy. However, it had novel impacts for former Soviet citizens. Queues were ended almost at once. But prices increased by 350% in the first month and many goods were now too expensive for ordinary citizens; income inequality suddenly became evident. During this transition period many state enterprises were privatised and:

‘There emerged a number of phenomenally wealthy financial operators, who were able to exercise a powerful influence on government, on the media and on Yeltsin personally. These ‘oligarchs’ were making their greatest influence on public life- and on public opinion-when, in the mid-1990s, the basics of life were becoming unobtainable for most of the urban population, who at that stage were too stunned and too busy seeking the means of physical survival to react to this pillaging of the nation’s wealth by a few individuals.’ Waller p14.

Privatisation: Often these people were the managers of the industries concerned. Quite often the route was for a director of a state enterprise to hive off the profitable bits of a state activity into a holding whose title they could later appropriate, leaving just the valueless shell for the state. Essentially these were criminal activities but during the 1990s under Yeltsin it was a relatively lawless time. Waller cites a study suggesting the state’s income from privatisation 1991-99 was no more than $9,7bn for the privatisation of 145,000 enterprises(waller, p195). Bankers like Vladimir Potantin and Mikhail Khodorovsky acquired assets through loaning money to the state in exchange for shares in privatised businesses. The latter acquired a 45% share of the major oil company Yukos for a ‘derisory sum’. Others who did fabulously well, like Boris Berezovsky were actually part of Yeltsin’s advisory team.

Yeltsin encountered severe political problems with his parliament- elected while the USSR existed- where some urged him onwards and others to be cautious. His personal style of living also became an issue with his family seeming to be involved in policy-making not to mention his frequent embarrassingly drunken appearances, which shamed the many Russians hoping their country could regain respect and influence in the world. Under this leader Russia declined in many ways so that taxes were not collected, government servants were not paid, the government became virtually dysfunctional. Many Russians looked back nostalgically to the time of Stalin and the discipline of a communist system.

Vladimir Putin
On 31st December 1999 Vladimir Putin became acting president of Russia and then in March 2000 was elected for a four year term; he was re-elected in 2004. He was born in Leningrad October 1952 to a factory worker mother and a naval officer later NKVD officer father; his grandfather had been personal cook to Lenin and then Stalin. Vladimir studied law at university in his home city. He joined the KGB and the Communist Party, working as an intelligence officer on internal dissent. After a spell in Dresden, East Germany, he returned to Leningrad to become international adviser to Anatoly Sobchak, former law lecturer and now mayor of his city. He was accused of issuing licences for $93m of ferrous metals in exchange for food aid from abroad which never came to the city. A commission investigated and recommended he be fired but this did not happen.

He continued as chair of the Committee for External Relations, from 1992 to March 2000. He was also on the advisory board of the German property holding Saint Petersburg Immobilien und Beteiligungs AG (SPAG), a company which investigated for money laundering by the German authorities.
In June 1997 Putin defended his thesis on Strategic Market Forces; the web entry on this event claims the thesis was substantially plagiarised. In July 1998 he was made head of the FSB by Yeltsin, the successor body to the KGB. In August 1999 Putin was made a deputy Prime Minister and Yeltsin said he wanted Putin to be his successor.

Putin’s emergence into the limelight coincided with the 1999 Chechnya invasion of Dagestan and his tough policy towards this war provided him with a convenient platform for popular election; his \KGB background proved no barrier to popularity. He became acting president in December 1999 and was well placed to fight and win the March 2000 presidential election, pledging support- but significantly not membership- to the newly formed Unity Party. Waller characterises Putin’s style as subtly indirect (p43). He managed to stay detached from political issues, never leading a party- though certainly supporting first the United Party and then its successor United Russia.

‘From his detached vantage point in the presidency he has was able to criticise the government without making himself vulnerable for its failures. Putting himself above party and sectional interests, Putin has been able to present himself as the People’s President, aware of a popular belief in a strong hand at the centre, and aware also of a popular mistrust of political parties and business people determined to appropriate portions of the common patrimony.’ P43

In the conclusion to his book Waller judges that under Putin the political pendulum, which swung to the liberal side of the spectrum under Gorbachev and Yeltsin, returned towards the authoritarian end.

• The media has been effectively controlled so that united Russia has untrammelled access to air its views. The Chechnya affair allowed Putin to force the exile of Vladimir Gusinsky, whose television channel was alone in criticising Putin’s ruthless approach. The media is virtually as controlled now as it was under communism.
• The democratic electoral system has been allowed to ‘atrophy’, as, in the wake of the Beslan tragedy Putin ‘revoked the direct election of regional governors and republican presidents.’ Elections to the Duma had already been sullied to divest them of ‘their free and fair nature’.
• Nominations of key political positions became controlled by the president suggesting a return to the Soviet ‘nomenklatura’ system of a ruling elite. The difference in Putin’s case was that such powers of patronage were written into the constitution, something which Waller suggests ‘clearly undermines the regime’s professed democratic aspirations’.
• United Russia set up ‘party schools’ in June 2004 along the lines of the old communist party.

Russian Political Culture: as has been already mentioned, Russia has been used to an authoritarian style of government. ‘Demokratskaya’ has always been viewed as a Western European concept, more than a little alien to the Russian way of doing things. Similar problems were encountered by the USA when it attempted to impose democracy on Iraq: citizens had not become used to the idea of participation in decision-making and found it hard to adapt to such a system. Maybe this is why there was so much chaos in the 1990s when Yeltsin was in charge and why Putin became so popular once he arrived on the scene with his secret police background and aggressive way of dealing with those who opposed him.

Putin’s Personal Wealth: officially Putin is someone of modest means, only just making it into the richest 100 members of the Duma. Unofficially however, there are reports of him owning a vast personal fortune including a 4.5% stake in Gazprom- the largest extractor of natural gas in the world and Russia’s biggest company-plus a 50% share in the oil trading company Gunvor with a turnover of $40bn. The aggregate value of these and other holdings could make Putin Russia’s richest man. Putin’s response to such an accusation was as follows:

"This is true. I am the richest person not only in Europe, but also in the world. I collect emotions. And I am rich in that respect that the people of Russia have twice entrusted me with leadership of such a great country as Russia. I consider this to be my biggest fortune. As for the rumors concerning my financial wealth, I have seen some pieces of paper regarding this. This is plain chatter, not worthy discussion, plain bosh. They have picked this in their noses and have smeared this across their pieces of paper. This is how I view this."

Russia’s Economy Now: The Economist 1st March 2008 ran a special survey on the Russian economy. It notes how the Russian economy ‘took off’ in 1999-2000, growing from 6% in 1999 to 10% in 2000. Four days before Putin was elected president the first IKEA store opened in Moscow. Listening to advice from liberal economist Andrei Illarionov, he took sensible measures, accumulating foreign reserves simplifying taxation and allowing a free market in land. Illarionov quit in 2005 but now, critical of recent economic policy, reckons the takeover of Yukos in 2003 was a ‘breaking point’; before Yukos had been growing its oil output at 9% a year- by 2007 this had sunk to 1%.

Khodorovsky, owner of Yukos, had been exiled but a new state elite had taken over and legal control over the economy made to look nonexistent: ‘After Yukos, nobody can feel safe’ says one businessman quoted in the survey. The state moved in to take over more and more private concerns. Once again it is the centre of political power which determines what happens; ‘it is easier to get a competitor into jail than to compete with him’ is another quote. Corruption is rife, both regarding bribes officials to ignore rules and also in respect of officials who have shares in business and so are directly involved in making money. The World Bank places corruption in Russia on the same level as Togo.
Corruption: the giving of bribes to reduce tax demands is standard procedure and sufficient profits are made by many companies in building or mining, to make this bearable. Yet investment earlier in this year remained buoyant-up 21% in 2007. The Economist acknowledges high rates of growth but argues it would be much higher if corruption were stamped out. Big companies dominate and smaller ones struggle to keep up; the costs of starting a business in Russia is set prohibitively high say some and competition is so poor productivity is not improving. Countries like Ukraine and Georgia manage tom outperform Russia even though they have no oil.
Indeed, the journal suggests Russia is too ‘addicted’ to oil which is forging ahead but this creates a dependency and domestic manufacturing has been neglected, the value of the rouble is much too high so that new wealth is sucking in imports. Quality standards are also low as evidenced by the return of 15 jets purchased by Algeria from Russia. In addition inflation is running at about 10%. Economists note that the Russian economy, over-reliant on oil, has its fortunes tied to oil prices and when this is unpredictable, stability is lost. Income and wealth differentials are growing; as long as average salaries are increasing at a fair rate this is overlooked but new conditions might change things. The Economist pints out that after a decade of growth, Russia is only back to the level it reached just before the fall of the Soviet Union. ‘To grow further it will have to dismantle the lawless system Mr Putin has created’.

Presidency of Dmitry Medvedev: In March 2008 Putin stood down after the two terms constitutionally allowed but was able to place his close friend Medvedev as his successor and also assume the role of prime minister for himself. This relatively young Russian politician is clearly not finished exercising power in his native land. Extensive publicity of his prowess at martial arts and his well toned torso have reinforced the message that he is still the power in Russia’s Kremlin.

Putin and the Oligarchs: the emergence of a group of mega-rich Russian businessmen, dubbed the ‘oligarchs’ has directed attention to their emergence and possible involvement with organised Russian crime. Oleg Deripaska, for example, somehow managed to deal with the Russian mafia in the 1990s in the so-called ‘Aluminium Wars’ when 100 people were killed. His company Rusal, dominates the industry which provides 12% of the world’s needs. As a result of his experiences he is not allowed to visit the USA. Yet he is close to Putin and his circle. Other oligarchs, like Khodorovsky and Berezovsky are most definitely not liked by Putin and it is widely believed, according to the latter named oligarch, that Putin was behind the death of Alexander Litvinenko in November 2007, poisoned by polonium 210, a substance impossible to acquire without access to government establishments.

Russo-Georgia War in Caucasus: on 7th August Georgia’s president Mikheil Saakashvilli decided to invade South Ossetia, an area friendly to Russia and reluctant to accept the authority of Tbilisi. Russia quickly sprang to the aid of its potential ‘satellite’ with tanks pouring across the borders by 12th August. Georgia was quickly overwhelmed and had to accept terms. More difficult was the position of the west. For some time Russian weakness has encouraged the west to seek to prize countries like the Ukraine and Georgia away from Russia into bodies like the NATO and the EU. Despite plentiful statements of diplomatic support however, the west was forced to stand impotently by as Putin called their bluff. It is obvious that Putin is seeking to rebuild the way in which Russia is regarded by the west to something closer to the days of the Cold War.

Russia and the World Financial Crisis: Russia suffered more than any other emerging economic markets, destroying Kremlin claims it was immune fro world turbulence. Investment, which had been so buoyant in 2007 has been affected by the war in Georgia and signs that the Russian economy is not as strong as it might be. Since May, the dollar and rouble indeces have shed two thirds of their value. Russia’s construction industry, dependent on cheap money has seized up. Even Oleg Deripaska, Russia’s richest man had to sell big stakes abroad to meet his debt obligations. He was also given a $4.5 bn loan to his Rusal company from the government to help him survive the credit crisis.

The Economist 18th October suggests that Russia’s stability is founded on a growing economy- if that fails it could have dire political consequences. The Kremlin has come up with a $200bn rescue plan for their banks, the disbursement of which is likely to increase still more, Russia’s growing government control over the economy. However, a report on 2nd November from a Moscow news agency showed a ‘stable rise’ in Russian shares during the previous week.

Ecomists 1st March and 18th October, 2008.
Simon Sebag Montifiore(2005), Stalin: the Court of the Red Tzar, Weidenfled
Simon Sebag Montifiore(2007), Young Stalin, Weidenfeld.
Michael Waller (2005) Russian Politics Today, MUP.


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