(4) The Putin Legacy
NOTE: Putin’s Russia receives truly withering, devastating fire today in #1, #3 and #4 from Boris Nemtsov, the Chicago Tribune and the Moscow Times. What a triple threat!
NOTE: On Publius Pundit, more on Russia’s visa war.
(4) The Putin Legacy
NOTE: Putin’s Russia receives truly withering, devastating fire today in #1, #3 and #4 from Boris Nemtsov, the Chicago Tribune and the Moscow Times. What a triple threat!
NOTE: On Publius Pundit, more on Russia’s visa war.
NOTE: This is the sixth part of a serialized translation of Boris Nemtsov’s white paper critiquing the Putin years. It includes the tenth and eleventh chapters of the work. Part 1 (introduction and chapter one) appeared on Monday, Part 2 (chapter two) on Wednesday, Part 3 (chapters three and four) appeared on Friday, Part 4 (chapters five and six) appeared on Sunday, Part 5 (chapters seven and eight) appeared on Monday and Part 6 (chapter nine) appeared on Wednesday. Look for Part 8, which may be the final installment, on Sunday. You can display all the parts in reverse sequence on a single web page by simply clicking the “nemtsov white paper” link at the bottom of this post. The entire translated white paper document, including the final sections not yet published here as HTML, is now available as PDF (this link is now also permanently in our sidebar).
by Boris Nemtsov
First Deputy Prime Minister of the Russian Federation, 1997-1998
Deputy Minister of Energy, 2002
Translated from the Russian by Dave Essel
Russia is a country of the most massive inequality. This can be seen everywhere and in many different things. And this inequality – between the regions and between people – is only getting worse.
The average nominal monthly wage in Moscow is 20 thousand rubles. In places rich in natural resources, for example the Khanti-Mansiisk, Yamal-Nenets, Chukotsk regions and the Nenets autonomous district, it is 25-30 thousand. Real incomes in Moscow are of course considerably greater than that. At the same time, the average wage in Dagestan is 4500 rubles and a bit more – 6-8 thousand rubles – in the Central Black Earth region. In fewer than a third of the Russian regions is the average over or equal to the average wage for the whole of Russia (11 thousand rubles per month); in all the rest of the country it is lower.
At the same time as in 4-5 regions of Russia people are now living no worse than in developed Western countries, in the rest of the country they are living on a par with Mexico. One of the reasons for this differentiation is Putin’s policy of budgetary colonialism. Back in 2000, government expenditure was divided 50/50 between the centre and the regions. Now it is 65/35. Another reason is state monopoly capitalism, the model whereby the country’s natural resources are exploited, that has taken shape in Russia. Smaller businesses and those not involved in raw materials in areas without such resources are unable to develop – because of the high barriers to market entry maintained by officialdom and the monopolies they have links with, because of the government’s tax terror policies, because of the risk of losing what they own, and because of the poorly developed infrastructure.
To overcome this differentiation, it is vital that support be given to economic activities by the people, to developing small businesses, to involving as wide a circle of people as possible in entrepreneurial activities. This is the only way to make a meaningful number of Russians if not rich, then at least well-off.
During Putin’s presidency, however, the number of small enterprises has practically not risen in Russia. There are about one million of these today. That is less than 7 companies per 1000 population. This should be compared to the EC average of 45 per thousand, 50 per thousand in Japan, and 75 per thousand in the USA! In Western countries, about 50% of the working population is to be found in such enterprises and in Japan nearly 80%. Only 9 million Russians – 12% of the working population – work in small businesses. And these small businesses make a proportionate contribution to our GDP. This may be compared again to the USA, where the contribution by small businesses to the GDP is 50% and to the Eurozone where it is 60%. It should come as no surprise that people live more richly and in those countries and that they have a large middle class, which is not the case in Russia.
As a result, the people who get rich in Russia are those who are close to where the earnings from natural resources are to be found. Some crumbs do fall off the table. And while plain people’s incomes have risen, they have not risen in anything like the way the wealth of the oligarchs has. The average wage in Russia has risen from $80 per month in 2000 to over $400 today. Over the same period, however, Putin’s Russia has beaten all records in growing numbers of billionaires. In 1999-200, Forbes List carried not a single Russian. By 2007 there were 53 and their total wealth amount to $282 billion.
First place went by rights to Roman Abramovich with $18.7 billion. We now rank third in the world for number of billionaires after the USA and Germany.
There’s “Combat the Oligarchs” for you! Under Putin, they have only become richer. And those who were able to build a tight relationship with Putin, to successfully sell Sibneft to him, have become richest of all. Bear in mind also that the wealth of top officials and those close to them – secret owners of property, of Swiss oil and gas trading companies, beneficiaries of a myriad offshore trusts, of ties with Putin & Co. – are beyond the scope of Forbes List and remain invisible.
This is not a call to arms against the billionaires. Russia needs billionaires. It is a sign that a market economy has taken shape and that large national companies have been created. However, the explosion in their numbers and their wealth in comparison to the modest enrichment of the rest of the country is more a sign that all is very much not well with Putin’s Russia and that the widely advertised battle against the oligarchs is just a propaganda slogan to cover up the government’s support for certain oligarchs.
We also think that a very different set of economic policies could create far more opportunities for many more Russians to get richer. A climate favourable to enterprise, open and free competition, reasonable conditions for business development, especially small and medium enterprises, independent courts of law, guarantees for property rights – these are the things which would help enterprises to develop in a big way and, just as importantly, help the middle class to develop. In Russia too many assets are concentrated in the hands of big business and a wider range of the population is unable to start up because of the high barriers to market entry – fruit of the alliance between the monopolies and corrupt officialdom.
The recipes for solving these problems exist. However, in order to be successful in this, the criminal-monopolistic economic system that has taken shape under Putin must be dismantled.
Chapter 11 The Economic Bubble
We are all supposed to be over the moon at the success of the economy under Putin. In reality, however, it is not doing that well. Given today’s oil prices, our GDP growth has actually been remarkably modest. With the windfall from oil that our economy has been enjoying, we should have been seeing growth rates of 10-15% percent like our oil-exporting neighbours Kazakhstan or Azerbaidzhan. Even oil-importing countries such as China and India, who pay today’s sky-high world prices for their fuel, have been growing at 8-10% a year. Our 6-7% looks modest against this background. Oil-rich Russia’s GDP growth rate is one of the lowest in the CIS. Back in 2000, our GDP growth rate was the second fastest in the CIS. By 2007, we ranked eighth.
Putin has not brought about even this GDP growth. Russia’s economy began to grow in 1997 and continued to do so after the crisis of 1998. In 1999, the growth rate was 6.4%, the same as the average growth rate under Putin. It would be weird indeed if we were unable to make our economy grow at such a rate at a time when oil prices are so high. It is notable that it is mainly the private sector of the economy which has seen any growth; the state companies have shown very modest results indeed.
For the economy to have developed faster would have needed structural reforms, the establishment of a climate favourable to investments in new projects, and a modernisation of the economy. We have furthermore failed to convert what we have achieved into a real economic modernisation of the country and revival of production capability. Instead of modernising, the Putin régime has devoted its attention to dividing the spoils, thus missing this favourable reform opportunity. We may not get another such chance again. We will evidently be forced to make painful social transformations (for example the pension reform we have already mentioned) when oil prices have fallen again.
Investment in production has slowed down as a result of the tough way private business is dealt with. Instead of creating new assets, companies have preferred to invest in real estate. A two-room flat built in Soviet times on the outskirts of Moscow now chnages hands for $200 thousand – a price inflation caused by investors buying up properties as capital investments. Gazprom’s capitalisation rose from less than $10 billion in 2001 to $350 billion today, despite the fact that its gas production has not increased while its costs and debt have risen threefold as it prefers to buy assets rather to to bring new deposits on line. What is this if not a bubble, a bubble that may burst with a very big bang?
Debt accumulated by corporations for the purchase of assets instead of investing in production now exceeds $400 billion and is nearly equal to the state’s financial reserves. The major borrowers are Gazprom, Rosneft, and the state banks. Should any of these corporations default, it is going to be the Russian public which will have to pay the cost as state reserves will be rapidly frittered away on keeping the inefficient state companies afloat.
Government expenditure, first and foremost for the benefit of the growing state apparatus and special services, has of course risen faster than GDP growth. Planned government spending on its own management, national security, and law enforcement for 2008 stands at $39 billion (compared to $4 billion in 2000). This is three times as much as has been allocated to the “national projects”. There are now over 600,000 civil servants. Government efficiency has nonetheless not improved; crime rates remain high and are in fact higher than in the 1990s.
The government policy favouring the mass creation of state enterprises has only increased the appetites of the recipients of government money. These corporations cannot compete on the open market without state aid. Pouring government money into the economy has already resulted in a burst of inflation which has hurt plain people (inflation is no abstract economic phenomenon). Consumer inflation of up to 15% and more means that prices are rising painfully fast. The monopolisation of the economy under Putin – the inevitable result of civil servants protecting “their” companies and hindering competition – has only poured oil on the flames. World Bank experts have tried to estimate how concentrated ownership has become in Russia and concluded that state companies and the 22 largest private financial and industrial groups control nearly two-thirds of industrial turnover. Over half the banking system’s assets are controlled by banks affiliated with the state or powerful officials. Of these, about 45% are controlled by just 4 banks: Sberbank, Gazprombank, VTB, and the Bank of Moscow.
And this is what they call the Putin “economic miracle”?
We need another kind of economy. We need a competitive economy with low barriers to investment, low levels of government involvement in corporate management and spending. We need alongside that a strong and effective state regulatory system, above all to control monopolies, aimed not at sheltering friendly businesses and dividing the spoils but at ensuring all the players in the market abide by civilised rules and compete fairly.
It is vitally important that small businesses develop in Russia. This was covered in greater detail in the chapter on worsening inequality. But small businesses are prevented from developing in Russia by administrative barriers, corruption, and the monopolism of commercial organisations with protection from officialdom. The barriers hindering the development of small businesses should be dismantled. Of the many things that could be done to help them, the most important is to combat corruption at all levels of the government and to de-monopolise the economy.
Government money should be used not to help state corporations and to inflate expenditure on the government apparatus and special services but on public health, education and the army. There should be the strictest of oversights over government spending. We need to sharply reduce state involvement in the economy and go back to arranging honest privatisations in the way we began to practise in 1997-2000. Businesses need guaranteed property rights, working laws, and independent courts of law.
It is entirely within our power to build such an economy. But to do so, we must refrain from making use of the services of Putin and his circle.
Annals of Russian Ignorance
The Moscow Times reports that when Russian “president” Vladimir Putin was asked about rumor he has stolen billions from the national treasury, he refused to give a direct answer, responding: “Просто болтовня, которую нечего обсуждать, просто чушь. (It’s just blather that isn’t worth discussing, just rubbish.).” He then added: “Всё выковыряли из носа и размазали по своим бумажкам. (They just picked it out of their nose and smeared it on their little sheets.)” The MT points out that “the Kremlin translators gave this vivid image a pass, rendering it as: “They just made it up and included it in their papers.” So it seems that the Kremlin is not only censoring what the Russian people hear, but also attempting to put blinders on the West.
Russia is a nation that likes to fancy itself erudite, cultured and well-educated. But the truth, as “President” Putin’s coarse language shows and as the New York Times recently reported, is somewhat different. Here’s how Russia’s “education” system got involved in the recent elections to parliament, for instance:
Parents at some schools were ordered to attend mandatory meetings with representatives of United Russia, and the children were used to drag their parents to the polls. “It was the same scenario at all the schools,” a teacher said. “And it was all from the city’s leadership. The school directors were given instructions, and they carried them out.”
Regional officials were vigilant about developments at local universities, particularly two of the largest, Lobachevsky State and Volga State. Students said they were warned not to join marches sponsored by the Other Russia coalition. And they said that before the elections, administrators issued a threat: if you do not vote for the ruling party, you will be evicted from your dorms. “Everyone was frightened, and our group, in full, went and voted, like a line of soldiers marching,” said a Volga State student. Administrators at both universities said the students’ statements about pressure were false.
Yet it did not stop with the voting.
Shortly after election day, several hundred Lobachevsky students were told that they were being bused to Moscow, but the university would not say why. When they were let off near Red Square, they found themselves among a huge throng of people.It was only then that they realized that they had become unwilling participants in a rally sponsored by Nashi, a fiercely pro-Kremlin youth group, to celebrate United Russia’s triumph and to congratulate Mr. Putin.
Putin projects himself as a popular leader, yet he needs to engage in this type of neo-Soviet barbarism in order to win? Russia projects itself as a civilized, educated nation — yet this is how it conducts the scholastic process?
A Russian commenter responded to the story, which the Times translated and ran in Russia:
My son was taken to Moscow from a university in another city for a United Russia event. Each student was paid about 800 rubles for the trip, I think. They were asked to vote for United Russia, but of course, no one was forcing their hands, and thus were able to vote as they pleased. It’s just that the main political competition is represented by a bunch of clowns. The party of power seems to largely encourage this aberration with its own behavior. The students at Lobachevsky University were simply duped with money that the organizers of the trip had stolen.
Putin is completely innocent here (unfortunately). People in Russia have always been forced to go to demonstrations, to vote or to sign some kind of petition. These are the initiatives of local officials large and small, who maintain their thrones, not thanks to professionalism, but thanks to intrigues and brown nosing.
Make no mistake: This commenter is speaking for the vast majority of Russians. Putin runs the “party of power” and it “encourages” this “aberration” but Putin is “completely innocent” of misconduct. Students are bribed to vote and herded around like zombies, but that’s perfectly fine since nobody actually put a gun to their heads. Pandemic corruption in the school system? So what, it’s always been like that. No need for any type of reform, no need for outrage, not a word about the total absence of any real opposition emerging from the elections, so that now Russia’s parliament is a pathetic, Zimbabwe-like rubber stamp.
Another commenter offered a different perspective:
This is an exercise I do with my Russian colleagues and friends regularly, it’s called “name the country”; Here it goes: 1) the country has huge oil and gas resources, but lacks the technology and expertise to run the industry. 2) Qualified people flee the country. 3) The government makes it very difficult for foreigners to run a business and work legally(and hire locals by the way). 4) The corrupt and backward education system produces very few quality graduates. 5) Basic infrastructure – water, electricity, airports, health care,wiring,roads, plumbing – is a disaster. 6) The most lucrative career for young girls is either marriage or prostitution (apart from a few smart female accountants) 7) Money from natural resources is hoarded by a small corrupt elite.8)The elites blame western oil companies for the stealing this money.9) The masses are led to believe their country is rich because the ruling elite drive new Toyota Land Cruisers purchased with the stolen money. Answer – it depends. If it is warm outside it’s Nigeria, and if it’s ice cold, must be Russia.
— Eric Vigod, Sakhalin,Russia (ex-NYC’er)
What’s the net result of all this? Well, you get a Russian “professor” of “international relations” telling the BBC that “Gazprom is an instrument of Russian foreign policy, like American oil companies are instruments of American foreign policy.” He ignores the fact that Gazprom is state owned while American oil companies are not. He ignores the fact that Gazprom is monopoly, while American oil companies have furious competition. He responds to an accusation in the manner of a small child who is called “stupid” and answers simply “no, you are!” Within the ivory tower that is Russia, or at least the Kremlin, this seems to make some kind of sense, just as was the case in Soviet times.
But from even a little way beyond Russia’s borders, the professor stands naked as a jaybird.
Vladimir Putin’s Russia is now officially under massive assault, at long last, from America’s major media. First the New York Times came out with a huge front-page article exposing the Russian dictatorship, complete with a translation into Russian, and now the Chicago Tribune reports on Potemkin Russia’s total failure to deliver an improved quality of live outside Moscow:
Behind a scrim of billionaires and petrodollars, Russian cities like this one are dying a slow, quiet death deep in the frigid, remote Far East. Many Russians here haven’t worked for more than a decade. They survive on whatever they can lug on their scrap carts—radiators and washing machines, bricks and bathtubs scavenged from a cityscape of boarded-up buildings. Scalpels at the hospital here are brown with rust. Every month, a local heating utility sends collectors to families who haven’t paid a bill in nine years. Factories that churned out everything from Soviet-era mortar shells and mines to linoleum and cardboard wasted away years ago, leaving a city of 47,000 without work, or any sense of purpose.
The cold, dark second-floor household of the Chursin family sums up life in Amursk. Natalya Chursina and her husband feed and clothe their teenage son, Zhenya, on welfare payments that amount to $5 a day. At 14, Zhenya has decided that school is optional. When he skips class in winter, he and his friends hop onto ice floes and ride them like skiffs through the roiled waters of the Amur River. It’s a place and a life Chursina and her husband, Vladimir, desperately want their son to escape. “People die like flies here,” says Chursina, 41. “Everything here is on the decline.”
The energy wealth that wrested much of Russia from the brink of an economic abyss and gave the Kremlin its newfound swagger has yet to revive cities like Amursk. On Sunday, Russians are expected to elect as their new president Dmitry Medvedev, Vladimir Putin’s longtime protege and a loyal adherent to his blueprint for prosperity. But eight years after Putin began implementing that blueprint, a hidden Russia still languishes, masked by Moscow’s moneyed extravagance and conspicuous consumption. Most of Russia’s 119,000 millionaires live in greater Moscow, the world’s most expensive city, amid a burgeoning middle class that has discovered mortgages and jams the aisles of the capital’s two Ikea stores. Move beyond the capital’s showy facade and you find a vulnerable Russia—a national population evaporating at a rate of 720,000 people each year and an aging, neglected infrastructure.
Russia’s economic resurgence has been both real and remarkable. It now has the world’s third-largest collection of billionaires and a gross domestic product growing by nearly 7 percent every year. The ruble is getting stronger. Overall, poverty and unemployment are down. Yet that resurgence has its limits. In Siberia and the Russian Far East, a population of 30.6 million withers at a rate of 103,000 people each year, victims of wayward Soviet planning that put whole cities in one of the planet’s coldest expanses.
Dilapidated Soviet-era infrastructure from roads and electrical grids to housing and telephone lines saps Russia’s productivity. In much of the country, factories saddled with aging, outdated machinery lag far behind their counterparts in the U.S., China and Southeast Asia. The Russian Academy of Sciences says more than half of Russia’s industrial machinery is over 20 years old, compared to just 15 percent in 1990.
In the waning years of his presidency, Putin has begun trumpeting the need to shore up debilitated infrastructure, revamp health care and solve the country’s worrisome population plunge. But analysts believe he could have acted much sooner. His decision to serve as prime minister alongside Medvedev could give him the chance to make up for lost time. “These problems have worsened over the course of many years. Now when they’re very serious, they’re getting noticed,” said Nikolay Petrov, a former Kremlin adviser and an analyst with the Carnegie Moscow Center, a Moscow think tank affiliated with the Carnegie Endowment for International Peace. “The price for not doing anything about this for years will be huge.”
A weak Russia—one that cannot sustain a labor force, restore its social safety net or rebuild decaying infrastructure—risks becoming an unstable Russia. And instability in a country with the world’s second-largest nuclear arsenal and a permanent seat on the United Nations Security Council poses a danger the U.S. and Western Europe can ill afford. “Their infrastructure will be hard to maintain—they’ve had a significant loss of population; they’re shrinking at a time when their oil reserves are growing,” said Sen. Joseph Biden (D-Del.), chairman of the Senate Foreign Relations Committee. “It’s very important that [Russia remains] stable. It affects America greatly.”
To make the giant leap from emerging economy to global powerhouse, analysts say, Russia must transform itself from a wellspring of energy, wood and metals to a country that produces as well as exports—and makes human capital its most valuable resource. Nowhere in Russia is that task more urgent than in Siberia, an expanse of rugged beauty and economic ruin. Siberia’s southern neighbor, China, ravenously consumes Russian oil and timber, sending some of it back to Russia as finished goods. That lopsided conduit benefits China far more than Russia, experts say, and only deepens Siberia’s plight. “Without a sustainable economy in the country’s eastern half,” says Dmitri Trenin, an analyst with the Carnegie Endowment for International Peace, “I see Russia becoming a junior partner to China.”
While Putin has done little to remedy eastern Russia’s economic woes in his eight years in office, he didn’t create them. Nor did his predecessor, Boris Yeltsin, though his chaotic stewardship made life measurably worse in this region. Today’s eastern Russia hobbles because of decisions made decades ago, by Soviet planners who built cities in places where no one would choose to live. Siberia’s winters are the world’s harshest. More than 2,600 miles from Moscow, Irkutsk’s population of 593,000 shivers through Januaries that average 11 degrees below zero at night. Remoteness also made Siberia a poor choice for city-building. Everything in Russia—power, money, commerce—loops back to Moscow. But Khabarovsk is an eight-hour flight from Moscow, or an eight-day train ride on the Trans-Siberian Railway. A flight from Moscow to Vladivostok, Russia’s largest Pacific port, takes nine hours. But neither climate nor distance weighed heavily in Josef Stalin’s vision. Tapping Siberia’s bonanza of gold, oil, nickel and timber required cities, Stalin’s planners believed, and so Soviet leaders forcibly settled workers there.
Like other Siberian cities, Amursk was made to order. Soviet leaders wanted a cluster of defense-industry factories built by a bend in the Amur River, and in 1958 they dispatched laborers and bulldozers to build Amursk’s plants, beige-brick apartment buildings and tree-lined boulevards. As a cog in the Soviet Union’s centralized economy, Amursk flourished. Its pulp-processing plant made more cardboard than any other Soviet factory. Its timber mill sent particleboard to Japan, Australia and the U.S. Amursk’s birthrate exceeded the Soviet average, as did its per capita weddings. Then, in the late 1980s, a plunge in oil prices broadsided the Soviet economy. With the end of the Cold War, orders for Amursk’s munitions factories ceased. Moscow told the plants to convert for civilian use but did nothing to make that happen.
Much of the town’s youth fled. Everyone else found themselves trapped in a city without work. Today many survive on government aid or the pensions of parents and grandparents.
Leonard Bolotnikov, a retired pulp factory worker with a round, ruddy face and snow-white hair, says that after he pays rent and utilities, his monthly pension leaves him $19.53. Steeling himself against a bracing wind on an icy winter morning, he jabs his finger at the abandoned, ransacked buildings that line Mir Avenue. “We get only words and more words from our leaders,” says Bolotnikov, 66, his face flushed with anger. “Look at these buildings. Everything is destroyed. Young people are leaving. My heart bleeds when I look at this.”
The Soviet collapse ravaged all of Russia, but the toll was especially harsh on what Russians call grado-obrazuyushy, cities built around a single factory. In Biryusinsk in east Siberia, a solvents manufacturer buoyed the lives of 12,000 Russians during the Soviet era. The plant in turn was tethered to a cluster of sawmills that processed larch and pine and supplied the plant with sawdust, its primary raw material. “We could buy fur coats back then,” says Olga Loginova, 47, a fermentation room worker.
In the post-Soviet chaos of the 1990s, hundreds of sawmills went bankrupt, including the Biryusinsk plant’s suppliers. The factory had to pay more for sawdust from mills farther away. By 2005, at a time when Moscow wealth was pushing up downtown real estate prices to nearly $1,000 per square foot, Biryusinsk plant workers were jamming into the factory’s grocery to receive management’s substitute for a paycheck: loaves of bread. “It was like during World War II, when people stood in line for hours to get a little bread,” Loginova said. “We lived on this bread and on our vegetable gardens.” In December 2005, the plant stopped production. Much of the town’s youth has fled; older Russians here scrape by on $125 monthly pensions. Their adult children live off those same pensions. “We are no longer wanted here,” says Anatoly Chubukov, a former truck driver who helped build railroads in east Siberia. Now he nets fish for food and thaws snow for drinking water. “We built the village and the road, the trains run—so now we are throwaways.”
Russian leaders are scrambling for ways to lure money and people back to Siberia, to make it a land of promise rather than a land of exile. In Irkutsk, bureaucrats have convinced themselves that building a “super city” will turn the tide. They believe that the provincial capital and two smaller satellite cities, Angarsk and Shelekhov, can be linked to form a megalopolis with a million people and a magnet for jobs, people and investors.
Sergei Voronov, Irkutsk’s deputy provincial governor, lays out the blueprints: two new highways, 24 hotels, three ski resorts, a new airport and the timeworn cure-all of urban planners around the world, a monorail. “It’s impossible to utilize our natural resources without a labor force,” Voronov says. “Our purpose is to create a prestigious place to live in so that this notion of Siberia being a place of exile is not the perception people have. The idea behind this supercity is to use whatever economic leverage we have to improve the image of this place.”
Russian leaders also have dusted off a century-old pipe dream to build a $65 billion, 68-mile highway and rail tunnel underneath the Bering Strait between Russia’s Chukotka Peninsula and Alaska. Neither the Kremlin nor Washington has given any hint of backing the idea, but Viktor Razbegin, an official at the Russian Economic Development and Trade Ministry, has called the tunnel “one of the few projects that can dramatically change the development of the Far East.” That kind of reliance on forced, oversize answers to Siberia’s economic and demographic woes mirrors the Soviet policymaking that led to eastern Russia’s plight in the first place. The cure lies not in building more glass and steel, experts say, but in investing in Siberia’s human capital—improving health care, tackling rampant alcoholism, seeding the growth of small businesses.
“I’ve got a secret for the Kremlin: In the modern world, the wealth of nations isn’t in the ground, but in the people walking the ground,” says Nicholas Eberstadt, an expert in demography and economics at the American Enterprise Institute. “The strategy of abandoning human resources for the sake of natural resources is one that will, in the long run, end in tears.”
“Twenty-eight percent of Russians think that the sun revolves around the earth. In other words, they live in a pre-Copernican age. And 30 percent of Russians think that if you boil radioactive milk, the radiation will disappear.”
That’s a quote from a recent blockbuster article in the Moscow Times reviewing the “Putin legacy” on the even of this weekend’s “presidential elections,” which will be one of the greatest atrocities against the institution of democracy in world history. Here’s the full monty:
The public protests shook the president and nearly toppled a government. But the thousands of angry demonstrators that flooded onto the streets of towns and cities around the country in January 2005 were not opposition activists protesting the rollback of democracy or Kremlin policy in the Caucasus. The protesters bringing traffic to a halt and demanding that then-Prime Minister Mikhail Fradkov and his entire Cabinet be tossed out were the country’s most economically vulnerable — pensioners, the disabled, veterans — enraged by the bread-and-butter issue of reform to the system of state subsidies for certain goods and services. “When the pensioners hit the streets in January 2005 in Moscow and all around the country, that really scared the government,” said Yevgeny Gartung, State Duma deputy from the Just Russia party and former head of the now-defunct Pensioners Party.
The tumultuous scenes highlighted not just popular discontent at the replacement of the subsidized benefits by direct cash payments, but the government’s vulnerability when attempting social reforms in general. Over the last eight years of economic boom, caused largely by record oil prices, the sustaining narrative of Vladimir Putin’s tenure became a simple one: After the instability of the 1990s, life was getting better.
There is little doubt that some of the new wealth has filtered down. Official indicators show that the proportion of the population living in poverty has dropped; wages, consumption and living standards have risen; and a small middle class has emerged. But under Putin, critics argue, macroeconomic stability has also undercut any impetus for reform. This has meant that the health care and education systems have been left in dire straits, that pensions remain insufficient, that a good part of the rise in incomes is eaten up by inflation and that the inequalities that arose in the 1990s have only grown greater. Any improvement, they say, has come in spite of, rather than because of, Putin’s policies.
Putin himself says that stability, rather than reform, has been his main achievement. In his recent legacy speech to the State Council, Putin said the conditions are now in place to allow Russians to expect real improvements, with improving living standards taking the primary place in his development plan through 2020. “Russia will become the best place to live,” Putin said. “That’s an absolute national priority.” To this end, Putin’s anointed successor, Dmitry Medvedev, whose main responsibility as first deputy prime minister was to usher in the national projects in health care, housing, education and agriculture, has made social-welfare issues central to his election platform. “Today these are the sorest points in our society — pensioners’ incomes, the health care system, the education system and housing,” A Just Russia’s Gartung said.
No Worse, No Better
The survey could have been published in the mid-1990s. A Levada Center poll released in January listed rising prices, poverty, the rich-poor divide and lack of access to medical treatment as the four biggest concerns for average Russians. Although average incomes have risen by more than 50 percent over the last four years in nominal terms, the impact has been significantly blunted by rising prices for essential items. Official inflation figures have been in the range of 10 percent in recent years, but many economists say the cost of staple products has been at least twice as much.
“In real terms, there has been practically no change in the quality of life for any of the sections of society we survey,” said Natalya Tikhonova, head of the social policy department at the Higher School of Economics. “The situation has improved insofar as it has stopped getting worse after many years of deterioration.”
Since Putin’s public declaration of war on poverty in 2004, the number of people living under the official subsistence level has plummeted. Even if the official figure of 12 percent at present is a little rosier than the reality, it is still way down from the 1-in-3 figure of a decade ago. But while most are now are getting by safely, others have never had it so good. During Putin’s tenure, income disparity both between rich and poor and among the regions has grown. According to official figures, the top 10 percent of the population takes home about 31 percent of total earnings and earns 15 times more than the bottom 10 percent. Independent analysts put this figure at closer to 30. “The more money there has been in the country, the worse our quality of life, life expectancy and education levels have become relative to other countries,” said Oleg Smolin, a Communist State Duma deputy. “The economy does not work for the people, but the other way around.”
And the gap is not just social but geographical.
“Of course the difference between living standards in Moscow and the regions is growing,” said Gartung, who represented a Chelyabinsk district in the last Duma. “As a rule, prices in the regions are growing more quickly and wages are growing more slowly.” In 2006, the gross domestic product per capita for Moscow was almost 30 times that of Ingushetia, statistics from the National Institute for Living Standards show. “If Moscow is currently on the same level as the Czech Republic, St. Petersburg is on the level of the Baltic States, and somewhere like Tuva is on par with Mongolia,” said Smolin, who comes from the Siberian city of Omsk.
And unless something is done to prevent the gap from growing further, the social situation could become volatile. “Society has undoubtedly become more stable, but the danger of instability is growing again because of the gap between rich and poor,” said A Just Russia’s Gartung. While Putin’s increasingly centralized — some prefer the word “authoritarian” — political system has created an atmosphere of stability, it might have the opposite effect in the long run. While in other developed countries multiparty political systems and civil society work to promote the interests of different sections of society, in Russia these social mechanisms do not work, Tikhonova said. “One of the questions is whether Russians have sacrificed democracy at too low a price,” Sergei Guriyev, rector of the New Economic School said. “But I think that people tend to underestimate the intensity of the negative economic shock in the 1990s.”
Guriyev said one hopeful sign was the evidence of a growing middle class, however nascent at present. “You look at characteristics such as mobile phone sales or real estate prices and they all demonstrate that the middle class is growing everywhere — not just in Moscow,” Guriyev said. Although estimates of the size of the middle class now range from 10 to 30 percent of the population, this still remains far below the two-thirds level common in Western Europe. Part of the problem, says Smolin, who serves on the Duma’s Education and Science Committee, is that many teachers, doctors and academics still fall outside of the middle class. Smolin said one friend, an award-winning high school teacher in Omsk, earns just over 3,000 rubles, or about $125, per month while another who works as a principal and teacher earns 6,400 rubles per month.
One of the main problems, critics argue, is that, despite the centralization of power and the subservience of the parliament, the process of real reform has stumbled. Much-needed structural changes to the education, pension and health care systems have been held captive to vested interests and corruption, while poor legislation and a lack of public discourse have turned good ideas into catastrophes. Putin’s first term was characterized by legislative caution, with macroeconomic stability rather than change the priority, said Vyacheslav Bobkov, director of the National Center for Living Standards. Much of the legislation passed in the first four years, like the introduction of the 13 percent flat income tax, was leftover from the Yeltsin period, along with many of the personnel, Bobkov said. “Putin and the administration did not know that oil prices would get, and stay, this high,” the New Economic School’s Guriyev said. “Only in 2002 and 2003 did they begin to believe that they would have money to spend on new things.”
So, after his public admission of shame in 2003 of the poverty in which many Russians lived, Putin looked ready for more ambitious reforms at the start of his second term. Emboldened, perhaps, by high popularity ratings and a tighter grip on power — and with a new team in place, including Mikhail Zurabov as health and social development minister and Andrei Fursenko as education minister — Putin turned to housing, pensions and benefits.
The switch from a long-standing system of free or heavily subsidized goods and services — including medicine, public transport and utilities — highlighted the difficulties involved in pursuing social reforms during Putin’s second term. The program, generally referred to as “monetization,” prompted the wave of protests at the outset of 2005. “Monetization was the biggest mistake,” Gartung said. “It was correct in theory, but in practice there were lots of mistakes.”
Many regional governments, on which the burden of many of the payments was to fall, found themselves unprepared and short of funds to deal with the new responsibilities. Putin, meanwhile, was forced to publicly upbraid four of his ministers, including two of the highest-profile economic liberals — Finance Minister Alexei Kudrin and Economic and Trade Development Minister German Gref. Reform after that became more cautious. “The government realized that these reforms were very risky, so whenever you want to change something you have to throw a lot of money at it,” Guriyev said. “If it’s a government that has a lot of money, it’s not a bad idea.”
But just over a year later — in March 2006 — protesters were out on the streets across the country again to protest reforms that saw household utilities bills shoot up. Zurabov, the minister most associated with the reforms, quickly became the lightning rod for criticism. After a reform to the state-subsidized drug program left thousands short of medicine in 2007, Zurabov took the fall, being shown the door when Mikhail Fradkov’s government was dismissed last September. In the meantime, a sort of “pay-and-pray” policy of throwing money at problems without addressing the root causes has come into play. Highly publicized and politicized lump payments have been doled out to pensioners and public-sector employees like teachers and doctors in the run-up to recent elections. “So far, the government is making the minimum payments necessary to buy the loyalty of the pensioners,” Gartung said.
In December 2007, the average basic state pension was 3,309 rubles, or about $135, per month, an increase of more than 16 percent from the beginning of 2006. And emergency measures introduced before the Duma elections last year to freeze prices artificially on basic goods were just another short-term attempt at dealing with complex issues. “It is completely political,” Gartung said. “This has nothing to do with economics.”
In his state of the nation address in 2005, Putin started what would become the defining social initiatives of his second term — the national projects. Supporters of the projects say they have already addressed structural issues and made a concrete difference in the areas of education, health care, housing and agriculture over the last two-plus years. “The most important element is that, for the first time, there is now a strategy,” said Alexandra Ochirova, who serves on Medvedev’s committee for the national projects and heads the commission for social development in the Public Chamber. Guriyev agreed, saying improvements, like connecting all Russian schools to the Internet, were proof of progress. “Even throwing money at education and health care is a good idea because these were previously so underfinanced,” said Guriyev, who served on a committee advising the government on the national projects.
But far from a great white hope, others see the projects as a white elephant, aimed only at generating superficial successes and photo opportunities, and reinforcing traditions of haphazard spending. Some argue that the projects are so ill-conceived that they have done more harm than good. “I remember from childhood the story about the man who turned everything he touched to gold,” Smolin, the Communist Duma deputy said. “Well, the national projects seem to turn everything they touch into quite a different substance.”
With the introduction of the national projects, he said, speculation on real estate sent prices soaring, and life expectancy has actually dropped. With regard to education, Smolin said that under Putin quality has plummeted, bureaucracy soared and the number of free-of-charge spots fallen. “Twenty-eight percent of Russians think that the sun revolves around the earth. In other words, they live in a pre-Copernican age,” he said. “And 30 percent of Russians think that if you boil radioactive milk, the radiation will disappear.”
“These are the dazzling results of our national projects,” he said. In health care, despite some improvements, a bribe-for-treatment system is still prevalent, and the lack of facilities makes receiving proper treatment outside of large cities a lottery. “We need huge health care reform to meet the challenges,” said Kirill Danishevsky, lead consultant at the Open Health Institute, a Moscow-based nongovernmental organization. “You don’t solve this just by buying more ambulances.”
The Moscow Times reports:
A leading human rights activist, Lev Ponomaryov, said Monday that he had been charged with slander for calling the country’s top prison official “the author of a sadistic system of torture.” Moscow prosecutors visited Ponomaryov at his home Thursday and initially questioned him “as a witness,” Ponomaryov said. “It soon became clear that I would turn into a suspect,” he said.
Ponomaryov said he was charged with falsely accusing a civil servant of committing a serious crime, which carries a maximum sentence of three years in prison. The prosecutors also asked Ponomaryov to sign a document agreeing not to leave Moscow for the duration of the investigation, which he did. The case dates back to a 2006 interview that Ponomaryov gave to the Regnum news agency. In the interview, Ponomaryov called Federal Prison Service chief Yury Kalinin “the author of a sadistic system of torture” and said he was responsible for a network of 40 prisons that were effectively “torture zones.” Kalinin filed a complaint, and in April Moscow’s Presnensky District Court ordered Regnum to publish a correction, which it did in October.
With the case apparently over, it was unclear as to why the prosecutors had charged Ponomaryov. Calls to prosecutors and the Federal Prison Service went unanswered Monday, a public holiday. The country’s Kremlin-nominated human rights ombudsman, Vladimir Lukin, also called the conditions in many prisons “close to torture” in a report published earlier this month. Ponomaryov said the charge against him was fabricated. “Kalinin is eager to show the new president that he is indispensable to the regime,” he said.
Dmitry Medvedev, President Vladimir Putin’s handpicked successor, is expected easily to win Sunday’s presidential election.
Ponomaryov, 67, is one of Russia’s most prominent activists and is especially vocal on the treatment of prisoners. A former State Duma deputy, he is the executive director of the For Human Rights group and a member of the Moscow Helsinki Group. Ponomaryov has attended many opposition rallies and has been detained numerous times. He said he intended to participate in a postelection Dissenters’ March on Monday. Ponomaryov had a run-in with authorities in June, when he was questioned by Federal Security Service officials over a speech he made at a January 2007 rally in defense of two businesspeople accused of illegal trafficking of ethyl ether.
Putin in 2006 signed a law allowing the slander and libel of government officials to be classified as extremism. A series of cases has followed. A Perm reporter was questioned last week and may face charges after he wrote an article identifying what he characterized as positive similarities between Putin and Adolf Hitler. In September, Saratov prosecutors charged Sergei Mikhailov with extremism after his newspaper, The Saratov Reporter, published a photo portraying Putin as the popular fictional spy Otto von Stirlitz. The charges were dropped earlier this month. Ivanovo journalist Vladimir Rakhmankov was convicted in October 2006 of publicly insulting a public official and fined 20,000 rubles ($750) for referring to Putin as “a phallic symbol.”
The BBC reports:
I was irritated by his three-piece suit. I was irritated by his floppy bow tie. But if I am honest, what really irritated me about Toomas Ilves was the fact that he and I had started off in almost the same job and I had become “our own correspondent” while he had become a head of state. Do not get me wrong, I love what I do. But arriving at the pad he occupies as president of Estonia – a charming little salmon-and-cream-cheese-coloured mansion in a park built for Peter the Great – I could not help feeling a twinge of envy.
It was not the kind of home either of us could have imagined in the late 1980s when I was a talks writer in the Russian section of the BBC World Service, and he was something similar in the Estonian section of Radio Free Europe. And it was not the kind of house I ever got. So when I had nodded at – and been ignored by – the white-gloved ceremonial guards on my way in, I am afraid I was a little less courteous to him than he was to me.
Why, I asked, did he not speak Russian? It seemed a reasonable question because Russian is the language of more than a quarter of Estonia’s population. But for President Ilves it was not reasonable at all. Speaking Russian, he said firmly, would mean accepting 50 years of Soviet brutalisation because most Russian-speakers settled in Estonia only after it was occupied by the USSR towards the end of World War II. And when I pressed him, saying surely it would only mean being able to communicate with a large number of his fellow countrymen in their own language, he replied – as heads of state have every right to do: “This is a real dead end, I don’t want to discuss it.”
I moved on. And we had another cup of tea.
But Estonia’s relations with Russia have reached something of a dead end since a bitter row last year over the moving of a monument. For Russians, the bronze statue of a Soviet soldier was a symbol of sacrifice, commemorating Estonia’s liberation from Nazi Germany. For Estonians it was a symbol of slavery, reminding them of the Soviet domination that followed. Last April, when the Estonian government ordered it to be moved from a central square in the capital Tallinn to a military cemetery, protests by local Russians degenerated into riots. Russia accused Estonia of blasphemy and threatened “serious measures” in response.
What followed was a partial Russian trade blockade of Estonia and – far more chilling – an extraordinary cyber-attack. Millions of malicious messages were sent to Estonian websites and almost succeeded in disabling the country’s entire computer network. The messages were in Russian and mostly accused Estonians of being fascists. There is no proof the Kremlin was behind them or behind the riots.
But President Ilves believes Moscow loses no opportunity to meddle in the affairs of his tiny country. Indeed as a former radio journalist, he was keen to quote me a weighty think-tank report that suggests the Kremlin is trying to divide and rule the whole of Europe. As a former talks writer from a more Russophile background, I was more inclined to give the Kremlin the benefit of the doubt.
But my views changed a bit when I got to the Kremlin itself.
I found myself soon afterwards in a grand office behind its intimidating red-brick walls, looking out over the psychedelic onion domes of St Basil’s Cathedral and taking tea with President Vladimir Putin’s foreign policy adviser, Sergei Prikhodko. He was so disgusted by the moving of the bronze soldier statue that he could not bring himself to say anything else at all about Estonia. But he would talk about relations with another neighbour, Georgia.
Georgia has also accused Russia of meddling. And it has also found itself the victim of swingeing trade sanctions. Why, I asked, were they necessary? “Georgia,” Mr Prikhodko growled back, “can’t always be like a little boy that takes a fork or a hammer and tries to whack its neighbour. Even a small child knows that if you spill tea or mess up your bed, you might be punished.”
Small child? Punishment?
I was quite taken aback, in such a lofty setting, to hear those sentiments expressed so crudely. And I was bound to assume that Estonia is also regarded as a small child that needs punishing. If that is Russia’s attitude, President Ilves’ desire to turn his back on it seems altogether easier to understand. Of course, I know he has always looked west when I have been looking east. From Radio Free Europe he went to Washington – as Estonian ambassador – while I had gone from the World Service to the BBC News bureau in Moscow. Whether or not that is the secret of his success, I do not know. But turning westwards certainly has not done Toomas Ilves, or his country, any harm.
And I think now I can get over him having such a nice little palace.