Daily Archives: July 7, 2008

July 7, 2008 — Contents


(1) EDITORIAL: A Word from the Publisher

(2) Annals of Russian Corruption

(3) A Russophile’s Mea Culpa

(4) Wimbledon Wrapup: American Domination, Russian Apocalypse

(5) Russia is Running out of Oil

(6) The Real Russia is Still Starving

EDITORIAL: La Russophobe’s Third Year Begins, a Word from the Publisher


As La Russophobe’s Third Year Begins,
a Word from the Publisher

Since my team of Russia experts recently saw fit to publish an editorial without my input (it was so brilliant I republished — or perhaps I should say shameless stole — it on my Instablogs forum, minus the complimentary rhetoric about my “prescience”), I feel it is only fair to return the favor and publish one without their input as we begin our third year of operations.

From time to time, we all should give ourselves a little pat on the back to compensate for many hours of unpaid toil in the service of democracy in Russia. I’d like to take the opportunity to do that now.

If you’d like to get a glimpse of the raw power and influence of this blog, which operates without financial support from anyone through the tireless efforts of a team of pure volunteers, just point your web browser to the Google home page and enter the search term “Peter Lavelle.” Then scan the results.

The first hit you will get is Mr. Lavelle’s Wikipedia entry, as is so often the case with that powerful web institution’s pages. Open that entry, and you’ll see it makes prominent note of our repeated and ferocious criticism of Mr. Lavelle, a treacherous sellout to the Russian oligarchs for whom we have only contempt. Here’s a screenshot of the entry (click to enlarge):

Now check out the second hit on the Google search return. It’s a link to one of our posts attacking Mr. Lavelle’s malignant, treacherous deeds in the service of dictatorship. The third hit is a second such post, and the fourth is a third. Only after that do you reach the link to Mr. Lavelle’s rancid employer, the Russia Today Kremlin-owned propaganda network. If you hear Mr. Lavelle’s name and want to know more about him, and Google him to do so, you find out what we tell you first — namely, the truth.

That’s power, and not even our most crazed foes can deny it. Mr. Lavelle is an active participant in the vile Kremlin propaganda exercise known as Russia Today TV, and is lining his pockets with the proceeds of dictatorship, stolen from the very mouths of Russia’s starving and dying population. But Mr. Lavelle’s supporters in the Kremlin are helpless against the awesome majesty of the Internet. Truth will out (though, to be sure, in Russia itself because the vast majority of people have no regular Internet access, the Russians themselves may well be the last to know).

I’d love to claim sole personal credit for this, but in truth I can’t even claim 10% of it. The lion’s share is due to those who labor daily to generate our content, and to the faithful readers who support our efforts and use our content to carry the battle for democracy against the malignant little troll who prowls the Kremlin’s parapets. That resulted in major news stories about heroic dissident leader Oleg Kozlvosky appearing in leading newspapers like the Washington Post and the Chicago Tribune, and ended up with Oleg getting his own op-ed piece in the Post, which appeared as the lead with a photograph of Oleg in the clutches of the Kremlin’s stormtroopers. It’s an astounding achievement, but it’s fair to say that doing so was the primary goal I had in mind when I created this blog, and equally fair to say that I had relatively little to do with making it a reality. For me it was more or less a dream, but now it is reality. This blog has grown from nothing into a mighty force to be reckoned with and as is always the case, the work that made that happen was done by those who receive little credit but deserve the most — and if you are reading these words, you may count yourself among them.

You may think Mr. Lavelle has a grievance against this blog, that he wants us to stop being so tough on him. But if you think that, you’re very much mistaken. Mr. Lavelle is delighted with our attacks, because they stand him in wonderful stead with his Kremlin overlords, proving his loyalty to their malignant cause of wiping out civil society in Russia once again. He believes, just as the sycophants of Josef Stalin believed, that the cowardly, craven denizens of Russia will never rise up to overthrow the Putin dictatorship, allowing him to profit indefinitely from their corrupt spoils.

And of course, nobody who reads this blog can dispute that he may well be right. The people of Russia allowed the Soviet dictatorship to murder, plunder and terrorize until it destroyed itself, and they may well do the same in regard to Putin. Lenin, Stalin, Putin — all eerily similar names, aren’t they. Why, there was even the malignant RasPUTIN too, come to think of it. They may well allow the likes of Peter Lavelle to drink their blood until they bleed white and drop like zombies, just as they did in Soviet times (Lenin learned his craft abroad, Stalin was a Georgian).

Russian history is a wheel mercilessly grinding the people of Russia into dust. Whether they will do anything to halt that process before they are blown away into the ashcan of history is anyone’s guess, but those who support this blog have done what we could, much more than most, to help that occur.

And we should be very proud of that indeed.

— Kim Zigfeld

Annals of Russian Corruption

Once again Transparency International has released its independent study of world nations, reviewing each for the presence of social and governmental corruption. Once again, Russia’s place on the list has fallen — from #121 in 2006 to #143 last year. Russia is tied with Gambia and Indonesia, just below Pakistan and Syria, with a woeful score of 2.3 out of a perfect ten. The United States is #20, France is at position #19, Germany is #16 and Britain is #12. These are the nations Russia dares to claim the right to sit with at the G-8 table. Think Russia does better when compared to its neighbors in the former Soviet world? Think again. Russia’s current score puts it a pathetic #13 out of 20 countries in Eastern Europe — Georgia towers above it at #3.

Evaluating the TI scoring at the level of fine detail is actually a bit complicated. While each year more and more countries are found to be less corrupt than Russia, each year more and more countries are studied and the average score of the group, of course, changes. This means that Russia’s position compared to the group under study actually hasn’t fallen as much as superficially might appear by referencing only the numerical ranking tables, but that doesn’t make Russia’s performance any less abysmal. Russia under Putin is not remotely close to becoming a civilized nation.

Here are Russia’s rankings going back to when Vladimir Putin first took over as president. The fraction is Russia’s rank out of the total number of countries surveyed, with the #1 position being the least corrupt nation. In parenthesis is Russia’s numerical score that generated its rank, out of a perfect “10” for total lack of corruption, followed by the percentile rank for that score compared to the average of the other nations). Basically, TI considers any score below a “5” indicative of barbarism. All the other G-8 nations mentioned above scored above a “7” and Britain came in with an 8.4 at the top of the group.

2001 — 79/91 (score 2.3 – bottom 15%)

2002 — 71/102 (score 2.7 – bottom 40%)

2003 — 86/133 (score 2.7 – bottom 35%)

2004 — 90/145 (score 2.8 – bottom 38%)

2005 — 126/158 (score 2.4 – bottom 20%)

2006 — 121/163 (score 2.5 – bottom 25%)

2007 — 143/179 (score 2.3 – bottom 20%)

In 2002 Russia’s score and position improved significantly, which conclusively shows that TI has no bias against Russia, and the following year the score stayed the same. But that year the average score for other nations rose, so Russia’s percentile ranking fell. In 2004 Russia’s score again improved, more evidence of the absence of bias. But in 2005, when Putin had locked down his reelection, Russia’s score dramatically plummeted, and it has stayed there ever since. Last year, 141 countries out of 179 surveyed were less corrupt than Russia, while only a paltry three dozen on the whole planet were more corrupt.

A Russophile’s Mea Culpa

John Gapper, Chief Business Commentator for the Financial Times, writing on his blog:

Whatever expectations one has of the Russian government and civil institutions, they always disappoint. The abuse of tax and visa laws to eliminate BP’s hold on its Russian oil joint venture TNK-BP is the latest in a long line of doleful examples.

It has been obvious for some time that the rule of law does not apply in Russia to the international investors and companies which venture into the market in the hope of profiting from its natural resources.

Now comes news that the Moscow authorities, petitioned by BP’s Russian partners, with whom it has fallen out, are squeezing out BP executives by refusing them visas. It calls to mind the way in which Hermitage Capital Management and its founder William Browder have been harassed using visa and tax laws.

I feel a pang about BP because I wrote a column once asking whether it was wise to trust in its Russian joint venture and concluding that it was taking a reasonable chance. With hindsight, even my guarded optimism now looks naive.

It certainly does not seem that the ascension of Dmitry Medvedev to the Russian presidency and Vladimir Putin’s sideways move to become prime minister has improved matters.

Russia has always used as an excuse for its behaviour that the way in which the oligarchs gained control of many of its natural resources was unjust and it was justified in seizing them back. But as time passes, and the authorities show no evidence of becoming less arbitrary, that justification is wearing thin.

The question, of course, is whether economic self-interest will eventually lead to Russia’s government abandoning such legal abuses, for fear of sacrificing foreign investment. It may do, but it seems unlikely to happen as long as the boom in commodities continues.

There is so much wealth tied up in Russian oil and minerals now that the country is financially strong enough to disregard the international outcry at its tactics. It will probably continue to find foreign investors willing to take the risk of having their assets stripped from them if they become inconvenient.

I wish it were otherwise, but pessimism seems the most logical attitude to Russia’s business environment at the moment.

Wimbledon Wrapup: American Domination, Russian Humiliation

Five Russian women made it into the fourth round of The Championships at Wimbledon last week, including three of the top ten seeds in the tournament. Just two made it out.

Four of those five players (#4 Kuznetsova, #5 Dementieva, pictured above, #8 Chakvetadze, #21 Petrova and the unseeded Kudryaseva) — all the seeds — drew lower-ranked opponents in the fourth round, and three of those opponents were non-Russians. Yet, only one of those three (Dementieva) survived what should have been easy contests against the foreigners and only one of the losers pushed her opponent to a third set. The other Russian to advance to the quarter finals was Petrova, the one who had the luxury of facing fellow Russian Kudryaseva.

With #3 Maria Sharapova having been eliminated in starkly humiliating fashion much earlier (even facing the lowly Kudryaseva could not save Russia’s #1, though Petrova was able to crush her in easy straight sets), only one of Russia’s four top-ten seeds in the tournament managed to get as far as the semifinals — that being the woeful Elena Dementieva, the “serveless wonder.” And she was able to accomplish this only because of her all-Russian quarterfinal match with the much lower-ranked Petrova, who wilted and handed the match to Dementieva without much struggle.

If you were a sufficiently hardcore tennis fanatic to have woken up early and tuned in to watch Dementieva play American Venus Williams in their semi-finals match on Thursday (at 7 am New York time on ESPN2), you heard the commentators ridiculing the Russian before the match as having a nickname among the players of “the Demented One” because of her repeated psychological breakdowns on the court, and scoffing at her lackluster game. Only two Russians who actually grew up in Russia have ever won grand slam titles in the history of the sport, and both of them won them by beating Dementieva in the finals, where she fell apart like a cheap suit each time. As the camera panned around the storied Centre Court stadium, you’d have seen scores of empty seats. The knowledgeable British fans knew what was coming, and they wanted no part of it.

Nor, it seemed, did Dementieva. When interviewed before stepping on court instead of overflowing with joy at her best-ever Wimbledon result she spoke in the colorless, robotic manner of so many Russian players (Sharapova was booed off the court in her ejection match at this year’s French Open, not the first time such a thing has happened) and looked like someone marching out to face the firing squad. Which, indeed, it turned out she was. At that point, you might well have considered going back to bed.

The lower-ranked and lower-seeded American destroyed the Russian on the court, outclassing her in every aspect of the game. In the first set, the Demented One was able to eke out only a single game as Williams broke her serve at will and dominated her with her own service game. From then on, Williams was on autopilot, letting Dementieva breathe and then crushing her in a second-set tiebreaker. It was almost as if she felt sorry for those assembled to watch and wanted to give them at least a little bit of a contest. One third of the meager 60 points Dementieva won over the course of the match came on unforced errors made by Williams. She served no aces and made three key double faults, including one in the tiebreaker that decided the match. In more than half of her preceding matches she had been stretched to three sets; Williams had not dropped a single set in any of her prior matches. Dementieva, the tournaments #5 seed, ended up inflicting less damage on Venus than the unseeded Chinese player who faced her sister in the other semi-finals match and also went down in straight sets.

And remember, Dementieva was the class of the Russian field.

The sad thing is that the Russians’ woeful play was actually good for the tournament, because it left the thrilling Williams sisters to contest yet another all-American final. Ask anyone even casually familiar with the sport who they’d rather see (much less pay big bucks to watch in person): Sharapova vs. Kuznetsova or Williams vs. Williams. It’s the mother of all no-brainers. And the idea of Dementieva being any part of the finals is more than enough to make any tennis fan consider switching over to bowling. The Williams sisters not only leave the Russians in the dust in terms of the quality and watchability of their play, but also in terms of personal interest and color. Russians seem utterly oblivious of the need to bring something dynamic and entertaining to the table, and because of this they seriously jeopardize the future of the women’s game with their omnipresence.

The tournament turned out to be a real bloodbath for the Slavic women as the top two Serbians (Ivanovic and Jancovic) were also blown out by unheralded competitors early in the going. For the final insult, after having its top male player, Niklolay Davydenko (under a match-fixing cloud), eliminated in the first round in a manner even more pathetic than its female #1 Russia’s Marat Safin was easily crushed by #1 Roger Federer — no shame in losing to #1, but Safin looked like a rank amateur and was reduced to fits of apelike rage and racket smashing, drawing a code violation from the umpire. Not much on sportsmanship, that Safin.

But he was a paragon of virtue compared to the loathsome Dementieva. Fuming with bitterness over her pathetic level of play, when asked about the likely outcome of the All-American final she declared: “For sure it’s going to be a family decision.” By that she meant as what she “said in 2001 following a loss to Venus in the quarterfinals of a tournament at Indian Wells, Calif., setting up a Williams-Williams semifinal. Asked to predict the outcome, Dementieva said then: ‘I don’t know what Richard thinks about it. I think he will decide who’s going to win,'” as the AP reported. Venus responded: “Any mention of that is extremely disrespectful for who I am, what I stand for, and my family.”

When Vladimir Putin was anointed Time magazine’s “person of the year” in 2007, he complained in an interview with the weekly that too many foreigners insist on seeing Russians as “a little bit savage.” But based on the behavior of their leading male and female players at the world’s most civilized sports forum last week, it could well be that foreigners don’t see Russians as sufficiently savage. Will Putin take time out to chastise his countrymen for their barbaric vulgarity? It seems unlikely.

The Americans, however, had a field day. In addition to an all-American ladies’ singles final (note that neither Williams sister was among the top five seeds when the tournament began) yielding the USA a women’s title two years running, the Williams sisters teamed up to play doubles and made it all the way to the finals, taking the title there too. Three of the four women who contested the doubles final were Americans, making nearly an all-American affair there as well (the fourth was an Aussie; no Russian woman made the semi-finals in doubles, while half the field there was American). The stellar American mens’ doubles team, the Bryan brothers, also reached the semi-finals. Though they didn’t win through to the finals, both the brothers made it to the finals of the last major event, mixed doubles, contesting it (with non-American partners) just as the Williams sisters were contesting the singles final. Even though they’re in a slump in terms of generating new talent, Americans appeared in at least the semi-finals of every event except men’s singles and won three of the five titles.

Now that’s domination.

One thing Dementieva did do however, it must be said, was remind everyone that she was Russian, screeching unintelligible Russian phrases of disgust and yelping like a puppy whose tail had been trodden on (in bizarre fashion, she would routinely turn to face her mother in the stands and carry on extended dialogues with her). Maria Sharapova, by contrast, speaks English on the court because she, the only Russian to ever beat a non-Russian in a grand slam final, and the only one to ever hold the number 1 ranking, has lived most of her life in the United States, where she was taught how to play by American masters.

If that’s a Russian accomplishment, then America discovered the theory of relativity.

Russia is runing out of oil

The Moscow Times reports:

National oil output edged up 0.3 percent in June from the previous month, but was down almost 1 percent in the first half of the year, casting further doubts over the government’s goal to sustain growth this year.

Officials still hope production will slightly rise this year as the government seeks to avert the first annual decline in output since 1998.

But analysts say the country cannot sustain production growth, at least not until next year, when new fields in eastern Siberia will come on stream to compensate for falling production from depleted deposits in western Siberia.

Energy Ministry data showed Wednesday that the country’s oil firms produced 9.77 million barrels per day, or almost 40 million tons in June, slightly up from 9.74 million bpd in May, and down by 0.8 percent from 9.85 million bpd in June 2007.

Production stood at 9.76 million bpd (242.4 million tons) in the first half, down 0.9 percent from 9.85 million bpd in the same period last year.

Oil production in Russia has fluctuated between decline and stagnation since the beginning of the year, prompting many analysts to revise down their oil production forecasts for 2008.

Russian authorities still expect production to grow by around 1 percent this year after an increase of 2.3 percent in 2007 and much bigger spikes in

previous years, including a record 11 percent in 2003.

Analysts expect production to slightly recover in the second half of the year, when a number of new fields will start operating, but they say it will not be enough to achieve a full-year growth.

“The second half will be more successful,” said Konstantin Reznikov, from Dresdner Kleinwort. “But growth is unlikely this year. The maximum that oil companies can do is to achieve flat output [versus the previous year].”

The Real Russia is Starving

The Moscow Times reports:

It was once the pride of Soviet telephone technology, producing the bulky phones that graced the desks of countless factory directors and Party officials.

Now, the Pskov ATS Factory has fallen into disrepair, unable to compete with slicker manufacturers like Samsung and Panasonic. Part of its premises has become a shopping center, and the factory’s output has been reduced to a trickle, although a sign outside proudly states that its technology is used by the president and security ministries.

The collapse of the Soviet planned economy was not kind to the Pskov region, a stretch of northwestern Russia that was largely agricultural until the 1950s.

Though rich in history and full of scenic lakes and forests, the Pskov region has none of the commodities — oil, gas and metals — that have driven Russia’s economic expansion during the past eight years.

Despite recent growth in construction and retail, which has brought shopping malls and high-end apartments to Pskov, the region as a whole lags behind Moscow or nearby St. Petersburg in terms of its job market and living standards.

“You can only have a normal life in the metropolises, in Moscow and St. Petersburg,” said Alexander, a taxi driver. “In the villages, people are hungry. Believe me. And it’s impossible to move to the towns because it’s too expensive.”

Evening out the huge disparities between Russia’s regions is one of the main challenges facing policymakers today. It is a task that goes hand in hand with efforts to revamp the country’s crumbling infrastructure and diversify its economy away from oil and gas.

Soaring oil prices have poured money into the federal budget and driven impressive growth rates, but they have also increased regional disparity. Measured in terms of GDP per capita, the country’s wealthiest region, oil-rich Tyumen, was 44 times richer than the poorest region, Ingushetia, in 2006, the last year for which data is available from the State Statistics Service.

And Moscow, the country’s financial and political heart, is like a different country by many economic measures. Living standards in the capital are comparable to those of Malta and the Czech Republic, while living standards in impoverished Ingushetia and Tuva are comparable to those of Mongolia, Guatemala and Tajikistan, according to a report released last year by the UN Development Program.

“The income gap between our citizens is still unacceptably wide,” then-President Vladimir Putin said during his last annual state-of-the-nation address in April 2007.

In the same speech, Putin announced plans to spend billions of rubles on fixing roads and replacing dilapidated Khrushchev-era housing. The proposals were in the same vein as the so-called “national projects” — a group of four much-publicized initiatives to improve housing, agriculture, education and healthcare throughout the country, overseen by Dmitry Medvedev, who became president this year.

More evidence that the Kremlin was serious about helping the regions emerged in September when Putin chose Dmitry Kozak, a longtime aide known as his favorite troubleshooter, to head the Regional Development Ministry. Putin then granted the ministry control of the multibillion-dollar Investment Fund for infrastructure projects. The moves raised the profile of a once-obscure ministry.

Since his appointment, Kozak has proposed a range of initiatives aimed at reforming the federal government’s relationship with the regions and, ultimately, sparking development at the regional level.

Experts have praised the Kremlin’s decision to pay attention to regional issues after what they described as many years of neglect.

“Russia has finally realized that having a regional growth policy is important,” said Natalya Zubarevich, director for regional programs at the Independent Institute for Social Policy. “And this is thanks to Kozak.”

But Zubarevich and other experts gave mixed reviews to Kozak’s initiatives. The key question, they said, is whether the government — armed with billions of dollars and a clear mandate from the Kremlin — will revert to the familiar methods of Soviet-style state planning or whether it will serve the needs of a contemporary market economy.

Filling in Potholes

One thing experts and officials agree on — along with perhaps every single driver in Russia — is that something must be done about the dire state of the country’s roads.

Alexander complained bitterly as he drove his taxi over a bumpy, recently patched-up country road in the Pskov region.

“All they’ve done is fill in the potholes,” said Alexander, who asked that his last name not be published for fear of reprisals. “In a month and a half, it will be back to the way it was before.”

The Pskov region is strategically located, with two major transportation corridors running through it — the east-west Moscow-Riga highway and the north-south St. Petersburg-Kiev highway — and borders with two EU countries, Latvia and Estonia, as well as Belarus. That brings the region about 20 percent of Russia’s international trucking, according to the Pskov Chamber of Commerce.

But until its dismal roads are fixed, Pskov will not realize its potential as a logistics hub, said Lev Shlosberg, head of the regional branch of the liberal Yabloko party.

“The roads need to be improved dramatically,” said Shlosberg, who also edits a local opposition newspaper, Pskovskaya Gubernia, and heads an NGO devoted to regional development. “Right now, they are in an utterly wrecked state. Cars simply fall apart from driving on them.”

Improvements are also needed at the border crossings with Latvia and Estonia, where the lines waiting to cross can sometimes be 1,000 vehicles long, Shlosberg said.

To maximize the impact of its infrastructure projects, experts say the government should focus on improving the transportation corridors connecting Russia’s main growth centers.

Besides Moscow and St. Petersburg, this includes cities like Samara, Yekaterinburg and Krasnodar, which have enjoyed high growth rates in recent years, said Zubarevich of the Independent Institute for Social Policy.

“Development is driven by large cities, by agglomerations,” Zubarevich said.

“You need to stimulate the growth of agglomerations, and you need to invest a lot of money in infrastructure projects to connect major growth centers and shorten the economic distance between them,” she said. “Then traffic and logistics become simpler, which is very convenient for business.”

Officials have announced big plans to improve the country’s road, rail, air and port networks. On May 20, in one of his first moves as prime minister, Putin approved a seven-year, $570 billion program to overhaul the country’s transportation infrastructure — Russia’s largest spending project since the collapse of the Soviet Union.

Investors have also been closely watching the Investment Fund, which was started in 2005 to finance infrastructure projects through public-private partnerships, and which is now overseen by Kozak’s Regional Development Ministry.

So far, about $14 billion from the fund has been allocated to 20 projects, ranging from a seaport in St. Petersburg to a hydropower plant on the Angara River in Siberia.

Some of those projects have been sharply criticized by experts, who say Investment Fund spending decisions are driven by the lobbying efforts of governors and big business interests, rather than a coherent development strategy.

Alexei Sidorenko, a regional analyst at the Carnegie Moscow Center, singled out the Ural Polyarny railroad as an example of bad policy. Partly financed by the Investment Fund, the railroad will connect several regions along the northern part of the Ural Mountains that are sparsely populated but rich in oil, gas and minerals.

“They choose projects like this over badly needed road repairs,” Sidorenko said.

“Such investment projects might be effective in making money in the short run,” he said. “But in terms of long-term strategy, they will actually thwart innovation and economic development.”

A spokesman for the Regional Development Ministry declined immediate comment and asked that questions be submitted by e-mail. As of Thursday, the ministry had not responded to the e-mailed request sent June 4.
Zubarevich said the government should focus on the more populated European part of Russia, instead of trying to conquer the vast stretches of Siberia and the Far East. “Infrastructure in the east is important, but when infrastructure is falling apart in the European part of Russia, the east cannot be a priority,” she said. “There will never be enough money for it.”

‘Upside-Down’ System

It was perhaps a bit silly when, speaking on national television in 2005, then-President Putin promised a Stavropol region pensioner that the government would build water pipes to her village so she wouldn’t have to walk 300 meters to the nearest well.

But the promise, which Putin made during his annual televised call-in show, was emblematic of the political system he had created.

Following the turmoil of the 1990s, Putin sought to restore the Kremlin’s authority by strengthening the so-called power vertical. Once-powerful regional leaders were brought into line and many of their powers shifted to the federal government. In the wake of the Beslan hostage crisis of 2004, Putin canceled the election of governors and made them effectively Kremlin-appointed figures.

The idea was to clean up governance in the regions, widely seen as ineffective and corrupt, by making governors report directly to the president.

But some believe that centralization went too far. Critics argue that federal officials cannot possibly grasp the specific issues facing each region and that governors and mayors are now largely powerless to help their constituents.

By some estimates, only 30 percent of taxes collected in the regions remain in regional budgets, while the rest go to the federal government. This means that many governors spend their time lobbying Moscow for funds instead of trying to raise their tax base.

“Why should they bother with economic development?” said Shlosberg, the Yabloko leader in Pskov. “If they can only keep 30 percent of income taxes, why should they try to stimulate business and create jobs? Their main activity is lobbying for budgetary transfers from above. The system is totally upside-down.”

Kozak has called for a range of reforms that would give more powers to regional and municipal governments.

“We in the federal government should not fall into illusion,” Kozak said at an April meeting with regional leaders of Delovaya Rossia, a lobbying group for small and medium-size businesses. “We should not fantasize that we can come up with the right answers for each of 86 regions and 24,000 municipalities.”

Giving governors real authority to set regional investment policies — along with the funds necessary to carry them out — is the best way to come up with policies appropriate for each region, Kozak said.

“They shouldn’t be here in Moscow running around the State Duma or the Finance Ministry,” he said. “They should be working in their regions, trying to develop their potential tax base.”

It is unclear, however, whether Kozak can succeed in pushing through his proposals.

Kozak had a mixed track record while working in Putin’s presidential administration, where he drew up a pair of complex reforms — one aimed at the judicial system, the other at the country’s notorious bureaucracy — that both foundered after encountering fierce resistance.

He also proposed a self-governance reform designed to make local government more accountable. The reform, which has many similarities to Kozak’s current proposals, became law in 2003, but the State Duma later voted to push back its implementation to 2009 amid fears that local governments were not ready to take on additional responsibilities.

Federal officials appear reluctant to give power to regional and local governments because they do not want to lose control over how money is spent.

“[Federal officials] say money gets stolen at the local level,” Shlosberg said. “They say governors steal money, mayors steal money, district bosses steal money. What, so people in Moscow never steal anything?”

Kozak and other officials have discussed ways to crack down on regional corruption by tightening Moscow’s control over how governors spend money and dismissing the ones found to be corrupt.

But the experts interviewed for this report agreed unanimously that there was only one sure-fire way to make governors act responsibly: to bring back gubernatorial elections, making them accountable to their voters.

“As we learned from experience, gubernatorial elections did bring some unfortunate candidates to power,” said Sidorenko of the Carnegie Moscow Center. “But people learn from their mistakes and eventually elect responsible people. And the governors themselves feel more responsible.”

Corruption is a key factor holding back regional development, experts said. One issue, for example, is that companies with close ties to regional governments often have monopolies in their regions, crushing competition and preventing innovation.

“One of the main problems for regional development is the presence of monopolies at the regional level,” said Yaroslav Lissovolik, chief economist for Deutsche Bank Russia. “Activating competition and fighting monopolies is very important here.”

Some of the worst regions in this respect are the ethnic republics of the North Caucasus, which are also among the poorest, most undeveloped parts of Russia, Zubarevich said.

“Business is not going there because institutions there are very weak,” she said. “They have feudalism, and laws serve the people in power.”

Moreover, experts stress that no reform plan — no matter how well-intentioned — can succeed unless corruption is reined in.

For instance, one often-discussed idea is the creation of special economic zones where businesses get tax breaks and other incentives for setting up shop. Such zones have helped stimulate growth from Ireland to India to China, prompting Russian officials to draw up plans for Bangalore-style technoparks and Dubai-style seaports.

But the zones would not do much good if corruption and favoritism is allowed to fester. “A special economic zone, if it is in a country full of bad institutions, will not be very helpful,” Zubarevich said.

Workers Wanted

Heiner Berr is one of the few foreign investors in the Pskov region. In 2002, he and two other Germans started a resort on the shores of Chudskoye Lake, a large body of water that straddles the Russian-Estonian border. The resort, called Chudskoye Podvorye, now has 43 cabins, a restaurant, a masseuse and a petting zoo.

Today, Berr’s biggest problem is finding qualified staff to serve visitors and maintain the facilities, he said in an interview. “We used to only have problems with bureaucrats,” Berr said. “Now we only have problems with staff.”

A shortage of labor is one of the biggest problems facing companies in the region, said Alexander Staroselsky, vice president of the Pskov Chamber of Commerce.

“There is a dire shortage of skilled workers,” Staroselsky said.

“Our region has too few workers, and it gets especially bad in the case of skilled personnel, like builders, engineers and IT specialists,” he said, adding that many qualified graduates leave for nearby St. Petersburg.

Any attempts to stimulate regional development will bump up against the problem of depopulation, experts say. But the most obvious solution — attracting immigrants from abroad — is also the most improbable, given the widespread animosity toward migrants among politicians and the public.

“Our country does not have enough people,” Zubarevich said. “We need to attract migrants. But at the same time, Russia is a frighteningly xenophobic country.”

The government should also encourage internal migration, helping Russians move from unproductive regions to places that need labor, Zubarevich said.

“There are many barriers to moving,” she said. “First, there are administrative barriers, like the registration system. Then there is the housing market. Housing prices are insane in the places where there are jobs, and people can’t afford to live there.”

Pskov has benefited from a program to relocate people from remote northern regions, Staroselsky said, but he conceded that depopulation remained a problem.

Last year, the Pskov regional government announced plans to build an $800 million oil refinery in Velikiye Luki, the region’s second-largest city, and a 1 billion euro ($1.6 billion) pulp-and-paper plant backed by Estonian, Norwegian and Austrian investors, which it said would create 2,000 new jobs.

Pskov Governor Mikhail Kuznetsov has called the projects “locomotives” designed to boost the regional economy.

Some have criticized the projects, however, questioning their feasibility and saying it would be better to focus on small business, which represents a small fraction of Russia’s economy compared with the economies of Western nations.

“If you look at the Russian economy, all you see are big monsters, and there’s no room left for small business,” Shlosberg said. “The state doesn’t like to pick at tiny grains. It wants to scoop out big spoonfuls from the barrel, and nothing else interests it.”

Sergei Yermolayev, a spokesman for the Pskov regional government, acknowledged that small business was underdeveloped in the region but defended the two big projects.

“There is a clearly thought-out business plan,” he said in an e-mail, pointing out that Western investors stood behind the pulp-and-paper plant and that construction on the plant had already begun.

But poorly conceived “megaprojects” are all too common in Russia, experts say, calling them a legacy of the Soviet system.

“Since most officials are not actually very well qualified, they make many decisions on the basis of whether something will make an impression or not,” Sidorenko said. “Thus we get a lot of loud, extremely difficult to implement projects like, for instance, an ecotourism village in Khakassia that needs several billion dollars just to start working.”

Zubarevich agreed, arguing that an “imperial syndrome” stood in the way of making sensible regional development policies.

“We don’t know how to do ordinary work,” she said. “We know how to come up with a slogan, make a lot of noise for a month or so, and then forget everything.”