Despite Putin’s pro-business policies, Russia’s business environment still laboured under a poor reputation. Thus the World Bank’s ‘Doing Business’ reports ranked Russia 120th of 181 countries, listed serious difficulties and disadvantages, and emphasized the pervasive corruption. Annual reports by Transparency International—based on surveys of businesses—gave Russia a low ranking; the report for 2008, for example, ranked Russia 147th of 180 countries (below Kenya and Bangladesh). A Transparency International survey that focused on 22 developed and rapidly developing countries placed Russia at the very bottom (below India, Mexico, and China). A study by INDEM (Information Science for Democracy, founded in 1990 as one of the first Russian NGOs) reported a sevenfold increase in bribes between 2001 and 2005; the next year it found that companies diverted 7 per cent of their turnover for bribes and kickbacks. It was not only a matter of rampant bribery; the requisite institutional framework (laws and organizations to regulate the economic sphere) remained inadequate and invited abuse and delay. The Putin government attempted to improve corporate governance and the banking sector, but failed to meet the international standards needed to reassure foreign investors. Not that ‘regulation’ was effective in developed countries, even in the United States;until the financial crash of 2008, however, Western institutional safeguards seemed sufficient and put Russia at a distinct disadvantage.
Some critics argue that the ‘Moscow Consensus’ so exaggerated the state’s role that it was counter-productive. They argue that Putin favoured large-scale enterprises like Gazprom (the natural gas monopoly) to the detriment of small and medium-sized enterprises, which play a central role in the economic growth of developed countries. Thus, whereas these small enterprises account for over half of economic activity in developed countries, in Russia they produce just 15 per cent of the GDP. Putin’s critics also argued that state intervention can lead to political distortions: Putin wanted not only to ensure state control over strategic sectors, but also to rein in politically active oligarchs, especially those linked to Yeltsin’s ‘Family’ and those who displayed political aspirations. In particular, it was widely thought that political motivation, not economic planning, led to the prosecution of powerful ‘oligarchs’ like Boris Berezovskii, Vladimir Gusinskii, and Mikhail Khodorkovskii. Whatever the merits of such accusations, they had a chilling effect on global investors and tarnished Russia’s image in international business circles. Finally, some critics argued that renationalization led to slower growth, even stagnation, as in oil production; the cumbersome state proved far less efficient and tended to repulse, not attract, FDI.
Politics and Power
Such criticism and reservations notwithstanding, the Putin presidency brought prosperity to the people and popularity to its president. His approval ratings rose to stratospheric heights—75 per cent in December 2005 and 86 per cent three years later. That popularity guaranteed an overwhelming victory in presidential elections; his 53 per cent in March 2000 jumped to 71 per cent in March 2004 (with the Communist candidate garnering just 14 per cent). Although Putin experienced brief phases of popular dissatisfaction (most notably in 2005, when he modified the various entitlements of pensioners), the overall trajectory was precisely the opposite of Yeltsin—upward, not downward.
Putin converted popularity into power. Although initially beholden to the ‘Family’ and its oligarchs, he reduced their role and replaced them with his ‘own’ people. The most striking change was the growing presence of the siloviki (people of the ‘power ministries’—the security organs, interior ministry, and military). He showed a strong preference for people from his home base, St Petersburg, and appointed these people to the Security Council, Presidential Administration, and executive branch. For all his adulation of the state, Putin distrusted rank-and-file officialdom and relied on trusted associates to impose his will.
Putin also made the election of a ‘presidential parliament’—one ruled by supporters, not adversaries—a priority. The election of 1999, on the eve of Putin’s accession to the presidency, produced a ‘loyal’ Duma, and Putin (who claimed to be a ‘supra-party president’ and ran as an independent) actively promoted a new presidential party, ‘United Russia’. By winning the support of other parties, by dispensing patronage, and by establishing a large base of party members, the pro-government party won an overwhelming majority in the 2003 and 2007 Duma elections. As a result, pro-government deputies increased from 26 per cent in 1993 to 75 per cent in 2007 (consisting mostly of United Russia party members), with a corresponding decrease in parliamentary opposition. The Communist Party, once the largest party in the Duma, fell from 33 per cent in 1995 to 12 per cent in 2007, its membership rolls shrinking from 500,000 in the mid-1990s to 165,000 in October 2007 (when United Russia, revealingly, reported a membership of 2 million). The nationalist Liberal Democratic Party of Russia, headed by the flamboyant Vladimir Zhirinovskii, dropped from 24 per cent (1993) to 12 per cent. Even more dramatic was the decline of the liberal parties, which fell from 29 per cent in 1993 to 4 per cent in 2007 and failed to meet the minimum threshold to qualify for representation in the Duma.
The Putin regime used that parliamentary majority to change the political system. Arguing that a plethora of small parties can lead to political instability, in 2001 the Duma passed the government-sponsored ‘Law on Parties’ which restricted electoral participation to ‘national parties’—that is, those which not only had a minimum number of members, but which had branches all across Russia. The goal was to empower a few national parties and to eliminate small parties representing a particular region, ethnicity, confession, and the like. That same logic underlay the decision to replace the 1993 electoral system, which allocated one-half of the Duma seats to ‘single mandate districts’ (with the election of individuals, regardless of party affiliation), and the other half by ‘proportionate representation’ (allocated on the basis of a party’s share of the general vote). At Putin’s suggestion, in May 2005 parliament made proportionate representation the sole basis of the electoral system, thereby reinforcing the power of registered national parties. To marginalize small parties still further, parliament raised the minimum share of votes (from 5 to 7 per cent) as a precondition for representation in the Duma. The changes were controversial; critics complained that it denied some voters any representation, while advocates argued that these rules precluded the representation of radical fringe groups, promoted the formation of viable parties, and thereby ensured political stability and a productive parliament.
The ongoing war in Chechnya, which initially raised Putin’s popularity, began to arouse mounting criticism, especially from Western governments and human rights organizations. Although Russian forces established some semblance of control, they failed to crush all resistance or to end devastating terrorist acts. And the war took a heavy toll—on the Russian military (at least 4,572 killed and 15,549 wounded, with other counts running much higher), insurgents (at least 13,000), and civilians (low-end estimates ran between 30,000 and 40,000). This carnage eroded popular support in Russia itself (with 69 per cent, by 2005, favouring an end to the fighting and peaceful resolution), impelling the Kremlin to ‘Chechenize’ the conflict by putting pro-Moscow Chechens in charge and relying on Chechen, not Russian, forces. Moscow arranged for Ramzan Kadyrov to succeed his father (killed in a terrorist attack) as the president of Chechnya; the young Kadyrov quickly earned a reputation for brutality and the ‘disappearances’ of 2,000 to 3,000 fellow Chechens. The repression in Chechnya, even if provoked by criminal acts of terrorism, elicited sharp criticism in Western circles and reinforced criticism of Putin for ‘authoritarian’ tendencies.
Criticism of ‘human rights’ violations also gained currency from the well-publicized prosecution of leading oligarchs. The most sensational cause célèbre commenced in 2003, when Mikhail Khodorkovskii, the richest man in Russia and the sixteenth richest in the world, became the target of police investigations and prosecution. Khodorkovskii, by all accounts,
had amassed his fortune during perestroika and the Yeltsin years by dubious means; during the ‘loans for shares’ phase, he acquired the oil company Yukos—worth billions of dollars—for a fraction of its real value. But it was not Khodorkovskii’s past but his political ambitions—including financial support for oppositionist forces—that reportedly triggered a full-scale investigation by the procuracy. In October 2003 he was arrested by a squad of special forces as he boarded a private jet and brought to Moscow for prosecution on charges of fraudulent privatization, use of an illegal offshore company to conceal profits, and corporate and individual tax evasion. Authorities claimed that Yukos owed 15 billion dollars in back taxes and fines, and that Khodorkovskii personally owed another 2 billion dollars. Convicted in May 2005, he was sentenced to nine years in a corrective labour camp—triggering outcries by Putin’s critics, at home and abroad, that the prosecution was purely political.
The Khodorkovskii case also seemed to substantiate fears that Putin wanted not only to silence oligarchs but to muzzle the media. In the Yeltsin era, as oligarchs acquired television channels and prominent newspapers, the result was not so much a free press as a media dominated by special interests, kompromat, and scurrilous gossip. That kind of journalism, especially when directed against those in power, did little to endear the media to authorities. Putin himself was incensed by negative coverage of the Chechnya war and criticism of his failure to respond personally to the sinking of the submarine Kursk in August 2000; he also took exception to the caricature of his persona in a popular TV show ‘The Puppets’ (Kukly). He gave vent to his vexation in a public speech where he said that ‘sometimes [the media] turn into means of mass disinformation and tools of struggle against the state’. His government deliberately acted to bring the media under control. That was dramatically evident in May 2000 when masked security officers raided the media giant owned by Vladimir Gusinskii; state pressure (and debts) forced Gusinskii to relinquish his media assets (most importantly, an influential TV channel); Gazprom, the state natural gas monopoly, gained control of Gusinskii’s holdings and, in short order, virtually all other television stations. Putin’s government also dealt harshly with individual journalists, such as Andrei Babitskii, who worked for the American-financed Radio Liberty and dispatched highly critical accounts of events in Chechnya. Nor did the regime do much to protect investigative journalists; the murder of Anna Politkovskaia in October 2006 (which Putin dismissed as ‘insignificant’) was but one of eighty-eight journalists slain between 1996 and 2006. The annual ‘World Press Freedom Index’, compiled by Reporters without Borders, placed Russia in the bottom quintal of surveyed countries (141st of 173 countries, just above Ethiopia and Tunisia).
Equally controversial—and fodder for charges of ‘authoritarianism’—was the government’s decision to regulate and restrict the non-governmental organizations (NGOs) which had proliferated in post-Soviet Russia. By 2001 the government had registered some 400,000 NGOs; that number swelled to 500,000 by 2006. In the view of many Westerners, the NGO gives voice to civil society, performs essential services, and lobbies states and international organizations for ‘good causes’. But the murky legal status of the NGO in international law invites abuses, especially by ‘GONGOs’—‘government-organized NGOs’, funded by states and only masquerading as representatives of civil society. Russian sensitivity to foreign-funded NGOs intensified when these played a salient, sometimes decisive role in the ‘colour’ revolutions—in Georgia (2003), Ukraine (2004), and Kyrgyzstan (2005), all the more when (as in Georgia and Ukraine) they brought to power regimes seeking ties with the West, not Russia. Moscow’s suspicions were not unfounded; in 2005, for example, the US government awarded 85 million dollars to a variety of organizations in Russia with the goal of promoting ‘democratization’. Private organizations, such as George Soros’s ‘Open Society’, also provided financial support for Russian NGOs. Putin complained about the subversive role of foreign-funded NGOs and in 2006 initiated legislation requiring NGOs to register, indicate the source of funding, and refrain from activities detrimental to Russian interests. Western observers, especially in the United States, denounced these measures as an attempt to throttle a burgeoning civil society and democratic forces. Increasingly, the Western media and specialists discerned a resurgence of authoritarianism; the Economist Intelligence Unit, for example, ranked Russia 107th of 167 states in terms of its democratization.
Western criticism elicited scathing rejoinders from Moscow. In April 2007 Putin complained that such attacks seek to foment internal turmoil ‘in order to plunder once again the nation’s resources with impunity’ and ultimately ‘to deprive our country of its economic and political independence’. He complained that ‘there has been an increasing influx of money from abroad, which is being used to intervene directly in our internal affairs’. He called this intervention ‘colonialism’ in a new guise, with the old mission of ‘civilization’ glossed as ‘democratization’, but with the same goal: to advance the authors’ vested interests. When the British foreign secretary demanded that Russia change its constitution (which blocked the extradition of a Russian citizen who, according to London, had murdered a former KGB officer residing in England), a livid Putin did not mince words: ‘The British officials are making proposals to change our Constitution that are insulting for our nation. London forgets that Great Britain is no longer a colonial power and that Russia has never been its colony.’ Rebuffing such Western intervention, Putin reaffirmed his commitment to ‘the development of a free, democratic country’, but on Russia’s terms: ‘Russia … will decide for itself the pace, terms, and conditions of moving towards democracy.’ He added that the United States—so eager to teach democracy to others—has failed to reform the electoral college (which subverts the will of the majority), to regulate campaign finance (to end the plutocratization of politics), or to avert the voting irregularities that determined the outcome of the 2000 presidential election.
Rebuilding the Russian State
Yeltsin had presided over the demolition of the centralized Russian state. That was partly due to the economic crisis: an impoverished nation could ill afford the subsidies, services, and military establishment of the Soviet era. But the state’s decline was also due to the neoliberal goal of minimizing the government and its budget (deemed unproductive). The ‘failing state’ syndrome in Russia also had political roots—the stalemate between the presidency and parliament, the decentralization that paralysed the centre’s capacity to rule and even collect taxes. Putin undertook to rebuild the state by transforming its tax system, institutions of governance, and the military.
One priority was re-establishing a centralized state administration. The eighty-nine administrative units became virtually autonomous under Yeltsin—issuing their own laws, ignoring directives from Moscow, retaining most tax revenues, and concluding ‘bilateral treaties’ with Moscow. From the outset Putin sought to create ‘a single vertical line of executive power’. He forced provincial units to increase tax transfers to Moscow (from 30 to 70 per cent), gave federal law precedence over local ‘constitutions’ and laws, and demanded strict observance of Moscow’s policies. He also established seven super-districts headed by a polpred (plenipotentiary), a viceroy charged with overseeing the subordinate administrative units and ensuring compliance with Moscow’s directives. But the polpred failed to control the subordinate regions, especially the popularly elected governors, and Putin then took steps to undercut the governors’ power. He first eliminated their ex officio membership in the Federation Council (the upper house of parliament) and replaced them with locally elected representatives. The key change, however, was to replace the popular election of governors by a new system: from February 2005 all were to be nominated by the president, with confirmation by the invariably pliant local legislatures. The governor henceforth represented Putin, not the local region.
A second focus was taxation. The first step was vigorous tax collection to detect fraud and combat
arrears; in 2000, Putin’s first year as president, tax revenues jumped 60 per cent. The Putin government expanded tax audits (examining the filings of 440,000 enterprises and 311,000 individuals in 2001). The government, moreover, simplified taxation such that the government collected 98 per cent of its revenues from four main sources—the value-added tax, excise, profits, and user fees for natural resources. The government also adopted a flat income tax (13 per cent) and merged sundry levies into a single social security tax. Moscow made a concerted effort to combat the misuse of public funds by adopting a new budget code, increasing transparency, closely auditing state procurements, and resisting Duma proposals for a splurge in social expenditures. As a result, the government could cut taxes (for example, lowering the corporate tax rate) yet achieve a budget surplus (first in 2000, with a 6 billion dollar surplus, followed by surpluses every year through 2008).
In other spheres, however, Putin’s record was less impressive and, in some cases, such as reform of the judiciary, positively disappointing. Putin himself indulged in rhetoric about a ‘dictatorship of law’—a Rechtsstaat based on the rule of law. He did make some improvements, including increased funding for the judiciary (a fourfold increase in the salaries and 18 per cent increase in the number of judges) and decriminalization of minor offences (replacing incarceration with fines, thereby reducing the prison population from 1,084,000 inmates in 2001 to 878,000 in 2007). Much else remained on paper, including the lofty principles embodied in the Criminal Procedural Code of 2002, which enhanced the rights of defence lawyers, limited preliminary detention to 48 hours, affirmed habeas corpus, and guaranteed the accused a two-hour meeting with an advocate prior to any interrogation. In reality, as the Khodorkovskii case demonstrated, the Kremlin still resorted to ‘telephone justice’, with calls from above ensuring the ‘right’ verdict. Not only did the promise to expand the jury system to all eighty-nine administrative districts fail to have the desired impact, but the regime severely limited its competence in December 2008, specifically excluding the jury from cases involving terrorism, hostage-taking, illegal armed units, treason, attempts to overthrow authority, sabotage, and organizing massive disorder or revolt.
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