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Democracy and Innovation: Mr Putin’s Very Very Large White Elephant.

Posted by democratist on April 21, 2011

21st April 2011,

Apart from its political implications, the most interesting thing about Prime Minister Putin’s speech to the Duma yesterday is what he said with regard the future of Russia’s five trillion rouble military innovation programme, and how this optimistic vision conflicts with the current state of the Russia defence sector as we see it.

Democratist was especially interested to hear Putin say that, while Russia will need to almost completely rearm and re-equip its armed forces over the next decade (implying that similar attempts over recent years have been less than successful), “I am absolutely convinced the modern weaponry for our army and navy can and must be supplied by the Russian defence industry. Obviously, certain technology and weapons types can, and probably should be purchased abroad. But we need to understand that nobody will sell us the most advanced and latest generation technology.”

As regular readers will know, since we set up shop almost a year ago, Democratist has considered Russia’s increasing national inability in the sphere of (especially military) technological innovation as one of the key motivating factors behind the Russia 2020 ”modernization” drive. While superficially novel, this desire for modernization reflects a historical preoccupation with the importance of military competition against comparatively advanced western nations, that runs throughout modern Russian and Soviet history at least as far back as Peter the Great, and which has provided the impetus for various spurts of attempted technological modernization.

However, elite and popular resistance to liberalisation combined with the expectation (and now realization) of a rise in hydrocarbon prices over the last few years have meant that genuine and deep systemic economic reform was always going to be something of a non-starter: From our perspective, the Medvedev liberalisation project always had more to do with encouraging (mostly state-partnered) foreign investment than the introduction of meaningful, economy-wide reform.

Subsequently we have argued that, in the general absence of a culture of innovation from within the domestic Russian public or private sectors, or from foreign investors, and with a continuing “brain-drain,” as many of Russia’s most talented young people leave to pursue careers abroad, the State would seek the innovation it has historically seen as essential in order for it to remain militarily competitive, through an enhanced reliance on espionage. This seems set to remain the case despite increased arms sales to Russia by European firms because, as Putin has effectively admitted the West remains fundamentally unwilling to sell the Russians their cleverer toys – lest they eventually find themselves on the wrong end of them.

However, even if (what is probably a much weakened) SVR or FSB still manage to come up with the goods in terms of stolen intellectual property, Democratist remains far from convinced by the Prime Minister’s claims that the (still largely Soviet-era, and extraordinarily corrupt) Russian defence sector will be able to supply the armed forces with modern weaponry in the numbers required any time soon.

In short, our prediction is that, without a sharp change of tack, the next decade will see a the technological gap between the Russian armed forces and those of the West widen, despite these proposed investments.

Posted in Autocracy and Innovation, Russian Corruption, Russian Economy, Russian Espionage, Russian Military | 3 Comments »

The Russian Military Industrial Complex: An Unresolvable Discrepancy.

Posted by democratist on March 15, 2011

15th March 2011,

In our last article in our “Democracy and Innovation” series we looked at Crane and Usanov’s analyis of the relationship between Russian government policy and the main internationally competitive high-tech sectors of the Russian economy.

Among their (very measured) conclusions were that current policy to encourage growth in these industries through the creation of state-controlled agglomerates had not been effective, and that a favourable outlook was largely dependent on the extent firms were integrated with, and open to, the global economy. However, prospects for the Russian defence industry were limited in this regard, precisely because of its insularity.

In line with the “liberal” innovation model outlined by WolfDemocratist maintains that, while the Russian state is continuing to make a concerted attempt to drive innovation through increased funding and R&D, contemporary corruption, lack of competition, problems with the rule of law and government accountability have all had a demonstrable impact on the ability (and willingness) of many Russian high-tech firms to innovate, commercialize their ideas, expand, and reach their full potential.

With regard to the military-industrial complex more specifically, in an article published todayin the World Politics Review  Dr. Richard Weitz (also of the Hudson Institute) provides some additional and very relevant detail about how such problems are affecting Russia’s current proposed, decade-long $650 billion rearmament programme (supposedly set to include the procurement of 100 ships, 600 aircraft, and 1,000 helicopters).

Here’s a sample;

“….although Russian designers can still develop first-class weapons, Russian defense companies — which have yet to recover from the traumatic disintegration of the Soviet military-industrial complex — remain unable to manufacture large numbers of some advanced systems. As a result, the Russian government has made the unprecedented decision to purchase expensive Western military equipment.”

“…the record of recent SAPs [State Armaments Programs] is not encouraging. They all envisaged providing the Russian armed forces with hundreds of new weapons, but their execution was undermined by insufficient financing, the inefficient and ineffective Russian defense sector, and pervasive corruption.”

“Estimates suggest that one-third of Russia’s defense companies are bankrupt, while another third desperately need an infusion of financial and human capital to modernize their aging production lines and work force. Pending modernization, many defense firms will prove unable to design and produce sophisticated weapons without frequent cost overruns and production delays.”

“…according to some observers, corruption absorbs as much as half of all Russian defense procurement spending due to the irresistible opportunities for graft that exist behind the veil of military secrecy. Serdyukov’s surprise 2007 appointment as Russia’s first civilian defense minister reflected the Kremlin’s hope that, as an outsider, he might be more willing to tackle defense inefficiencies and corruption. Unfortunately, some bad practices have become so ingrained in Russia’s defense sector that they could take more than a decade to root out. “

From Democratist’s perspective, what is most immediately interesting about what Weitz says is that, while Russian weapons designers are apparently still coming up with the goods in terms of innovative ideas, the state of the country’s defence industry is such that it is unable to reproduce a proportion of the required systems in large numbers.

We see this inability as being at the core of the Russia’s “innovation deficit”; it isn’t that the ideas and the creativity aren’t there – they are. But the unreformed Soviet-era military-industrial complex lacks the competition, investment and flexibility that an advanced industrial economy – and an advanced defence industry require.

In our opinion, this unresolvable discrepancy between design and finished product, between planing and implementation, and subsequently in Russia’s military position in relation to the West (and therefore also the desirability of her military exports) can only become wider in the future, given the current politico-economic system.

Posted in Autocracy and Innovation, Russian Corruption, Russian Economy, Russian Military, Russian Politics, Russian Science | 3 Comments »

Policy and innovation: A more detailed view.

Posted by democratist on March 14, 2011

March 14th 2011,

So far in our “Democracy and Innovation” series, Democratist has outlined the liberal case that innovation generally requires the development of a creative and competitive culture, which must in turn be based on democratic government and the rule of law; we have briefly explored Niall Ferguson’s argument that the command economy led to Soviet economic stagnation in the 1980′s which, combined with an unsustainable levels of defense spending in order for it to be able to compete with the (more innovative and competitive) West, drew it inexorably towards collapse;  and we’ve looked at Kolesnikov’s argument that Medvedev’s Skolkovo project will not solve Russia’s underlying problems in relation to innovation, because it does not include an element of political, or systemic economic reform.

Now let’s take a closer look at Russian government policy and its relationship to the most important internationally competitive sectors of the wider Russian economy, so as to establish a more detailed picture ofthe key problems facing these sectors, and how they have been affected by the way the country is governed.

A good starting point here is Crane and Usanov’s article “Role of High Technology Industries,” in Aslund, Guriev & Kuchins’ (Eds.) Russia After The Global Economic Crisis. (CSIS, 2010).

Crane and Usanov begin by noting that both Putin and Medvedev have envisioned increased output from high-technology industries as driving Russia’s future economic growth, and (thanks to the massive and unsustainable funding highlighted by Ferguson) that the USSR passed on to Russia a large cadre of well-trained scientists and engineers, and a highly developed system of national laboratories and research institutes, capable of building sophisticated machinery, such as the world’s first satellite (Sputnik), nuclear weapons, advanced fighter aircraft and intercontinental ballistic missiles.

However, the number of active research laboratories has fallen sharply since the Soviet period, and the aging Soviet-era industrial base still forms the core of Russia’s current high-tech industry: Software is the only substantial high-tech sector to have emerged in Russia since 1991.

Crane and Usanov’s article explores the current state of Russia’s software, nanotechnology, nuclear, aerospace and armaments industries in turn;

Software

Software has been a post Soviet success story, but is still operating on a small-scale (gross revenues of about $5.5 billion in 2008 compared with $60 billion in India). It benefits from its young workforce, low entry costs, absence of legacy assets and small size (as the government has not yet bothered to regulate it).

However, “…the greatest barrier to the development of the industry is thuggery and corruption that Russian entrepreneurs face from the police and other government officials. Bribing inspectors, tax collection agents, and the police places a substantial burden on companies…. This climate of intimidation and fear discourages entrepreneurs from expanding their businesses and puts a premium on moving assets outside of Russia.”

Nanotechnology

This field is considered a key technological priority by the government, and several well-funded programmes have been set up by the state to support it.  Russian scientists have been relatively productive in theoretical research, but performance has not been as strong at the commercialization stage of the innovation process. Russia has only produced 0.2% of the total of global patents related to nanotechnology (2008).

Nuclear

In 2007 the civilian and military sides of the industry were integrated into the State Atomic Energy Corporation (Rosatom – $11.7 billon of sales in 2008). Rosatom’s subsidiary Atomenergoprom is one of the world’s largest nuclear companies, and Russia has a  strong competitive position in the nuclear fuel cycle. The Russian state has continued to invest in R&D, funded construction of new plants domestically, and provided strong political support for projects abroad. Nuclear power and related industries are one of the few high-tech sectors in which Russia has a serious R&D base and can compete on the world market.

Aerospace

Russia remains a world leader in the production of space launchers, and now the US Shuttle has been retired, Russia’s Proton rocket remains the only well-tested rocket capable of ferrying people and heavy payloads into space. By contrast, Russian communications satellites have not been competitive internationally. Wider use of GLONASS, is hindered by inferior quality and the higher cost of receivers. Other satellites tend to be for military use only. Soviet aircraft were never competitive internationally, and there has been little improvement since the Soviet period (although a number of recent foreign partnerships may change this).

Armaments

During the 2000′s exports grew rapidly, especially to India and China (which accounted for about 70% of total sales). The Putin administration made a concerted effort to consolidate the industry by creating large holding companies. This trend has continued under Medvedev, and has had the negative consequence that prices have risen domestically, as a single seller makes it more difficult for the government to negotiate lower prices.

Conclusions 

One of the main conclusions of this study is that Russian government policy to encourage growth in high-tech industries through the creation of large state controlled agglomerates – especially in armaments, the nuclear industry and aerospace – has not been very effective, and such industries continued to account for only about 3% of GDP by 2008.

This is fully in line with what the liberal model of innovation would predict; while the Russian state is making a concerted attempt to drive innovation in many of these fields through increased funding and R&D programes, the evident lack of competition stemming from the creation of agglomerates, problems relating to corruption, the rule of law and government accountability, have had a demonstrable impact on the ability of many firms within Russia’s high-tech sector to innovate, commercialize their ideas, expand, and reach their full potential. This is having a gradual impact on the ability of many of these firms to compete internationally.

Crane and Usanov believe that those companies or sectors that are most integrated with, and open to the global economy have the most favourable outlooks; software, scanning probe microscopes and uranium enrichment. They suggest,  “The record of the past two decades indicates that future success in these sectors will depend on increased integration into the global, especially European economy. In aerospace, sales of rockets, aircraft components, aircraft design services, and the new Sukhoi Superjet have depended on collaborating with foreign manufacturers. Prospects for Russia’s armaments companies are dimmer because they remain much more insular than firms in other sectors.”

Posted in Autocracy and Innovation, Democratization, International Political Economy, Russian Corruption, Russian Economy, Russian Liberalization, Russian Military, Russian Science, Soviet Economy, Soviet Union | 9 Comments »

Autocracy and Innovation: Lessons from Russia and China.

Posted by democratist on February 17, 2011

17th February 2011,

Democratist has just read another interesting article by Stephen Blank over at Jamestown, which serves to once again illustrate our oft-repeated point that autocratic rule and corruption in Russia have had a devastating (and continuing) impact on national research and development, especially over the last 10 years, and that this weakness is in turn seriously damaging the country’s status as an international political, economic and military player.

Blank quotes Konstantin Sivkov (Vice-President of the Academy for Geopolitical Issues, and a former General Staff officer) to the effect that the avionics and technical specifications of China’s new J-20 strike fighter may suggest the PRC will be capable of attaining highly advanced strategic-technological breakthroughs for fighter-aircraft over the next five to fifteen years.

According to Sivkov, while the J-20 does not approach the capabilities of the US F-22, its specifications may imply that China could soon surpass Russia, whose defense industrial sector still relies on Soviet models (Interfax-AVN, January 17). There is no sign, according to Sivkov, of Russia’s defense industry’s capability to keep pace with its peers.

While autocrats (and their apologists) may find comfort in the technological advancements of the PRC, Democratist notes that, despite having recently become the second largest economy in the world, and in many ways the world’s industrial “workshop”, China still apparently lags considerably behind the US in terms of military technology, and is still heavily reliant on espionage and the reverse-engineering of Western technology in an attempt to catch up. Democratist believes that, even with plenty of resources, a lack of democracy, openness, and accountability will make innovation difficult, even for the PRC.

So, while Russian and Chinese espionage certainly pose a threat to US military superiority, it does not appear that either country is currently producing their own military industrial innovations, but are rather seeking to copy those of Western countries. As long as the West can prevent their secrets from falling into the wrong hands for a reasonable amount of time, they seem likely to be able to maintain an innovative advantage over autocratic states for several decades, if not longer.

       

 

Posted in Autocracy and Innovation, Russian Corruption, Russian Espionage, Russian Military | 1 Comment »

Will the Egyptian Revolution influence Russian Military Reform?

Posted by democratist on February 8, 2011

8th February 2011,

A stimulating piece by Pavel Baev in today’s Jamestown Eurasia Daily monitor . While we don’t necessarily agree with everything he says we found the following passage very interesting;

“What the crises in Egypt and Tunisia have demonstrated convincingly is that the outcome of a protracted confrontation could be determined by the attitude of the army, which was essentially absent from the streets in most of the “color revolutions” in the 2000’s. Putin has prioritized investments into strengthening the police and various special crowd-control units like OMON, comprised of professionals toughened by tours of duty in Chechnya. Putin cannot, however, count on the loyalty of the army, since the ongoing reforms have demoralized the top brass, antagonized the officer corps and incapacitated the combat units manned by poorly trained conscripts drafted for 12 months (Ezhednevny Zhurnal, January 17). The military are traditionally sensitive to external interference but the revolutions in Egypt and Tunisia are clearly home-made, so that the US and the EU are at loss about denying support to their trusted allies who were never bothered by democratic values (Ogonyok, February 7).”

While Democratist does not see an Egypt-style revolution taking place in Russia any time soon, we think it will be interesting to see whether the regime considers the services of the OMON adequate to the task of keeping order in the event of a crisis, or alternatively whether the Tunisian and then Egyptian revolutions might have some impact on the course of military reform in Russia over the coming months?

Posted in Egyptian Revolution, Jasmine Revolution, Revolutions, Russia 2012 Elections, Russian Military | 2 Comments »

Keeping Russia’s (other) army fed.

Posted by democratist on November 11, 2010

November 11th 2010.

Democratist has been interested to read that Finance Minister Alexei Kudrin recently officially announced that Russia plans to spend $63 billion during the coming year in an attempt to bring her dilapidated armed forces up to date.

This marks a considerable increase over the original figure of $49 billion, and is part of a proposed decade-long $730 billion Russian military spending spree.

Democratist is not surprised to see that a great deal of this cash has been earmarked for military R&D, as we have already written at length about the implications of  Russia’s pronounced and increasing national inability in the sphere of technological innovation for her status as an international political, economic and (especially) military player.

We continue to maintain that, in the absence of a serious political and economic reform program, President Medvedev’s project to create a Russian military innovation powerhouse (similar to the US government’s Defense Advanced Research Projects Agency), will suffer the same fate as so much Russian public spending since 1991, and that a big chunk of its proposed funding will be rapidly and unceremoniously trousered by Russia’s other army, of crooked officials.

So, while this announcement is unlikely to do that much good for the Russian armed forces (who are also likely to be scaled back as part of the “modernization” programme), it is excellent news for bankers, real estate agents, hoteliers and restauranteurs in London, Zürich, Nice, and elsewhere.

Additionally, as we have also already stated, in the continued absence of innovation from within the domestic Russian private or (especially) public sectors, or from foreign investors (and with a continuing “brain-drain,” as many of Russia’s most talented people leave to pursue careers abroad), regardless of any arms deals that might be struck with France or other countries, Russia will be forced to seek the bulk of the innovation it sees as essential to remain militarily competitive with the west through a greatly enhanced reliance on a tried and tested method employed extensively during the Soviet period; espionage. 

But given the ineptitude, corruption and penetrability of the SVR, as demonstrated over the summer, the ultimate beneficiaries of such a tactic are, in the end, most likely to be….bankers, real estate agents, hoteliers and restauranteurs, rather than the Russian state or people.

Posted in Russian Corruption, Russian Espionage, Russian Military | 1 Comment »

The “Inertia Scenario”, Part Two: Russia’s Naval Ambitions

Posted by democratist on September 14, 2010

14th September 2010,

In recent posts, Democratist has sought to highlight the significance, historical and contemporary, of Russia’s preoccupation with military competition – above all in relation to (comparatively advanced) western nations.

In the contemporary case, we have noted that Russia is continuing to fall behind in terms of its industrial, technological and scientific capabilities, and this has already started to have serious implications for her continued status as an international political, economic and (especially) military player.

We consider this (combined with a more general need to ensure foreign investment and growth, given the global financial crisis) as a key motivating factor behind the ”modernization” drive first proposed during the late Putin period, but which has become more publicly evident under Medvedev.

As such, we gave been extremely interested to read this recent report by the Research and Assessment Branch of the Defence Academy of the United Kingdom on, “The Russian Federation Navy: An Assessment of Its Strategic Setting, Doctrine and Prospects” which we feel gives considerable additional empirical weight to our argument.

Among its key findings are that;

  • Russian grand strategy and military strategy is focused on the protection and projection of Russia’s position as a Great Power.
  • Russia identifies itself as a world power and the principal threat to its position as emanating from the United States and NATO.
  • Russia is looking to invest in a substantial expansion and enhancement of its naval forces over the long-term.
  • Russia’s renewed interest and investment in sea power is a component of its increasing assertiveness and desire for global influence and power.

In this regard, key planned areas for development include;

  • Nuclear-powered submarines.
  • Aircraft carriers (with embarked fifth generation aircraft)
  • Guided-missile cruisers;
  • An enhanced amphibious capability
  • Enhanced Command, Control, Communications.
  • Computing, intelligence, and surveillance.
  • Target Acquisition and Reconnaissance capabilities.
  • Naval strategic nuclear forces
  • Conventional strategic systems and nuclear sub-strategic weapons.

But, as report makes very clear (and in line with Democratist’s comments about the state of the Russian economy, and the impact that Russia’s extraordinary corruption has had, especially on state-dominated sectors such as the arms industry);

  • The Russian Navy continues to have major problems with readiness and the quality of both personnel and equipment.
  • The industrial base also remains a significant area of concern.

All of which reinforces our earlier conclusion that  in the likely continued absence of innovation from within the domestic public or private sectors, or from foreign investors, over the next few years the corporatist Russian State will have to seek much of the innovation it sees as essential in order for it to remain militarily competitive with the west through a renewed emphasis on military and economic espionage.

This seems likely to remain the case despite France’s 2009 agreement to sell Russia four Mistral-analogue power-projection battleships, and a number of other similar foreign deals currently under discussion. This is partly because these deals now appear somewhat stalled, as the French seem unwilling to let the Russians have access to some of their cleverer on-board gadgets (and are almost certainly under considerable international pressure not to do so) , and also because the electronics of the other (Dutch, Spanish) ships that the Russians have looked into buying from Western firms, include US-made components, the transfer of which to Russia (or to other non-NATO countries) would necessitate US clearance, which Democratist suspects is unlikely to be granted.

But even if the Mistral and other deals do go through in some form, they will only go a very limited way to fulfilling the Russian’s requirements as outlined above.

Posted in Russian Corruption, Russian Economy, Russian Espionage, Russian Military | 1 Comment »

Springtime for Dima?

Posted by democratist on May 22, 2010

22nd May 2010

Rumours abound that a new, pro-western foreign policy shift is underway in Moscow. But if Russia really wants to attract European investment and American technology for the long-term it will need to implement root and branch political and economic reforms. Are the Russians really ready to play ball?

A report on two supposedly “leaked” internal foreign ministry documents which appeared in Russkiy Newsweek on May 10th has sparked off a wave of speculation about the possible future orientation of Russian foreign policy in the local press and diplomatic circles.

These documents: “A List of Criteria for the Effectiveness of Foreign Policy” and “A Program for the Effective Exploitation of Foreign Policy Factors for the Purposes of Long-term Development” – both written over the past six months, together imply a rethinking and potential realignment of Russia’s external relations.

In line with the much-discussed (but so far largely rhetorical) trend evident since Medvedev took on Presidency in 2008, the focus of both papers is the need to modernize the Russian economy, and the use of foreign policy to achieve this goal. As such, both underline the need to attract external financial investment, as well as the technological and scientific resources required for Russia’s modernization – especially from the United States and European Union.

This renewed concern with foreign relations as a path to domestic modernisation, while clearly still a matter of internal dispute within the ruling elite (indeed the “leaking” of these documents are almost certainly a symptom of these internal discussions) nonetheless reflects two serious problems that Russia needs to address with some urgency; firstly the impact of the ongoing global financial crisis on the Russian economy, especially through the effect that this has had on global hydrocarbon and raw materials prices; and secondly, a recognition that Russia is falling behind in terms of technological innovation.

With regard to raw materials, oil, gas and mineral exports currently account for 70% of Russia’s exports, making the economy hostage to price fluctuations. Finance Minister Alexei Kudrin stated on May 14th that Russia’s 2010 federal budget, including reserve fund spending, will only be balanced if oil reaches $95 per barrel (considerably above the current price of about $71). Given recent market developments, oil prices seem likely to stall or decline over at least the short-term, and perhaps for longer. As a result, The Russian government expects its budget deficit to rise to 5% of GDP by the end of the year and external sources of funds will therefore be required. Given that overall debt stands at only 50-60% of GDP (compared with 115% for Greece), Russia had little difficulty raising $5.5 Bn from its sovereign debt sale in April (the first since 1998). Nonetheless, this pattern of borrowing looks set to grow significantly as reserve funds are drawn down.

As for technological innovation, as Dimitry Trenin, director of the Carnegie Moscow Centre noted in an article in the Moscow times on 14th May, in addition to diminishing the hubris that Russia displayed in the years of high energy prices, the current crisis has awakened the leadership to the reality that Russia is losing ground in the global pecking order by falling behind in terms of its industrial, technological and scientific capabilities.

As Trenin observes “…Russia is sorely lacking what it takes to be a major global economic and political force in the 21st century. Relative energy abundance and nuclear arsenals are simply not enough. The Kremlin …[has been]… forced to come to terms with the fact that Russia cannot modernize on its own and that it needs Western investment and strong business partnerships with the West.”

But how will this need for investment and scientific know-how be translated into policy? Is Russia really willing to make the deep domestic political and economic changes necessary to make itself an attractive place for sceptical Western companies to invest, as Trenin suggests? Western markets cannot be bargained with or cajoled in the same way that Russia strong-arms other States – they will have to want to come.

However, there are a number of compelling reasons why serious reform is unlikely:

The main argument against the probability of anything more than superficial political an economic reform in Russia over the next few years is the nature of the current regime. This is essentially a reconfigured Soviet nomeklatura – more homo Sovieticus than homo economicus. The nomenklatura sees itself as having a quasi-divine right to rule and shape the country, and sought in the early 2000’s to move precisely away the “Western” template of market economics and political freedom introduced in the 1990’s – because it considered that these reforms had failed (culminating in the national humiliation of 1998) and that additionally, as many siloviki believed, that these reforms had in any case been little more than an elaborate Western “conspiracy” aimed at weakening Russia right from the start.

This nomeklatura is distinguished by its strong nationalism and desire for Russian national resurgence (as a regional power, if no longer perhaps a “superpower”) but also additionally by three significant traits [1] inherited from the late Soviet period that make economic liberalization and diversification extremely difficult.

These are;

  • A culture of nearly all-pervading corruption and rent-seeking.
  • An authoritarian concept of the State (in which the elite maintains a decisive and guiding – albeit sometimes informal – control over key aspects of the economy).
  • An instrumental “end justifies the means” attitude towards ethics.

In terms of corruption and the authoritarian concept of the state, the “transition” as it has taken place in Russia since 2000 has clearly not been to democracy or liberal capitalism but to a repressive political system based on a “corporatist” economic model – with the state retaining decisive influence over key companies as a lever of both economic and political power. This includes, as the most prominent example, Russia’s largest company, Gazprom, which supplies about 17% of the world’s gas and on its own, and has at times accounted for 10% of Russia’s GDP. Gazprom has at least four cabinet ministers on its board of directors, and was chaired from 2002 until 2008 by none other than Dimitry Medvedev – who owed that position (much as he now owes the Presidency) to his relationship with Vladimir Putin. Any statements from the “liberal” Medvedev (or those surrounding him) regarding economic diversification or political reform need to be considered in this light. The recently “leaked” foreign policy documents also need to be considered in this context.

The “corporatist” or “petro-state” model, with its heavy reliance on hydrocarbons and raw materials, fits this authoritarian conception of the State neatly because it allows for an easy source of rents, which can be distributed on the basis of loyalty, and equally because it provides the State with the tools of the energy-based foreign policy we have seen deployed on numerous occasions in Eastern and Central Europe, especially since the Orange revolution in Ukraine in late 2004. While the need for reform is likely to be invoked in order to attempt to drum up foreign investment, any resurgence in the oil price above (say) $100 per barrel will initiate a fairly rapid return “business as usual” so long as the current nomenklatura remains in power.

And it is very likely to remain in th driving seat for many years to come, because the Putin regime is additionally the inheritor of the KGB’s “ethical instrumentalism” and is unlikely to cede power to anyone else anytime soon: Despite a sophisticated propaganda offensive of denial (suggesting such claims are little more than conspiracy theory, comparable to those surrounding the 9/11 attacks in the US), there is little doubt that the current regime achieved power through the mass-murder of hundreds of its own citizens by the FSB in September 1999, as well as through the subsequent resumption of hostilities in Chechnya as a platform to generate support for Putin in the 2000 Presidential elections. Such a regime is unlikely to encourage its own marginalization by the introduction of genuine democratic reforms.

Indeed, over the last ten years, progressive presidential, parliamentary and (most recently) local elections have been marked by a worsening tendency towards fraud. As a result, the key political institutions required for meaningful economic liberalization and the attraction of Foreign Direct Investment – free elections and a free press (to fight Russia’s truly monstrous corruption), the rule of law, and the guarantee of property rights – are largely absent in the contemporary Russian case. The Kremlin has instead assumed (despite the apparent lessons of the Soviet experience) that it is able to manage the social and economic development of the country from above without any requirement for these constraints. So far, the economic crisis has only resulted in a tightening of already severe domestic restrictions – as was evident from the extraordinary level of outright falsification in the 10th October 2009 local elections.

Instead, the instincts of the siloviki are almost always to maintain and extend power and control as far as possible in both political and economic spheres. The history of the regime since 2000 has been one of continual centralization of both polity and economy. In fact, there has been no meaningful diversification of the economy since 1998, despite repeated promises that it would take place, and the period since 2003 has seen the re-nationalization of much of the raw materials and other “strategic” sectors.

While recently the Kremlin may have appeared to be considering the possibility of a fresh round of (vaguely defined) “reform” - with a diplomatic charm offensive (purporting to show how Russia has “changed”) due to take place over the summer, allowing genuine liberalization would potentially allow the development of alternative centers of power to the corporatist state. This raises the specter of, (for example) a revival of independent-minded oligarchs operating outside of the current structures (the “Yukos” effect), or the growth of a critical mass media, or of genuinely reformist political parties gaining seats in the Duma in an un-rigged parlaimentary election in late 2011. Therefore, real reform is most unlikely. Instead, the nomenklatura, is more likely to decide that the best available current strategy is the superficial invocation of the need for change through the offices of the “liberal” President. This will hopefully drum up some additional investment from the more gullible sections of an overly eager West while they wait for a resurgence in commodity prices.


[1] This section draws on work by the late Professor Fred Halliday of the LSE http://www.opendemocracy.org/article/what-was-communism

Posted in Autocracy and Innovation, Democratization, Freedom of the Press, Human Rights, Russia - US Relations, Russia Foreign Policy, Russian Corruption, Russian Economy, Russian Espionage, Russian Liberalization, Russian Military, Russian Politics, UK Foreign Policy, US - Russia | 12 Comments »

 
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