Issue Brief: Russia on the Eve of the Presidential Elections

Russia is currently in "times of great threats and times of great opportunities." This was how former Russian prime minister Sergei Kirienko characterized his country as he commented on Russia's future under the expected presidency of Vladimir Putin. Kirienko remarked on Putin's likely policies of political and economic development as well as his probable course of foreign policy.

The Revolution is Over

Kirienko emphasized that the "revolutionary stage" of the post-Soviet era is over. Drastic democratic reform and a transition to a market economy are no longer needed. Russia is now facing a second conversion: its transformation from the post-Soviet era of transition into a consolidated Russian nation-state. The priority for the Yeltsin regime was to minimize the harm of the fragmentation of the Soviet Union. For Putin, the priority will be to create a new unified national identity. Thus, Putin's main task is to restore order in society and to institutionalize the reforms instituted under Boris Yeltsin. The new political "rules of the game" need to be established among the elite and accepted by the Russian populace, thereby creating a level playing field.

Putin?s Strong State

A major characteristic of Putin's presidency will be the creation of a strong state, Kirienko remarked. However, this should not be confused with imperialism. Putin is nostalgic for a "Greater Russia," but his commonsense overrides these tendencies. Overall, Putin will show less interest in foreign policy than did Yeltsin, preferring to focus instead on domestic problems. To the extent that he does address foreign policy issues, pragmatic economic interests will guide his thinking.

Kirienko further added that there is not a single, identical set of goals which all Western countries share. Each Western nation has its own national interests, and Russia is no different. This, however, by no means precludes Russians from accepting what he termed "universal values," notably freedom of the press, freedom of ideas, and support for a market economy.

The Russian Economy

According to Kirienko, a fundamental change has occurred in the Russian economy as a result of the August 1998 financial collapse. For the first time, the Russian economy is beginning to act as predicted in textbook descriptions of economic theory, and the economy is now growing. This growth will not continue, however, without further economic structural change.

Kirienko's analysis divided the economy into four sectors. The first consists of the old state-run enterprises. These still operate at a loss. The only rationale for their existence is the social goal of keeping their workers employed. This, Kirienko pointed out, is perverse logic; by seeking to help their employees in the short run, they are harming the overall economy and thereby hurting all Russians. The second sector is made up of firms in the commodities export sector. These have been profitable, but they are highly dependent on world prices. The third sector is comprised of firms which act according to market principles, but which are only competitive domestically. Many firms in light industry and food processing fall into this category. Finally, there is a fourth sector of new firms which have developed during this decade, becoming competitive both domestically and internationally.

Forty percent of Russian enterprises fall into the first sector of loss-making firms. Because of the size of this sector, in Kirienko's view, Putin has no choice but to enact structural reform. Capital from this first sector needs to be transferred into the profitable third and fourth sectors.

The biggest obstacle to expanding the sector of profitable Russian enterprises is lack of capital investment. Kirienko estimated that one to one and a half billion dollars leaves Russia monthly. Isolationism and protectionism cannot reverse this outflow. Even if it reduced the amount of capital leaving the country, it would not help to increase badly needed foreign investment.

Instead, Kirienko outlined four conditions needed to foster capital inflow. First, political stability is vital, and he expects this to exist for the next two to three years after the election. Second, the state needs to begin providing its core functions. A major lesson from the years of Yeltsin's reforms, Kirienko noted, is that many non-market institutions are needed for the market to develop properly. The government must ensure police protection, a functioning military, a strong and independent judiciary system, and anti-monopoly legislation. Third, private property rights must be guaranteed. Such legislation is all the more important in order to make up for the lack of cultural tradition and public understanding of private property. Finally, tax reform is required.

Problems Facing Russia

Kirienko was generally optimistic about Russia?s future under Putin. However, he also shared several of his concerns. First, after a revolutionary period, there is a tendency for a society to swing toward authoritarianism. The checks and balances which exist in a more stable democratic society are not fully in place. The president and government, no matter how benevolent the rulers, will have to become more accountable to the people. Second, there is the obvious threat posed by corruption. Third, Kirienko worried about the stratification of Russian society, and warned that Russians must continue to address the question of what social justice means to them. Finally, there needs to be a fundamental change in the quality of government personnel. In Kirienko?s opinion, the current elite needs to be replaced by representatives of the younger generation. This is a task Putin will face within four to six weeks following the election.

The "Latent Liberals"

The biggest obstacle to change in Russia has been the public mindset. An economic system, explained Kirienko, can be quickly transformed. The values and beliefs of a society cannot. Only when the next generation, a generation affected by the economic reforms of the previous generation, comes to power does fundamental change occur. This new generation is now coming of age. They know about liberalism and capitalism not only in an abstract sense. They have grown up in a society which exhibits many liberal and capitalist characteristics. Kirienko called these people "latent liberals." They are liberals, although many of them do not fully realize it yet. He estimated that these latent liberals comprise 23 to 25 percent of the population, and he credited this voting bloc for the success of the Union of Right Forces in the December 1999 parliamentary elections.

These people will demand that Putin institutionalize the reforms of the Yeltsin era. However, Kirienko emphasized that these people have no need for further revolutionary reforms. They relate to liberal democratic values in a conservative fashion: They want to protect what they have earned, not begin further transitions.

Russia's Future

Kirienko concluded his remarks optimistically: Russia's situation is not becoming less complex, but it is becoming more predictable. Moreover, Russia's progress will depend not so much on the personality of its new president, but on the actions of Russian citizens. Kirienko addressed his fellow countrymen: "By our actions or failure to act we are in a position to make an impact on the direction which Russia will take. I believe it is our duty to take advantage of this position."

Questions and Answers: Chechnya and Russia?s Near Abroad

Pressed on Russia's management of the Chechen War, Kirienko responded that all wars are tragic. Additionally, he lamented that the Chechen War threatens to increase authoritarian trends in Russia and to distract from economic reform. The creation of a nation-state requires a sense of national pride, he explained. It is easier to develop this feeling of pride through use of force than by raising living standards, but this does not bode well for the type of nation-state forming in Russia. Nonetheless, he argued that after the incursions by Chechen militants into Dagestan last summer, there was no alternative than a military response. He asked the audience to imagine the United States' response if militants funded by Osama bin Laden invaded Texas. He further emphasized the enormous public support for this Chechen War, which has created strong political pressure for the military operation to continue. Still, there is no military solution to the Chechen problem, concluded Kirienko. A final settlement in the region requires political negotiations.

With respect to Russia's foreign policy toward Ukraine and Belarus, Kirienko responded: "Business based on friendship is not good business, but friendship based on business is good friendship." The Belovezh Pact dissolving the Soviet Union haunted Yeltsin, said Kirienko. His CIS colleagues took advantage of this. Putin feels no such responsibility. Relationships between Russia and its near abroad will now be based on mutually beneficial economic relationships.

Moreover, Russia must recognize that projection of power in the globalizing world requires economic, not military power. Kirienko warned that unless Russia increases its standard of living, it will not be able to prevent capital flight and brain drain. It will become even less competitive in the global economy. The United States, said Kirienko, should help Russia recognize the importance of economic integration by ending unfair trade restrictions.

Summary by Jordan Gans-Morse, Junior Fellow for the Russian and Eurasian Program