Russian Big Business and the Putin Presidency

Issue Brief
Vol. 2, No. 2, May 10, 2000

Russian Big Business and the Putin Presidency

A Presentation by Elena Kotova on May 4, 2000

Cautious Optimism; Realistic Expectations

In the opinion of Elena Kotova, First Vice President of Most-Bank, Russia?s business world is cautiously optimistic about the new Putin regime. The Putin regime, she argued, will create political stability, modest economic growth, and security for foreign investors in Russia. The Yeltsin government developed the preconditions for economic growth. Now, the task for the Putin administration will be to protect Yeltsin?s accomplishments and improve the outside world?s perception of Russia. Kotova was adamant, however, that wary optimism is not grounds for euphoria, which inevitably results in skepticism when unrealistic expectations remain unfulfilled. Big business in Russia, she insisted, is now realistic enough to not expect miracles; it will break out of this cycle of euphoria followed by skepticism.

The Lessons of August 1998

Russian businesses have matured as a result of the 1998 financial crisis, contended Kotova. Profit margins have become and will remain slim. But rather than complaining or seeking government support, businesses are recognizing that this is normal in a market economy. Moreover, in order to survive in the new competitive environment, businesses are continuously streamlining and restructuring. Perhaps even more significantly, a code of ethics and morals is developing in the Russian business community. Related to this development is businesspersons? increasing awareness that private businesses have a social responsibility.

The Business World?s Wish List for Putin

Kotova outlined the Russian business world?s specific expectations of the Putin government. Property rights will most likely be improved, as will the rights of shareholders. Legislative and regulatory action aimed at "leveling the playing field" should be anticipated. Additionally, Putin will, in Kotova?s view, push for better bankruptcy laws, a new land code, and tax reform in the State Duma.

Causes for Worry?

Although optimistic about such legislation, Kotova shared her concerns about Russia in the near future. Russia?s economy is slowly growing, she said, but this growth is of a "low quality." It is based only on import substitution and high oil prices. "Real growth," she argued, needs targeted state investment in sectors such as infrastructure and energy. However, the government lacks the ability to carry out such projects ? both financially and intellectually.

More generally, Kotova expressed her concern about the competence of the government bureaucracy. There will be a partial rationalization of the government bureaucracy and an increased use of government expenditures due to improved tax collection. Nonetheless, she concluded that to expect a smooth functioning of the state machinery in the next three to four years would be unrealistic.

With regard to corruption, Kotova shared her blunt and unique outlook: Corruption will be a priority as long as the illusion persists that something can be done about it. In her opinion, a few Berezovskys or Gusinskys can be thrown in jail, but corruption will not cease. The problem is not the oligarchs? explicit control of the government, but rather private interests? numerous indirect connections to government positions and shadow deals behind the scenes. Putin talks about "a dictatorship of laws" and keeping the government "an equal distance from the oligarchs." This sounds good, said Kotova, but it cannot work. The government needs public support, most importantly from the elite.

Russia?s Future

There is widespread agreement, explained Kotova, that Russia needs to develop a stronger civil society, but there is little consensus about how this should occur. Petr Aven, President of Alfa Bank, argues that a new societal ethic is needed, an ethic shared by both the civil service and the people. Sergei Kirienko, former prime minister and currently the head of the Union of Rightist Forces, has pinned his hopes on the new generation of young Russians who will soon be running the country?s businesses and government. For Kotova, such beliefs are merely "wishful thinking." Civil society will form from businesses working their way up. Thus, the oligarchs? financial-political regimes are the "most developed civil society institutions" in Russia today. They increase employment, improve access to modern know-how and business practices, and influence voters ? just as civil society should. It is, therefore, illogical that the Russian state endorses the inclusion of foreign business interests in its circle of potential supporters, while preparing a war of rhetoric against its own business elites.

Putin the Person

Kotova dismissed the persistent questions about Putin?s personality. "He is not enigmatic. We know what we need to know," she insisted. He is bilingual, which is indicative of a broad perspective, enlightened by a knowledge of other cultures. But overall he is shallow and lacks values. He consequently substitutes the system?s interests for his own values. He additionally lacks strength, as his failed attempt to control the outcome of the St. Petersburg gubernatorial elections recently displayed. He even, according to Kotova, lacks the belief that he has the right to lead the nation, least of all the knowledge to do so. While Yeltsin was an historical figure who destroyed the Communist Party, Putin has no historical role to play. Still, after a transitional decade, a history-making ruler may not be what Russia now needs. If Putin can merely be a straightforward ruler, his tenure as the head of Russia might be successful.

 Summary by Jordan Gans-Morse, Junior Fellow for the Russia and Eurasia Program

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