Russia's Glass Is Half Full and Leaking

By Michael McFaul

Originally published by Radio Free Europe/Radio Liberty, March 15, 2004

Because the 14 March presidential election in Russia lacked any drama, analysts used the run-up to the vote to ask the larger questions about Russia's long-term trajectory. Predictably, views polarized between the "optimists" and "pessimists," with extremists in both camps assigning ulterior motives to those on the other side of the barricades. Some optimists paint the opposite camp as Cold War warriors and ethnic Russia bashers, while voices from the pessimist camp like to focus on money being made by President Vladimir Putin's apologists.

This overly simplistic dichotomy has to be abandoned. Good things and bad things are happening inside Russia at the same time. Both sides need to recognize this obvious truth. The real question is what if any is the relationship between these two trends.
Since becoming president, Putin has done much to accelerate Russian economic reforms. Putin's government and the new pro-Putin Duma have passed into law a series of fundamental reforms, including a flat income tax of 13 percent, a reduced profit tax (from 35 to 24 percent), a new Land Code, and new legislation on currency liberalization. Under Putin, the government has also balanced the budget for several years in a row and sharply reduced international borrowing.

In parallel to these reforms, the economy has boomed. Sparked by the August 1998 de facto devaluation and fueled steadily since by high world oil prices, the economy has grown every year since 1999. Russia's stock market is soaring; foreign direct investment hit an all-time high in 2003; hard-currency reserves are bursting; inflation is modest; and real per capita incomes have grown by more than one-third since Putin came to power. This is a good news story that cannot be denied by the "pessimists."

In parallel to these positive indicators of economic reform and growth, Russia's political system has become less pluralistic on Putin's watch. Putin did not inherit from former President Boris Yeltsin a consolidated democracy. On the contrary, at the end of Yeltsin's rule, democratic institutions were weak and fragile. In his first term as president, Putin has done nothing to strengthen democratic institutions and much to weaken them still further.

In is first term in office, Putin continued a brutal and ineffective war in Chechnya, acquired de facto control of all major national television networks, turned both the Federation Council and State Duma into rubber stamps, and tamed regional barons who once served as a powerful balance to Yeltsin's presidential rule. He has arbitrarily used law enforcement structures to jail or send into exile political foes. He has removed candidates from ballots and rigged regional elections; harassed and arrested human rights activists, outspoken journalists, and environmental leaders; and weakened Russia's independent political parties and civil society.

The 14 March presidential vote was the least competitive election in Russia's post-communist history. If, as alleged, more than 1 million voters disappeared from the registers between December and 14 March, it will also rank as one of the least fair.

When observed in isolation, each of these steps in Putin's plan can be interpreted as something besides general democratic backsliding. The government in Chechnya did not work, and terrorists did and do reside there. Former oligarchs Boris Berezovskii and Vladimir Gusinskii have many skeletons in their closets. Some of the regional barons that Putin has reigned in actually behaved as tyrants in their own fiefdoms. Former Yukos CEO Mikhial Khodorkovskii cannot really be compared to Soviet-era human rights dissident Andrei Sakharov. And what president in the world does not want to enjoy a parliamentary majority?

More generally, everyone believes that Russia needs a more effective state to develop both markets and democracy. But when analyzed together, the thread uniting these events is clear -- the elimination or weakening of independent sources of power. This is a bad news story that cannot be denied by the "optimists."

After recognizing the obvious -- good things and bad things are happening at the same time -- the real question that both sides of this debate should be addressing is what is the relationship between these two different dynamics?

For instance, some argue that Putin's antidemocratic policies are a necessary evil for achieving positive economic growth. These apologists cite successful autocratic reformers in South Korea and Chile in the recent past and in China today as positive analogies for Putin's Russia.

Without question, reforming economies need functioning states to succeed. Lawless states or regimes captured by oligarchs do not provide conditions for growth. Dictatorships, however, do not always provide these conditions either. On the contrary, for every autocrat that pushes through reform, attracts investment, and spurs growth, there is another that blocks reform, steals assets, and impedes economic development. For every China, South Korea, and Chile, there is a Myanmar, a Pakistan, and an Angola.

The experience in the postcommunist world is clear: The fastest democratizers are also the fastest economic reformers and the most successful economies. Poland did not need an iron hand to spur economic growth. The correlation between growing authoritarianism and economic growth in Russia might be spurious, not causally related.

It is difficult to connect the dots between Putin's antidemocratic actions and economic growth. How exactly did the destruction of Media-MOST help Russian GDP grow? Does the arrest of antiwar activists leading a demonstration in downtown Moscow actually add to Russia's hard-currency reserves? Is there any evidence to suggest a positive relationship between the war in Chechnya and Russian government surpluses? In fact, one might even speculate how much higher Russia's growth numbers would have been over the last four years if Russian democracy had been developing rather than eroding.

The burden of causation, however, also falls on the "pessimists." Many of them argue abstractly that the erosion of democracy in Russia will scare away investment, slow down economic growth, and lead to more antagonistic relations with the United States and Europe. They cite anecdotal evidence of rising corruption during Putin's first term and the Kremlin's hostility to Western strategic investors in the oil-and-gas sector as signs of bad times to come for the economy if oil prices drop, and to growing animosity between the European Union and Russia as an inevitable consequence of Russia's autocratic drift.

Yet, if Russia were a consolidated democracy, would corruption decrease? Would direct foreign investment grow, and would Russia enjoy better relations with the European Union? My hunch is "yes." Strong executives in control of vast resources who are not held accountable by an independent press or opposition parties tend to be corrupt. They tend not to diversify the economy and not to push for "structural" or "administrative" reforms. They tend to consolidate dictatorships, which by definition cannot join clubs like the EU. My evidence for making this causal claim with respect to Russia today, though, is still weak.

In trying to understand Russia, we should be asking these questions about the relationship between political and economic change. At a minimum, we have to recognize that good things and bad things can happen simultaneously. The glass can be both half full and leaking.

Michael McFaul is an associate professor of political science and a Hoover fellow at Stanford University. He recently published, with Timothy Colton, "Popular Choice and Managed Democracy: The Russian Elections of 1999 and 2000."