Putin's Russia grows stagnant
By Pierre Buhler The winner of Sunday's legislative election in Russia was a foregone conclusion: Vladimir Putin's United Russia. Likewise, there is no doubt Putin himself will win the presidential election due in 2012. But the public enthusiasm that ratified Putin's rule for a decade has vanished, as demonstrated by the poor performance of his party in the elections to the Duma.
By Pierre Buhler
The winner of Sunday's legislative election in Russia was a foregone conclusion: Vladimir Putin's United Russia. Likewise, there is no doubt Putin himself will win the presidential election due in 2012. But the public enthusiasm that ratified Putin's rule for a decade has vanished, as demonstrated by the poor performance of his party in the elections to the Duma.
Russia may look like an oasis of stability and continuity. But that continuity is reminiscent of the zastoi, or stagnation, of the Brezhnev era.
Eight years of 7 percent average annual growth during Putin's presidency (2000-08) allowed Russia to repay its debts, accumulate almost $600 billion in foreign-currency reserves, and join the leading emerging economies. A decade after the 1998 crisis brought Russia to its knees, its leaders boasted that the country could weather the financial crisis.
Given Russia's economic fundamentals, Putin's diminished popularity might appear surprising. The International Monetary Fund's forecast of 4 percent growth in 2011 and subsequent years puts Russia far ahead of average growth rates in the rich G-7 countries. Moreover, its budget will be balanced as long as oil prices remain above $110 per barrel.
Longer-term trends have also improved. Rapid demographic decline has been brought to a halt since the turn of the century. Generous government subsidies for a third child have boosted the fertility rate, and there have been successful measures to reduce male mortality.
But Russia remains essentially a "rentier state." Its primary source of revenue is rent - in this case, oil and gas - rather than taxation, which keeps demands for political representation at bay. Instead, the state is the target of political entrepreneurs who strive to capture it and the rents it controls.
Russia has most of the usual features of rentier states: autocracy, weak political and judicial institutions, arbitrary governance, lack of rule of law, little transparency, restraints on freedom of expression, and widespread corruption, cronyism, and nepotism. Also common to rentier states are short investment horizons, vulnerability to commodity-price volatility, and an underdeveloped, uncompetitive manufacturing sector.
Today's Russia is a gigantic reservoir of raw materials, and its economy relies heavily on mining and drilling. It's the world's largest oil and gas exporter, sitting on more than 25 percent of proven gas reserves. Those commodities account for more than two-thirds of its export earnings and are its primary source of revenue.
Almost absent
The impact on governance is all too predictable. In 2011, Transparency International's "corruption perception" index ranked Russia 143d of 182 countries, on par with Nigeria, and 182d out of 210 for "control of corruption," one of the World Bank's worldwide governance indicators.
In the meantime, infrastructure is crumbling even within the vital extractive industry, while manufacturing is uncompetitive. The Russian armaments industry has lost its strong position with India and China, once its two main customers. Despite the hype about nanotechnology and a "Russian Silicon Valley" at Skolkovo, spending on research and development is a mere one-fifteenth of the U.S. level and one-quarter of China's. As a proportion of gross domestic product, it has been halved since the early 1990s. Scientists and researchers, once the pride of the Soviet Union, have vanished, often lured by more rewarding opportunities at home or abroad.
Indeed, Russian universities are almost absent from global rankings. Only two appear in the Shanghai University Top 500 list and, at the very bottom, among the 400 rated by Times Higher Education. Russia also fares poorly - 63d - in the Global Competitiveness Index released by the World Economic Forum, well behind all developed countries and many developing countries. The same holds true for innovation capacity and technology.
Much to rue
Yet there are hints of hope. Russia no longer lags behind the developed world in Internet use, which has provided space for unregulated speech, allowing users to circumvent the official - and overwhelmingly pro-Putin - news media. Moreover, after lengthy negotiations, Russia recently reached an agreement to join the World Trade Organization, implying a need to comply with all relevant obligations regarding transparency and trading rules.
But comprehensive transformation of Russia's economy remains doubtful. One of Russia's leading independent economists, Sergei Guriev, the rector of the New Economic School in Moscow, soberly noted in 2010 that "meaningful reforms look highly unlikely - for the simple reason that they would harm the interests of Russia's ruling elites.
"In any resource-rich and undemocratic country, the political class and the business interests that surround it have little or no incentive to support stronger property rights, the rule of law, and competition. Indeed, such structural changes would weaken the elite's grip on political and economic power. The status quo - opaque rules, arbitrary decision-making, and lack of accountability - allows insiders to enrich themselves, especially by obtaining a share of commodity-export revenues."
When Russia marks the 20th anniversary of the collapse of the Soviet Union this Christmas, it will have much to celebrate. Unfortunately, what hasn't changed will give it much to rue.