The Global Zeitenwende
How to Avoid a New Cold War in a Multipolar Era
Is Vladimir Putin remaking Russia? To many observers, the answer is obvious. The country seems to have changed radically in the last few years. Under its energetic and sober young president, Russia's political system and economy appear finally to have stabilized. Dramatic reforms, including changes to the country's tax code, judiciary, and federal structure, have sailed through the parliament with hardly an amendment. Firmly pro-Western in its bias, Moscow is now racing to join NATO and the World Trade Organization and has volunteered to assist the fight against international terrorism. The economy has enjoyed three years of growth and a stock market boom so impressive that even those foreign investors who fled the country after the 1998 financial crisis are now creeping back. Commentators no longer complain about anarchy and stagnation; instead, they worry that Putin will go too far in his quest for order, crushing the fragile shoots of democracy in the process.
Long gone, it seems, are the chaotic years of Boris Yeltsin's stewardship, when crises were a way of life. The economy lurched from one meltdown to the next, as prices soared and the GDP plummeted. Widespread corruption stifled small businesses. A few unscrupulous oligarchs concentrated much of the country's capital in their hands and seemed to dangle Russia's leaders from golden strings. Provincial governors threatened and bargained with the Kremlin while exploiting their regions like feudal fiefdoms. An aggressive, obstructionist Duma (Russia's lower house of parliament) dominated by Communists blocked any attempt at reform. And all the while Yeltsin, alternately indecisive and headstrong, cultivated competing clans of courtiers, each with its own commercial interests.
That all changed on January 1, 2000, when Yeltsin stepped down and appointed Putin acting president. At least, so goes the popular version of events. In this view, Putin (confirmed in office by an election that March) personally put an end to the disorder that flourished under his predecessor. The new president tamed both oligarchs and regional barons and began replacing corruption with a "dictatorship of law." Economic reforms inspired local entrepreneurs, sparking a rapid recovery. In parliament, the Communists lost control to a centrist, pro-Putin coalition. And the Russian public fell in love with its tough and decisive new commander in chief.
There is certainly some truth to this account. But it also contains a large dose of political mythology. The fact is that Putin's Russia, although it sports a glossy new coat of paint, remains Yeltsin's Russia underneath—a truth with both good and bad consequences. The good news is that Yeltsin's Russia was never quite as terrible as people thought. The bad news, however, is that Putin's Russia is rather less stable and reformed than its supporters believe. On close examination, much that looks new and different in Russia today turns out to be neither. At the same time, the genuinely novel features—namely, robust economic growth and a popular president—owe more to the high price of oil and other unpredictable economic factors than to Putin's policies or any actual reforms.
One of the most important of Putin's declared goals on coming to office was to break the power of the oligarchs, whom many Russians had come to view as the country's real rulers. During the late 1990s, a handful of tycoons had seemed to dominate Russian politics. At the heart of this system was the "family": a murky clique of Yeltsin associates and government officials who spanned the allied worlds of big business and political power. Putin promised to "eliminate the oligarchs as a class" and to hold all businessmen at "an equal distance." His background as an outsider from St. Petersburg, plus his tough reputation as a former officer of the FSB (the successor to the KGB), led many Russians to hope that the new president would follow through on such promises.
Two and a half years later, however, the "family" remains as strong as ever. The chief of staff Putin inherited from Yeltsin, Aleksandr Voloshin, acts as the kingpin for this clique, and the prime minister, Mikhail Kasyanov, is seen as defending the clan's economic interests. It is true that the "family" now faces challenges from a newer, "St. Petersburg" clan—an odd combination of FSB officers and liberal economists from the northern city. But the latter group has not wrenched control of the economic bureaucracy from the Muscovites. Putin, rather than reducing the power of such clans as promised, has maneuvered between them in a manner reminiscent of Yeltsin. Some minor reforms have occurred—for instance, Putin managed to inject a new team of executives into the giant, semiprivatized gas monopoly, Gazprom, and has slowed the disappearance of state assets elsewhere. Former Railways Minister Nikolai Aksenenko, a leading member of the Moscow "family," has been persuaded to resign. But the pace of change is glacial.
Although Putin promised to hold the oligarchs at "an equal distance from power," for some the distance clearly remains more equal than for others. A couple of tycoons have been exiled as far away as London or the French Riviera. But other new faces have emerged to fill their places. Oleg Deripaska of Russian Aluminum and Sergei Pugachev of Mezhprombank enjoy the privilege of long, private conferences with the president. Other oligarchs visit him in a group, under the leadership of their chief lobbyist, Arkady Volsky. And several major corporations—Alfagroup, for instance—have even managed to place former employees on the presidential staff.
Meanwhile, in purely economic terms, the role of big business in Russia is growing, not shrinking. Capital is even more concentrated today than it was a few years ago. In 1997, Russia's top ten companies accounted for 57 percent of the country's total net profits. In 2000, however—the last year for which figures were available—their share reached 61 percent. Simultaneously, the number of small enterprises is falling; it dropped by 48,000 in Putin's first two years. According to Pavel Teplukhin, an investment consultant, those small firms that survive face major barriers to growth. As a result, Teplukhin says, Russia's economy today consists mostly of "a few financial-industrial groups and hundreds of thousands of kiosks."
Indeed, the biggest difference between the late Yeltsin period and today is simply that the oligarchs no longer brag about their influence or try to manipulate politics in a public way. This does not mean their influence has diminished, however; it has merely become institutionalized. Spheres of interest have been divided between the large corporate groups, and the war of all against all is largely over. Instead of fighting for resources in the political arena, the tycoons now lobby for them quietly at the top of the bureaucratic pyramid. Meanwhile, oligarchs are increasingly buying power at the regional level. Major businessmen have had themselves elected governor in the Chukotka, Taimir, and Evenki regions; others have won appointments to the new upper house of parliament (representing the regions of Tuva, Mordovia, Penza, Bryansk, and Taimir, for instance). Even when oligarchs do not run for office themselves, gubernatorial elections have often become contests between competing business teams and their chosen candidates.
In part, the smoother public relationship that exists today between Russia's big businesses and its politicians reflects a spontaneous alignment of underlying interests. Paradoxically, the stabilization of oligarchical capitalism has given the oligarchs a longer-term perspective. Having acquired massive, undervalued state resources, the tycoons now have more to gain from cleaning up corporate governance and attracting foreign investors than from squabbling over the few still-unappropriated crumbs of Russia's patrimony. Two years ago, for example, the oil company Yukos adopted transparent financial reporting and began paying regular dividends. Its stock market valuation soared from less than $1 billion to more than $10 billion, turning its chief executive, Mikhail Khodorkovsky—who has a reported personal stake in the business of $6.9 billion—into one of Russia's richest individuals. This trend also helps explain why other businesses are now pushing for liberal economic legislation. The ideas for tax reform, for example, might have come from Putin and his economic advisers. But the government was pushed by business lobbyists in the Duma to lower tax rates on corporate profits even further than it had planned.
Another supposed change effected by Putin relates to Russia's government structure. Putin has enacted five reforms that some claim amount to a revolution in Russian federalism. He has consolidated the country's 89 regions into seven administrative districts, each under a presidentially appointed prefect. He has pressed regional legislatures to reconcile their laws and constitutions with federal law. He has pushed through legislation authorizing him to ask a court to remove regional governors who repeatedly violate federal laws or the constitution. He has changed the system for appointing the federal parliament's upper house; instead of regional governors and legislative speakers serving ex officio, governors and legislatures now appoint representatives. Finally, Putin has overseen reforms of the tax system that have shrunk the regions' share of revenues.
Although together these reforms did reinvigorate the central government, the individual measures have had considerably less effect than was expected. Putin's seven presidential prefects were given unclear powers and few resources, and they face resistance from the federal ministries whose regional employees they supposedly coordinate. Although Putin's representatives may be able to intimidate weaker governors, stronger ones ignore them or exploit them for lobbying the capital. According to the pro-Kremlin newspaper Argumenti i Fakti, the president of Tatarstan, Mintimer Shaimiev, treats Putin's representative as he would a waiter: "First he listens attentively, then he orders his favorite dish."
Putin's campaign to harmonize regional and federal laws and constitutions has also mostly failed. Governors generally surrendered only those laws they cared little about and kept the ones they liked. And some local leaders—Tuva's president, for instance—used the opportunity to slip in additional clauses strengthening their own power. In December 2001, after 18 months of work, the Kremlin had to admit that 72 percent of Bashkortostan's laws still violated federal ones—even more than had at the start of the process. Both Bashkortostan and Tatarstan, meanwhile, have refused to withdraw their controversial claims to sovereignty.
Still other reforms, touted as revolutionary, look that way only with the help of a little amnesia. Since February 2001, Putin has had the authority, when supported by the courts, to fire recalcitrant governors. This mechanism is hard to use, however, and Putin has so far chosen instead to bribe uncooperative local leaders with federal jobs or other inducements to leave office voluntarily. If that fails, other methods are employed: for instance, one governor the Kremlin disliked was kept from running for reelection on a technicality. Although some disputed his authority to do so, Yeltsin was actually much more aggressive about firing troublesome governors outright, including several—such as Yuri Lodkin of Bryansk and Aleksandr Surat of Amur—who had been popularly elected. When regional chiefs have left under Putin, their replacements have often been little better than the originals. In both Primore and Sakha, the new governor came from the old one's inner circle. In fact, since early 2000, in those elections where the Kremlin expressed a clear preference, the candidate Moscow opposed won about half the time—a surprising fact, given that Putin's choices were often also incumbents.
Another of Putin's supposedly revolutionary reforms related to the system for choosing members of the upper house of parliament. But Putin was not the first Russian president to change this system. Yeltsin did so twice, in both 1993 and 1995. In fact, at one point, Yeltsin went so far as to have members of the upper house popularly elected (this lasted only from 1993 to 1995). In comparison, Putin's move, which merely replaced the governors and local legislative speakers in parliament with their chosen representatives, seems quite marginal. Although the new senators have so far supported most of Putin's initiatives, this allegiance reflects not institutional change but a political deal between regional and central elites (see below), along with Putin's current stratospheric popularity. Both the deal and the popularity may not last.
The most dramatic change Putin has actually made to the country's federal system is in the distribution of tax revenues. Subnational governments received 61 percent of total state revenues in 1998, but only 48 percent in 2001. A variety of reforms have centralized revenue sources and lowered tax rates largely at the regions' expense. Several factors made this change possible politically. First, Putin's team has exploited its unprecedented majority in the Duma and the interests of the poorer regions in a tactically astute manner. Since most regions get more in central transfers than they pay in taxes, they stood to gain if centralization increased still further. Richer "donor" regions, of course, protested the change—Moscow's mayor, Yuri Luzhkov, accused Putin of playing with the governors as if they were "skittles"—but they were outnumbered. Second, rapid economic growth meant that even though the regions lost revenues as a share of GDP, they gained in the aggregate in real terms. Total subnational budget revenues, corrected for inflation, were 15 percent higher in 2001 than in 1998.
Even these fiscal changes were not as radical or stable as might appear, however. Putin was actually completing a reform that had been conceived of and partly implemented in earlier years. The key players—Sergei Shatalov, Viktor Khristenko, Aleksei Lavrov, Yegor Gaidar—had sketched out most aspects of the change as early as 1997-98. And critical elements—the creation of a federal treasury, reform of the system of federal transfers—had already been implemented.
Furthermore, the current centralization of Russia's resources may prove no more than the temporary swing of a pendulum, similar to others that have alternately swelled and shrunk the federal tax share since the 1990s. Governors of donor regions, having lost revenues, now blame Moscow for its failure to provide local services. Putin won political credit for wiping out delays in paying pensions and public- sector wages. Now these are on the rise again, however, sparking sporadic protests and strikes from teachers and doctors. With parliamentary and presidential elections scheduled for 2003 and 2004, the federal budget is already being stretched thin—in classic Yeltsin-era fashion—to provide emergency aid to delinquent regions lest money troubles dent Putin's ratings.
All of this notwithstanding, it is true that the tenor of relations between Moscow and the governors has improved, far more than most observers—myself included—anticipated. But the current detente owes less to central intimidation and institution-building than to backroom deal-making of the Yeltsin variety. The governors' key priorities have been to stay in power and keep their newfound personal wealth. Putin has granted them this, at the expense of local democracy. To the dismay of his liberal supporters, he lobbied hard for a law that now exempts most sitting governors from the previous two-term limit, buying them the prospect of four—or even eight—more years. He also permitted governors to serve as federal senators after leaving office, thus acquiring political immunity. And by letting one notorious former governor, Yevgeny Nazdratenko of Primore, retire to the federal fisheries committee rather than to a prison cell, Putin has signaled to other local leaders accused of corruption that if they stay loyal all will be forgiven. Indeed, governors who play ball with Moscow have been left a relatively free hand to pressure mayors, manipulate elections, intimidate the local press, and collude with regional businesses. As a result, although the balance of power has shifted somewhat toward the center, in the words of Sergei Mitrokhin, deputy chairman of the Duma's committee on local government, "the foundations of Yeltsin's neo-feudal system remain."
In his annual address to parliament last April, Putin urged Russia's law enforcement agencies to mount a "tough struggle against the racket, administrative abuses, and corruption." His administration has shown an intelligent understanding of corruption's causes and has passed legislation to try to reduce it. Yet abuses seem to have become, if anything, more widespread. General crime has also increased: 1.3 million more crimes were registered in 1999-2001 than in the preceding three years. (This probably does not reflect greater zeal in enforcement, since the ratio of convictions to crimes registered went down slightly.) "Corruption is great," says Kakha Bendookidze, the chief executive officer of United Heavy Machinery (one of Russia's largest companies), "and so far the struggle against it is not effective."
Why not? Several obstacles stand in the way. Most obviously, Russia's system of oligarchical capitalism makes exposing and punishing senior officials difficult. No major figures have actually been prosecuted. Although highly placed bureaucrats are sometimes investigated and threatened with charges, the selectiveness of such incidents makes them look more like sorties in the covert struggle between clans than real cleanup efforts. The administration's intimidation of the press is also taking its toll: reports in the mass media of high-level corruption are now extremely rare.
Another reason corruption in Russia has been hard to reduce is because of the staggering number of agencies—local, regional, and federal—that are authorized to inspect and regulate businesses. To open up shop, a typical small retailer must first satisfy the licensing office, building inspectorate, police, fire department, health inspectorate, tax inspectors, tax police, trade inspectorate, labor inspectorate, consumer rights office, weights and measures center, environmental protection committee, and medical insurance fund. One entrepreneur recently told the newspaper Novie Izvestia he had to visit 24 offices, pay nearly $5,000 in fees, replace the bulbs of 35 street lamps, and resurface part of his street before he was allowed to build a small addition to his cafe.
Putin has pushed legislation through parliament that, as of July 1 this year, simplified business registration procedures. Since August 2001, moreover, each agency has been limited to inspecting businesses at most once every two years. However, an early study (by the Moscow Center for Economic and Financial Research) suggests that conditions have worsened since this rule was passed. The survey of 1,927 small and medium-size firms from 20 regions found that the average number of inspections by health officials rose from 0.95 in the first half of 2001 to 1.11 in the second, and the average number of visits by fire inspectors rose from 1.06 to 1.28. Since the law permits each inspection to last up to two months, the burden these place on businesses is enormous. And however good federal legislation is, it must often be enforced at the local or regional levels by precisely those agents accused of extracting bribes.
The Kremlin has also tried to fight corruption and general crime through judicial reform. On one hand, changes to the criminal procedural code have made it harder for police and prosecutors to arrest suspects arbitrarily: arrests must now be approved by a judge. Jury trials are to become more widespread. On the other hand, judicial reforms have also left judges slightly more dependent on the executive branch; instead of appointments for life, about half of judges now serve shorter terms, and their immunity from prosecution has been limited. The aim of this change was to end the impunity of judges who sold their verdicts to business interests. But some judges have apparently been so intimidated by these relatively minor changes that they have started issuing questionable rulings in prosecutors' favor.
Many in both the West and Russia have applauded Putin for dramatically reorienting Moscow's foreign policy. In the last two years, the president quietly accepted the U.S. abrogation of the Anti-Ballistic Missile Treaty and agreed with Washington to cut nuclear arsenals by two-thirds. He deepened Russian participation in NATO and softened opposition to NATO expansion into the Baltic. After September 11, Putin was quick to express solidarity with the United States, and he raised no objection to the temporary stationing of American troops in the former Soviet states of Central Asia. Moscow has also actively sought admission to the WTO. Such policies have won exuberant praise from Putin's supporters. In the words of the well-known reformer Anatoli Chubais, interviewed recently in Moskovskie Novosti, Putin has "turned Russian foreign policy around 180 degrees. ... There may never have been a change on a similar scale in all the history of Russian statehood."
Putin's warm embrace of the United States after September 11 was indeed a masterful step, which did make him some enemies in the Russian elite. To see Putin's foreign policy as radically new, however, requires both hyperbole and forgetfulness. Putin is, after all, the third Kremlin leader to be credited with "ending the Cold War." Without diminishing his contributions, they surely pale beside Mikhail Gorbachev's initiatives on arms control and acceptance of Eastern Europe's freedom, or Yeltsin's peaceful recognition of the other Soviet republics' independence. Russia's current course, in fact, looks less like a new departure than a return to the early Yeltsin policy. Even in Yeltsin's later years, under the combative Foreign Minister Yevgeny Primakov, Russia took some major steps toward partnership with the West—for instance, when it signed the Russia-NATO Founding Act in 1997.
Nor has Putin's pro-Western course been quite as politically risky as has sometimes been thought. As Putin himself has explained, closer ties to the West reflect not just "the political philosophy of Russian leaders" but Russia's "domestic situation and public opinion." Between May 1999 (after the Kosovo crisis) and late September 2001, the percentage of Russian survey respondents saying they felt "basically good" or "very good" about the United States doubled from 32 to 70 percent (according to the Russian Center for Public Opinion Research, VCIOM). And as of June 2002, the figure had not dipped below 59 percent. Although some military and academic elites have continued to grumble and public opinion becomes more ambivalent if one probes deeper, the basic orientation of Putin's policy continues to be popular.
In one obvious but tragic respect, Russia looks very much like it did seven years ago. Similar to Yeltsin in 1995, Putin has found himself fighting an unpopular and probably unwinnable war against Chechen guerrillas with no end in sight. Popular backing for the operation in Chechnya peaked in March 2000 at 73 percent of survey respondents. As of June 2002, however, only 33 percent of Russians favored continuing the war, and 59 percent thought Russia should begin peace negotiations. The Russian military admits that it has lost 4,200 soldiers since 1999, and the real total may be even higher.
In another regard—press freedom—Putin's government has distinguished itself from its predecessor. The Kremlin's heavy-handed approach toward critical media outlets has shocked liberal opinion. Vladimir Gusinsky and Boris Berezovsky, two oligarchs who controlled major television stations, have been forced into exile and pressured into selling their media shares. (The Kremlin denies any involvement and says the oligarchs fell afoul of independent prosecutors and creditors.) The news team from Gusinsky's NTV fled to Berezovsky's TV6, which then ran into financial problems itself. In the end, TV6 was pried out of Berezovsky's hands, but the journalists were allowed to stay. Meanwhile, the Gusinsky-funded newspaper Segodnya and the magazine Itogi also suffered hostile takeovers. Although satire and sharp criticism can still be found on small stations and in fringe publications, Sergei Ivanenko, a member of the Duma's committee on information policy, is probably right to say that in Russia today, "there is freedom of speech, but not in prime time."
Still, the difference from the Yeltsin years can be exaggerated, and the issues are more complicated than is sometimes understood. On the whole, Yeltsin was undeniably more tolerant than is Putin of a media that often criticized and ridiculed him. But at moments he also wavered. Putin's team was not the first to rough up Gusinsky's employees; in fact, Yeltsin's bodyguard, Aleksandr Korzhakov, raided the tycoon's offices in 1994 and rubbed the security guards' faces in the snow. Then again, Putin has in the end allowed Gusinsky's journalists to keep working. Yevgeny Kiselev, the oligarch's erstwhile news anchor, is back on television, although he now faces a new threat. This time, however, the danger is not state censorship; his show, even in cosmopolitan Moscow, has earned low ratings.
Even Russia's ardent liberals sometimes feel a bit ambivalent about defending Berezovsky's and Gusinsky's version of a "free" press. Both tycoons won shares or frequencies from the state in nontransparent deals and relied on large loans from state sources for operating expenses. Indeed, they often seemed like adolescents who prize their independence highly until the phone bill arrives. During election campaigns and sometimes in between, the tycoons turned their TV stations into blatant propaganda tools to push their own commercial or political interests. The oligarchs' brazen claims to have gotten Yeltsin reelected in 1996 by manipulating coverage—and their demands to be rewarded—helped to discredit them in a way that simplified Putin's task. This does not, of course, justify the state's attacks on press freedoms, but it does illuminate the somewhat ambiguous context.
Although the effectiveness and novelty of Putin's regime are often exaggerated, some significant changes have occurred since Yeltsin resigned. The most remarkable change, however, is not in Putin's policies but in his popularity. For the first time in more than a decade, Russia has a leader that the overwhelming majority of citizens support. Since October 1999, Putin's approval rating has varied between 61 and 84 percent. This kind of popularity helped secure the election of a Duma which, for the first time since 1992, is not dominated by the Communists or other opposition forces. And it facilitated the quick passage of legislation that had been blocked for five years or more.
What explains Russia's love affair with its leader? Putin's ratings jumped to their current level before voters knew almost anything about his policies except that he intended to take a tough stand on Chechnya. The initial leap, from 31 percent in August 1999 to 80 percent in November 1999, can be ascribed to public shock, since it came after terrorists bombed apartment blocks in central Russian cities and Chechen guerrillas invaded Dagestan. Putin's response—sending in the army and promising to "whack [the guerrillas] in the outhouse"—captured the public mood perfectly.
But the president's ratings have remained high even as the public has deserted him on Chechnya and as his image of decisiveness has faded. Some commentators now even speak of Putin's "Hamlet complex" or worry that he may be falling into a "Gorbachev trap" as he maneuvers between the "family" and his St. Petersburg proteges, unsure whether to side with economic liberals or the security forces. In fact, Putin's very lack of clarity may be a political asset, given the deep divisions in public opinion. Even strong supporters describe him as something of a chameleon. According to Chubais, Putin "has one fantastic characteristic—after a conversation with him everyone leaves convinced that now the president is on his side."
The sources of Putin's appeal are probably complex, but rapid growth in living standards has surely played a part. Real wages and pensions have risen steadily under his rule, and real wage arrears have dropped dramatically. This points to the second major difference from the Yeltsin era: for three years now, Russia has experienced rapid economic growth (5 percent in 1999, 9 percent in 2000, 5 percent in 2001, and 3.8 percent in the first half of 2002). Although poverty and inequality remain high, the upward trend has changed perceptions of the government markedly and given the state budget breathing room. The upturn reflects a recovery from the 1998 financial crisis, the benefits of a sharply devalued exchange rate, and rising oil prices. These effects have been exhausted, however, and growth, now based more on consumer demand than on these other factors, is slowing. A spike in oil prices caused by a war in the Middle East might give Russia an additional boost, but failing this event, the need for improvements in productivity will intensify.
Indeed, to the extent that Putin's popularity depends on continuing economic improvement—and political stability depends on his popularity—the current equilibrium looks vulnerable. With elections coming in 2003 and 2004, and $17 billion in debt payments due next year, Putin seems understandably anxious about the economic indicators. In outbursts reminiscent of Yeltsin, he recently berated the prime minister for offering an estimate of 2003 growth that was insufficiently "ambitious," and he scolded his ministers for letting wage arrears to teachers and doctors return.
A final difference from the Yeltsin years is more subtle. Despite the continuing obstacles in the way of Russia's modernization, there is in Moscow these days an unfamiliar whiff of optimism. Elites of all persuasions seem to have confidence in the future. Businesspeople say that, for the first time, they are planning years ahead, instead of day-to-day. The Communists have been defeated, Russia's westward movement is increasingly secure, and the present market economy—whatever its defects—is here to stay. One-third of Russians now expect that their lives "will become somewhat better" within a year, compared to just over one-eighth in July 1998. This psychological breakthrough may turn out to be as important in the end as objective continuities.
Even Putin's liberal political opponents say the words "reform" and "democracy," discredited for years by the economic turmoil and corruption of the 1990s, are coming back into fashion. Others speak of the gradual emergence of a civil society. Although human rights campaigners are genuinely alarmed by the security services' new assertiveness, they allow themselves a dose of humor and irony. The veteran liberal activist Valeria Novodvorskaya recently made a cameo appearance on a television sitcom about a struggling radio station. The embarrassed station manager has to cancel her interview because his bungling engineer has locked the door to the recording studio and lost the key. "It's the FSB," Novodvorskaya insists, "I'm 100 percent sure." When Putin's critics can make fun of their own suspicions, something must be on the right track.