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The Missing Link In Putin's Reforms


Just six years ago, Russia was in financial crisis. The government defaulted on its ruble debt and declared a moratorium on principal payments on some foreign-currency loans. After that, badly burned foreign investors treated anything Russian like toxic waste. Yet contrary to almost all expectations, the economy grew 38% in the following five years. Now, Russia has a towering trade surplus of $60 billion a year, the economy is growing at a robust annual rate of 7%, and the productivity of workers is soaring. Newly affluent Russians network by cell phone, buy laptops, and tool around in foreign cars.

President Vladimir V. Putin deserves at least part of the credit for Russia's abrupt turn toward prosperity. Much to the surprise of his critics, under Putin's leadership Russia has taken several critical steps toward modernizing the economy, including cutting taxes, abolishing restrictions on land ownership, insuring bank deposits, encouraging the setup of private pensions, and creating a more stable legal system for business. Putin cut the personal income tax to a flat rate of 13%, from up to 30% before, bringing millions of Russians in from the cold of the underground economy. For the first time, many Russians are asking their employers to report their full incomes to the government so they can demonstrate to banks that they have the wherewithal to make regular payments on mortgage, car, and credit-card borrowings. True, Russia's revival did benefit from the sharp rise in oil prices. Nevertheless, there's a good chance that Putin's broad-based reforms will strengthen Russia's economic core, allowing for continued prosperity even if oil prices tumble.

But these reforms are not enough. If Putin expects to earn a place in Russian history for his leadership, he must also renew efforts to improve the country's democratic institutions. Russia needs free, honest elections, an independent legislature, and an unfettered judiciary. Instead, Putin has steadily centralized power. In March, many observers believe he manipulated the election to guarantee himself a landslide even though he was certain to win reelection anyway.

Skeptics maintain that the Russian people aren't ready for democracy. It's certainly true that decades of totalitarian rule in Russia have damaged the trust and sense of community on which democracy is built. But just as Russia's economy has proved more resilient than expected, no one, including Putin, should underestimate the country's potential -- and its need -- to flourish as a democracy.


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