Global Economics

Commentary: Fixing What Ails Russia


A new study shows leading executives view Russia's declining population and a disregard for citizens' rights among its major challenges through 2020

Grumpy, crude, xenophobic Russia is suddenly...cool.

The country's youthful football squad this week gracefully obliterated the doddering Swedes to clinch a place in the Euro 2008 quarterfinals. The Russian heartthrob Dima Bilan just wrapped up a winner's tour after becoming tsar of the Eurovision music contest. Russia's new president is young, hip, and liberal-talking and, unlike his predecessors, did not rise from the ashes of the KGB or the Soviet hierarchy.

For Russians (and the Kremlin), being cool must be a welcome break from the past. The days of imperial breakup, financial collapse, a boozy president, and sinking submarines seem long gone.

But before the celebration gets too out of hand, there are fresh reminders that well-executed goals, good harmony and even stratospheric energy prices can't mask Russia's deeper problems.

A study by the New Economic School in Moscow and the Vedomosti business daily presents what leading executives see as major challenges for the country through 2020. Their responses are remarkably forthright, given the pattern of recent years to muzzle, or even jail, Kremlin critics.

The authors of the study, NES rector Sergey Guriev and Igor Feyukin, of the NES Center for Economic and Financial Research, chose representatives of private and state-owned companies with a bias against the monolithic, Kremlin-controlled energy sector. They invited 100 people to participate, but only 58 executives and economic experts did so. Guriev presented his findings at the glitzy St. Petersburg International Economic Forum on 8 June.

The study's participants believe "the lack of political competition and restrictions on political, economic and personal freedoms" are "a serious problem for the country." The vast majority are concerned about Russia's declining population, but also see corruption, the lack of an independent and effective judiciary and a disregard for citizens' rights by the authorities as the leading challenges in the near future.

Executives think the solution to corruption and state inefficiency can be found through "broader political change in the country." One respondent said that the situation requires the "liberalization of civil society, a reduction of barriers for business, and the modernization of government institutions in accordance with the aspirations and business and civil society."

"In the eyes of many, the current problems are connected with the low level of competition in the country," the study's authors write. Another of their respondents thought what is needed is "more competition, a fight against the fusion of government and business and against monopolization."

Social changes are also needed. The executives see Russia's health system, schools and pensioners all struggling from neglect, at a time when Russia is raking in record profits on oil and natural gas, and amassing a huge stabilization fund.

Young people also need to be more active if Russia is to be a better place in the next 12 years. One participant in the NES study called for "greater social activism," while another warns of "apathy among a large portion of the younger generations towards their personal lives, work, career and country."

In a nation now dominated by Vladimir Putin's United Russia Party, the entrepreneurs call for greater pluralism, a decentralization of authority, and more media independence. And in what appears to be a direct attack on the state takeover of companies like Yukos and the jailing of its founder on tax-evasion charges, respondents want their government to "stop using law-enforcement agencies as a tool for achieving business ends."

The study suggests that entrepreneurs may not fully agree with the global assertiveness of the Putin years. Only 22 percent of executives see a "strong" Russia as important in 2020. Some respondents even think there is a future for Russia in NATO and the European Union.

THIS ISN'T DAS KAPITAL

But Russia's captains of industry have hardly become revolutionaries. They appear to be more concerned about rule of law, education and responsive government than "democratization," the buzzword tossed about by the Kremlin's domestic and external critics. The study shows that 81 percent of the participants want their children to live and work in Russia, and there is consensus that Russia is a good place to do business, and would be an even more favorable climate if the country had better-educated, healthier and more productive workers.

This admittedly is an elite group, running some of Russia's biggest companies. But their views, added to the those of rights activists and some liberal politicians, show there is far from universal agreement that the Putin years were cast in gold. Putin railed against corruption and cronyism, while fostering it at the highest levels of power. He presented a sober, law-abiding image and adopted e-mail chats and call-in shows to help connect to the people. Yet behind the scenes, he consolidated political power, infected the central government and the regions with loyalists, and replaced whatever semblance of public service ethic that existed under his bumbling predecessor with one based on party obedience.

The World Bank's most recent "Russian Economic Report," released 18 June, also exposes the raw edges of Russia and the failings of the Putin years. It touches many of the same issues as the NES study: "The investment climate in Russia still suffers from well documented challenges and uncertainties in public governance, especially related to fighting corruption, protecting and enforcing property rights, facilitating competition, removing barriers to migration and strengthening judicial independence and transparency."

President Dmitry Medvedev, Putin's anointed successor, has acknowledged such weaknesses, as well as problems with the social safety net in his vast and aging country. In his inaugural speech in May, he warned of "legal nihilism that is such a serious hindrance to modern development." On 7 June at the St. Petersburg forum, he acknowledged that corruption "is unfortunately a serious problem in Russia."

Medvedev may well follow his predecessor's habit of talking a good show while silencing those he doesn't like. But if Medvedev wants to show he has a mind of his own, he may want to take the critics more seriously. He should start by listening to Russia's capitalists.


Steve Ballmer, Power Forward
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