Conditions for Crisis

David Satter has an opinion article in the Wall Street Journal today, arguing that Putin’s “manipulation of the political system – amid the fights between ruling clans for money and power – can only create the conditions for an eventual, systemic crisis in Russia posing a danger for the world.” Check it out after the cut.

Putin Changes Jobs – And RussiaBy DAVID SATTERDmitri Medvedev was sworn in Wednesday as president of the Russian Federation in the Great Kremlin Palace. But the Russian political elite has no idea whether Mr. Medvedev will be the real president or only a figurehead. Neither do the voters. Amid signs of instability in the country, this situation is causing anxiety.Formally, the Russian president has enormous power. He is commander in chief of the armed forces, can hire and fire the prime minister, appoint ministers, dissolve the parliament, and set the main lines of the country’s foreign and domestic policy. But Mr. Medvedev may not be free to exercise his authority.Vladimir Putin promised he would retire from politics in 2008. But everything now indicates that, as a result of agreements between the various power groupings, he will continue to play the main role in the government.In February, Mr. Putin laid out development goals for Russia through 2020. Last month, he was named chairman of the United Russia party, which has a majority in the State Duma sufficient, should the need arise, to impeach the president. Yesterday he was confirmed by the Duma as prime minister. Meanwhile, the Duma is working on a bill that will transfer administrative tasks to lower-level bureaucrats and leave the prime minister free to focus on strategy.If, as is widely expected here, article 32 of the law on government is amended to transfer authority over the military and security services and the foreign ministry to the prime minister, Mr. Putin will have the authority to continue to rule Russia regardless of the president. Postcommunist Russia can thus be ruled in reality (as opposed to appearance) by someone not elected as president, even in flawed elections.Meanwhile, there’s already a growing impression that Mr. Medvedev is a pale reflection of Mr. Putin. During his recent visit to Moscow, Egyptian President Hosni Mubarak noted that the images of Messrs. Putin and Medvedev are merging into one. “When I went to a meeting with Mr. Medvedev in the Kremlin,” he told Mr. Putin (as quoted in Reuters), “and saw you on the television at the same time, I found myself wondering who was who.”But the manipulation of the political system – amid the fights between ruling clans for money and power – can only create the conditions for an eventual, systemic crisis in Russia posing a danger for the world.According to Transparency International, the only country with more measurable corruption than Russia (as a percentage of per capita income) is Equatorial Guinea. Under Boris Yeltsin, the Russian economy was dominated by oligarchs who amassed fortunes on the strength of corrupt connections to government. Now, government officials are the oligarchs.Mr. Putin filled top leadership positions with his friends from St. Petersburg; men who, in addition to their government duties, sit on the boards of the most powerful state corporations and have access to their cash flows. Charges that they are stealing billions are ignored.In 2007, a Zurich tribunal ruled that Leonid Reiman, the telecommunications minister, is the beneficiary of $6 billion in telecommunications assets. This inspired no action in Russia beyond an attempt to censor the news. According to published accounts, Gennady Timchenko – co-founder of the oil trading company, Gunvor, through which a third of Russia’s oil exports are sold – has a net worth of $20 billion, half of which belongs to Mr. Putin. According to a report by Vladimir Milov (a former deputy minister of energy) and Boris Nemtsov (the former Russian first deputy prime minister) published on the Web site,, while Mr. Medvedev was the head of Gazprom, 6.3% of the shares worth $20 billion disappeared.Since government officials can use the organs of law enforcement to ruin their competitors (as occurred most famously in the Yukos case), offers from companies connected to government officials to buy out other private businesses are seldom refused. Meanwhile, the bureaucracy can extract endless bribes. One Moscow businessman described to an investigative reporter how he paid $1.3 million in construction costs and $1.8 million in bribes to erect a building for his office. Similar stories are legion.Forced to pay bribes, small- and medium-sized businesses are discouraged from investing in anything not immediately profitable. Without confidence in the future, Russia, despite a highly educated population, lags in the development of high technology. And if the price of oil falls, many Russian businesses face ruin: The weight of bribes to feed the bureaucracy will become unbearable at the same time a war will break out between bureaucratic clans for the remaining bribes, under the guise of a battle with corruption.The alternative to all this, of course, is the rule of law, to which Mr. Medvedev seems sympathetic. In an interview with the Financial Times, on March 24, he described Russia today as a land of “legal nihilism.” But even if Mr. Medvedev would like to act on his liberal pronouncements (which is far from certain), he has authority only according to the law; whereas Mr. Putin controls mechanisms able to assure that the law does not operate.In the end, the self-serving operations of Russia’s elite are based on a single assumption: The high prices for energy will last forever. But the decision of a society to count on its raw materials instead of its people is fraught with grave consequences.Oleg Deripaska is a 40-year-old magnate who rose to the top of Russia’s aluminum industry and is, by most press accounts, Russia’s richest man. He has been quoted in Reuters that he was confident that Vladimir Putin would rule until at least 2020. Mr. Deripaska may be right. But Russians will pay a high price for this rule – in xenophobia, apathy, inverted moral principles and a stunted future.Mr. Satter is affiliated with the Hoover Institution, the Hudson Institute and Johns Hopkins. He is writing a book on the Russian attitude to the Soviet past.