Revolution from Above or Below?

Dr. Leon Aron of the American Enterprise Institute has published an extensive article surveying the troubling developments in Russian economic policy. I extract here some interesting passages: On the return of the strong state:

Key postulates of Russian national political culture–so magnificently and, many of us thought, permanently banished by Mikhail Gorbachev and Boris Yeltsin–have now returned in force. It is once again respectable to say that the glory of Russia is the state, that what is good for the state is necessarily good for the country, and that the strengthening of the state is society’s primary objective. Hence, the state functionary (naturally conceived as a model of enlightenment, probity, and public spirit) is today considered a far more effective agent of progress than a free press (so sensationalist and profit-seeking), the voter (so uneducated and fickle), the judge (a bribe-taker), or, heaven forbid, the private entrepreneur. In a 2005 book, Will Democracy Take in Russia?, Yevgeny Yasin–one of the earliest and most influential theorists of the Russian economic revolution, the mentor of those who led it, and minister of the economy between 1994 and 1997–has described the difference between the 1990’s and today as a clash between two starkly alternative visions of progress. The strategy followed by Yeltsin, he observes, was “modernization from below.” Its engine was private initiative, with big business in the lead, and minimal limitations on civil liberties and political rights. Putin, by contrast, is dedicated to “modernization from above,” with the state as the most powerful actor, the agenda-setter in economic matters as well as in politics. This has many precedents in Russian history, of course. Epitomized most clearly by Peter the Great and Stalin, “modernization from above” has been pursued, mutatis mutandis, by virtually all Russian leaders, the two most notable exceptions being Czar Alexander II (1855-1881) and Boris Yeltsin. Today, as during previous eras, the implementation of this policy has been accompanied by the loosening of restraints on the state so that it can better mold society to its ends. The executive once again dominates the legislature and the judiciary. Moscow’s control has been re-asserted over formerly self-governing provinces. The national mass media, especially television, also largely bow to the Kremlin. The police, the security services, and servile courts have become policy tools.

On private energy management and Yukos:

Few economic quips have been vindicated faster or more vividly. Despite “expert” warnings, parroted ad nauseam by American newspaper columnists, to the effect that the new owners would quickly strip their assets and flee abroad with the loot, between 1999 and 2004 the young tycoons (all of whom, to be sure, became fabulously rich) invested an estimated 88 percent of their profits, some $26 billion, in modern technology and new exploration. Gradually, the top oil firms also became more transparent, disclosing their asset and management structures and adopting Western accounting practices. Trillions of rubles were paid in taxes to the state and, for the first time in post-Soviet history, to shareholders. More important, during those six years, private oil production increased by 47 percent, as compared with 14 percent in the state-owned sector. Then came the re-nationalization of the oil industry. It started with an assault on Yukos, Russia’s largest private company, through a series of blatantly manipulated trials that began in 2004. In one instance, a judge ruled for the prosecution after spending only three days “examining” several hundred volumes of tax materials. In another, Yukos was assessed for tax liabilities that exceeded its income for the period in question. In 2005, Mikhail Khodorkovsky–the company’s founder and, at the time, Russia’s richest man–ended two years of incarceration to begin a nine-year sentence in a prison camp in eastern Siberia, on the Chinese border, three thousand miles from Moscow. Yukos was bankrupted. Its largest production unit was quickly sold to a front company that, in a matter of days, resold it to Rosneft, a stagnant, poorly managed state-owned firm controlled by Igor Sechin, a Putin confidant and deputy chief of staff, who had taken over as chairman of the board in 2004, the same year Yukos was put on trial. Today Rosneft is the second-largest oil company in Russia; yet even after robbing Yukos, it is weighed down by debts of over $11 billion.

On foreign policy and Iran:

Nevertheless, although Russian foreign policy today is supremely pragmatic, it is conducted in a way that points to looming trouble. Putin has tried to win the greatest possible freedom of action for Russia by positioning the country above the international fray. To achieve this maneuverability, he has refused to bind himself to formerly important tenets like “democracy,” “human rights,” and “Western civilization,” rejecting alliances based on these precepts in favor of “working directly,” one on one, with a range of countries, many of them very unsavory. Without regard to the substantive merits of individual cases, Moscow is seeking to arrogate to itself a crucial role in today’s international process, collecting the attendant dividends as it goes along. A chief element in this realpolitik has been the Kremlin’s readiness to leverage key Russian assets in the form of conventional arms, nuclear technology, and energy resources. Thus, Moscow saw its delivery of tactical air-defense missiles to Syria in 2005 as a means of restoring its influence in the Middle East. Similarly, earlier this year the Kremlin played host to the leaders of Hamas in an attempt at diplomatic arbitrage, hoping to obtain concessions (like the recognition of Israel’s right to exist) and to emerge thereby as an indispensable mediator between East and West. The locus classicus of Putin’s new foreign strategy has been, of course, Moscow’s relations with Tehran. Russia has almost finished the Islamic Republic’s $1-billion nuclear power plant at Bushehr, and continues to oppose any effective sanctions aimed at forcing the regime to halt its march toward nuclear enrichment (a march that Moscow staunchly defends as the “peaceful development of nuclear energy”). Despite insistent requests by Washington, Russia has also resumed arms sales to Tehran, suspended by Yeltsin in 1995. The most recent deal, signed in December 2005, will provide mobile air-defense missile systems, MIG fighter jets, Su-24 bombers, T-72 tanks, and patrol boats. With the country’s gold and currency reserves approaching $300 billion, Moscow’s motive in cultivating Iran is not primarily financial; the controversial agreements are worth just a few billion dollars. Nor is Putin driven by ideological opposition to American “imperialism” or to the American alliance with Israel. Indeed, last April a Russian rocket, launched from a cosmodrome in the Far East, carried into orbit an Israeli spy satellite that undoubtedly will be used to monitor Iran’s “peaceful” nuclear program.