So, this is That Nasty Russia? (Part Two)

nasty russia part 2


Paul Goncharoff

With Boris Yeltsin’s New Year’s surprise in naming Vladimir Putin as acting president on January 1, 2000 a distinctly different management style steadily gained traction. Corruption, which always existed in one form or another, was for almost a decade one of the few smoothly working tools enabling many decisions, both necessary and unnecessary. The common element was that all business decisions according the laws had to go through a governmental approval/disapproval process, federal, regional or local. Decisions and permissions required by private business were an entirely new concept. They needed immediate resolution while at the same time the rules were either still unwritten or if written, not fully understood. Yet decisions had to be made, risking the lives and careers of those held accountable whilst the rulebook of responsible accountability was still being dreamed up. The country was yearning for stability, predictability, and an understanding of what the lay of the political land would allow.

There was tremendous wealth in the hands of those who were able to position themselves in the oil and gas sectors, the holdings while dated were largely functional. The same held true for mining and forestry. These were real assets, and the world’s bankers were more than eager to lend into them. So it went; improve what you can, manage what is possible, and in many ways trust and hope that sanity and innate conservatism in Russia will keep the ship afloat. The privatization and voucher schemes, while roundly criticized, did serve to get 15,000 state firms off the governments back, for better or worse. The downside was the strengthening of what came to be known as the ‘oligarchs,’ or closed circles of power and influence backed by funds. These were essentially extra-political action committees or lobbies without the legal guise of respectability. These were powerhouses similar to America’s Super PACS and largely above the law. Taxing the citizenry was a further issue, the rates initially brought to bear were patterned on the US and Europe, they were too complex, too high, and few were willing to pay into what was essentially a path to assured bankruptcy. The wealth of the country was offshore, largely off-the-books and cash was king.

The time for a ‘great national housecleaning’ was at hand, with all the additional anxieties that such sweeping change entails. The priorities both then and today are straightforward, but to achieve them has been an immensely difficult, time consuming and complex task. The advantages Putin and Russia had from the outset was the absence of some airy institutionalized ideology like the Soviet communist party making change not just a practical challenge but adding the baggage of ‘political correctness’ to the problem.

Many believe Russia is by its DNA an autocratic slam-dunk. To this day, I am surprised at the lack of understanding of how Russia is in fact governed. A unique form of consensus does play a key role. Misinterpretation may be because it is not like the American brand of democratic process, or the UK’s, nor is there an over-riding desire to wholly emulate either. Nonetheless, from every town in every region there is a trickle up and trickle down flow of social, economic, and opinion information-sharing directed to the regional offices of the governors. This is also duplicated to the federal ministries concerned at the regional level (checks & balances), municipal and local. Feedback flows are collected and reviewed at the federal level in Moscow. The president does not make policy decisions unilaterally; practically speaking he cannot, not without key consensus, and in coordination with several political/economic power blocks. Admittedly, this is a byzantine and to outsiders an insufficiently transparent process wherein not every political view is warmly embraced or accepted. Nevertheless, the process works in this place and time, and has resulted in significant improvements and stabilization of Russian society and economy. The steady evolution of the legal code, the evolution of an equitable judiciary, upgrading the military, social welfare, have all been steadily building up from the foundation of Russia’s new society.

When Putin came to be President, Russia was essentially bankrupt. It owed more money to the IMF than it had in foreign currency reserves. Funds were being siphoned offshore; oligarchic groups were ‘Teflon’ and pleased as punch. Over the ensuing years, a virtual ‘good housekeeping’ revolution took place. Starting in 2003 serious even draconian steps were taken to try to break the influence that non-government interests (Oligarchs) held in various areas of the body politic. Imagine the challenge if the task was in the USA, and the goal was limiting influence exerted by the interests of beltway political action committees (PAC’s) or other myriad Lobbies. Not so easy, perhaps even unimaginable. The necessary steps were roundly criticized by the global media, yet they clearly had to be taken if Russia was to have an independently determined future.

The speed and trajectory of Russia’s continued recovery was dependent on the willingness of policymakers to diversify revenue streams and maintain ongoing internal economic and monetary reforms. As it happens, the sanctions imposed on Russia, and the responding quid pro quo sanctions achieved what political and management structures of Russia were still only considering phasing in due to risks of potential social unrest. This was enhancing diversification from oil, gas and other natural resources to the many other insufficiently prioritized directions such as agriculture, commercialized high technologies, machine building, and consumer goods. Phasing in diversification was kick started by the sanctions imposed in 2014 forcing the issue of import replacement and substitution. The sanctions will eventually pass, and the oil price will find equilibrium, meanwhile the process of putting the Russian house into diversified order continues.

Today the GDP value of Russia represents 2.14 percent of the world economy. GDP in Russia averaged $876.86 billion from 1989 until 2015, reaching an all-time high of $2230.63 billion in 2013 and then the combined influence of the drop in oil prices combined with imposed sanctions had its effect on growth during 2014, 2015 and to a lesser degree in 2016. It is worth recalling that the total GDP in 1999 was US$ 195.91 billion. This sort of improvement roughly equals a greater than tenfold increase in as many years.

To try to sum it all up and include every dissonance, caricature and myth would take a hefty tome. Much of today’s unproductive accusatory game playing and demonizing might have been avoided if Russia’s 2008 proposal for western security was not dismissed out of hand. The red lines were stated clearly to the United States and the world by Russia as far back as 2006. Among them was the unacceptability and danger posed by potential inclusion of Ukraine and Georgia into NATO. The danger to Russia’s national security would only increase by having a potentially hostile military alliance on its Western borders. The media in the EU and the US seem to be fixated on continuing to portray Putin as some odious goblin wallowing in the juices of some corrupted cornucopia. Such a characterization and lampooning diverts us, it insults the truth, therefore ourselves. Russia may well be an authoritarian leaning democracy; it may not be in keeping with populist views, yet despite all that it works for Russia. It is also worth appreciating that Russia is not pushing views, values or otherwise  ‘evangelizing’ to anyone. Perhaps we should be more outraged in this new millennium that our values of responsible, educated, objective, journalism should be thriving but are not. Seems the finest ideals of a free press and international justice have indeed died in a world recently turned dangerously upside down. Where nations are accused, vilified, prejudged and sanctioned without evidence and which would be thrown out of the lowliest municipal courts, yet here we are. Let us hope that objective assessments plus rational reasoning will guide us in 2017 and beyond, for all our sakes.