Russia at the crossroads

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MOSCOW—Still emerging from a battering during the global financial crisis, Russia’s path can lead to either anti-corruption reforms or a continuation of flawed policies that hamper its development.

The 25th anniversary of Mikhail Gorbachev’s bold struggle to democratize the former Soviet Union via perestroika was marked this past week with recognition that many of his hoped-for reforms fell flat.

Gorbachev himself bemoaned failed economic and political reforms in speeches and a New York Times essay titled “Perestroika Lost.” He outlined widespread fear among Russians that further economic liberalization could result in a similar instability that led to the 1998 Russian financial crisis.

Plagued by sagging energy prices, last year the petro-based Russian economy shrunk 7.9 percent, the sharpest contraction since the 1991 dissolution of the USSR. The Russian government ran a budget deficit of 5.9 percent of GDP in 2009, according to World Bank figures, the first shortfall in a decade. Unemployment hit a high of 9.4 percent last February.

The solution to the former Soviet empire’s economic woes is not, as Russian Communist Party head Gennady Zyuganov suggested to me, a return to socialist principles from days past. Zyuganov blamed “[Boris] Yeltsin’s drunkenness and Gorbachev’s stupidity” for Russia’s stumbles, praising China as a model for liberalizing an economy but maintaining communist rule. While China has progressed tremendously (and shores up the U.S. financial system), Zyuganov’s zeal ignores the massive starvation suffered under the hands of earlier Chinese leaders, current prevalent Sino poverty and flagrant human rights abuses.

Fortunately, Zyuganov’s party holds just 13 percent of the Duma’s 450 parliamentary seats. Yet for Prime Minister Vladimir Putin’s United Russia Party, which holds 70 percent of seats, human rights are not a priority, either.

Alexey Venediktov, chief editor for opposition radio station Echo of Moscow, one of Russia’s only free media outlets, told me of the pressures his staff faced after the 2006 murder of anti-Putin journalist Anna Politkovskaya. Four staff members quit out of fear. Today, Echo staff members still receive physical threats, and Venediktov and his family hire armed bodyguards for protection. Russia’s democracy is far from realized.

Russians were among the hardest hit by the now-receding financial crisis, an event that forced Russia’s Central Bank to spend a third of its international reserves and  some $200 billion in bailouts. This figure pales compared to massive bailouts offered Wall Street barons, though Russia’s economy is just one-seventh the size of the United States’.

Despite a more recent stagnation, Russia had been on an upswing. Ten years under Prime Minister Vladimir Putin and President Dmitry Medvedev saw economic growth averaging 7 percent, a doubling of real disposable earnings and a rising middle class. Yet Russia’s still-rigid societal stratification ensures a few wealthy oligarchs pocket vast profits from oil and gas exports, which constitute the lion’s share of GDP.

Domestically, privately-owned firms face institutional biases like an unfair tax system and weak property rights. Vagit Alekperov, president of privately-owned oil Russian company Lukoil, told me of the chilling effect Russian government policies have on innovation and infrastructure development.

Even Alexander Medvedev, an executive at state-owned natural gas behemoth Gazprom, Russia’s largest company, told me that government customs policies and other bureaucratic pressures hobble his own business practices.

Foreign companies also face problems. British-owned oil company BP David Peattie recently detailed the high tariffs, corruption and anti-immigrant policies that discourage foreign investment.

From a U.S. perspective, progress is slow on economic and national security fronts. President Barack Obama’s missile defense concessions have not been reciprocated, though rekindling of the expired Strategic Arms Reduction Treaty appears promising. It is uncertain whether benefits from this revamped treaty will outweigh the damages to relations with allies Poland, Romania and the Czech Republic.

Despite the United States’ own recent financial mishaps, American capitalism has helped bring unprecedented political and economic stability to many regions of the world. But the United States failed to export capitalism’s comprehensive capacities to Russia in a meaningful way after the Cold War.

Last year, trade between Russia and the United States reportedly plummeted to $16 billion from $36 billion in 2008. Further harming relations are movements like the radical, Putin-backed Nashi organization, which are raising a generation plied with false, anti-American propaganda.

Looking ahead, U.S. officials are working to assist in economic integration, including bringing Russia into the World Trade Organization. But ultimately the push for reforms must come from within.

Evgeniy Primakov, former prime minister and current head of Russia’s Chamber of Commerce, called for a “quantum leap forward” in immigration reform, investment in science, technology and other fields. This will generate employment and diversify the Russian petrostate. Such progress would help bring the realization of perestroika.

Carrie Sheffield is a graduate student at the Harvard Kennedy School and a correspondent for the free-press advocacy organization Reporters Without Borders.

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