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Russian Reform at a Turning Point

Much of Russian history is characterized by pendulum swings between orthodoxy and reform to overcome backwardness. Russia is again debating reform and the West has a vital stake.
William Courtney Denis Corboy Kenneth Yalowitz
12 February 2010

Historically, Russia reforms after a shock.  In 1861, serfs were freed after it lost the Crimean war.  A century ago defeat in the Russo-Japanese war caused mass unrest and led temporarily to a limited constitutional monarchy.  After the Soviet collapse in 1991, Russia accepted nearly all borders of the new independent states and began market reforms.  In 1998 following the Asian financial crisis Russia floated the ruble and established a low, flat personal income tax.

The world economic crisis may offer impetus for new reform.  Russia was hit very hard and is recovering slowly.  It is too dependent on exports of energy, with volatile prices.  Innovation and education are weakened and demographic and health problems are a time bomb.

Russia also faces notable political dilemmas.  Regional elections last October were a farce and have spurred unusual outrage.  Kremlin-centered corruption is worsening.  Last month over ten thousand anti-government protesters jammed streets in Kaliningrad.  Journalists and human rights activists are regularly murdered.  Terrorism and separatist pressures in the North Caucasus are growing.  Moscow backs a vicious ruler in Chechnya, and Russia continues to intimidate neighbors.  Recently prime minister and former president Vladimir Putin inveighed against Ukrainian-style competitive elections.  In contrast to the 2004 election, however, he did not intervene openly in favor of a specific candidate.

Apparently undaunted, President Medvedev is openly calling for bold political and economic reforms and “modernization,” but supporters of reform cannot match Putin’s cohort, which controls most large state industries and the security sector.  Moreover, Medvedev has just authorized a new, disquieting military doctrine.  It singles out NATO as the prime foreign threat, and a secret codicil may lay out a more aggressive approach to nuclear deterrence.

Still, there are hopeful signs.  Russia has ratified a key protocol of the European Court of Human Rights even though it often rules against the Kremlin.  A huge energy joint venture with BP is moving ahead again.  The new doctrine notwithstanding, some military reforms are finally taking place and Russia is negotiating a new strategic arms treaty with the U.S.  The medieval and stifling Russian practice of “propiskas,” or passes, may soon be junked, allowing change of residence and employment.

If Russian history is a guide, some reforms will come but how will they fare?  The early post-Soviet experience may be instructive.  Elite resistance and popular anger from corrupt privatization and steep price increases caused Yeltsin to halt reforms.  The death in December of Yegor Gaidar, economics guru to 1990s-era president Boris Yeltsin, is a reminder that incomplete reforms still jeopardize Russia’s future.

One lesson is that new reforms will fail without a wide consensus.   Another is that the West should back reform but play no personal favorites, as it did with Yeltsin. 

For reform to succeed this time, two tasks stand out.

First, there must be open examination and public debate of current conditions and past reforms and missteps.  If past reforms are seen negatively by large swaths of the population, a consensus for new ones will not be built.

Treatment of foreign investors is one field in which debate about reform will be more important.  Recently, Medvedev admitted that Russia has an “unfavorable” business climate.  Perhaps he had partly in mind the postponement earlier this month of the monstrous Shtokman gas project, involving Gasprom as the majority owner, and France’s Total and Norway’s Statoil.  While demand factors played a role in the postponement, Russia must give private investors a bigger and more reliable stake if it hopes to reverse a long-term decline in energy production. 

Second, Russia requires more breathing space to pursue reform.  It needs to change fundamentally its reliance on force in the North Caucasus and on coercion of neighbors.  The 2008 invasion of Georgia sparked capital flight and provoked the West.  Russia should reinvigorate pursuit of WTO membership and shy away from military steps, such as buying Mistral-class amphibious assault ships, which are sure to make neighbors and many Westerners wary.

The pendulum of history may or may not swing back toward reform.  Europe and the U.S. should not hesitate, however, in substantially elevating support for it.

Because of its deep economic ties to Europe, Russia needs a much closer and comprehensive European partnership, including harmonization to EU legislation and standards.  The International Monetary Fund and the U.S. helped anchor the early post-Soviet reforms, and the EU is now well placed to assist. 

Russia is unique because of its scale, great power status, and natural resources bounty.  Ties to Europe should reflect this.  A new EU-Russia Council ought to be created at the level of heads of state and government, with a permanent secretariat.  The symbolism is important and the Council could have a wide mandate.  For example, Russia may someday seek EU cooperation on reconstruction and reconciliation in the North Caucasus.

At the same time the U.S. and Europe need to be firm with Russia to discourage it from making mistakes, akin to the Georgian war, which are likely to undermine efforts to build a consensus for reform.  Renewed Russian reform can make the most important contribution to peace and stability in Europe.

 

Denis Corboy is director of the Caucasus Policy Institute at Kings College London and was European Commission ambassador to Georgia and Armenia.  William Courtney was Senior Director of the U.S. National Security Council staff for Russia, Ukraine, and Eurasia, and U.S. Ambassador to Kazakhstan and Georgia.  Kenneth Yalowitz is director of the Dickey Center for International Understanding at Dartmouth College and was U.S. ambassador to Belarus and Georgia and Economics Minister at the US embassy in Moscow.

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