Russia: resurgent nation
SCMP June 17
Even by its own unsurpassed standards of 20th century
misery - war, revolution and Stalinist purges - the last decade of the
20th century was a dismal one for Russians. While the US was riding
high on military supremacy and technological euphoria, its former rival
collapsed, its empire gone, its social structure in tatters, its people
But as the first decade of the 21st century gets into
its stride, we may be witnessing a reversal of roles. No, the US is
not going to collapse like the Soviet system, the Russian empire is
not about to be restored and Russians will not be as rich as Germans
by 2010. However, the tide may have turned for Russia as well as the
The US looks likely to have several years of adjusting
to the consumer and corporate excesses of the past decade. Its budget
and its alliances could also be stretched to breaking point by the imperialist
and unilateralist attitudes of the Bush Jr administration. Russia meanwhile
is beginning to show a coherence in both economic and foreign policy
not see since the days of Mr Kruschev.
Short visits can be misleading, but having just been
back to Russia for the first time since 1996, I was struck not just
by the improved appearance of the place but by the return of a degree
of optimism. The post-Soviet system is no longer just a collection of
robber baron fiefdoms but is beginning to work for Russians as a whole.
For sure, huge problems remain. Corrupt oligopolies still
dominate large tracts of the economy. Provincial bosses still thwart
Moscow. Law is often a marketable commodity and order is still tenuous
in some places. Chechnya is an unresolved tragedy and relations with
other ethnic minorities, Muslim ones especially, fragile. Bureaucratic
ways inherited from the Communist era are still entrenched. Exasperated
foreigners get a resigned "this is Russia" shrug when they complain
about procedures which make India seem efficient. Investors face a host
of obstacles and special interests, not to mention some lingering Marxist
views of private capital which have been re-enforced by the behaviour
of the robber barons.
But generally things are getting better. The economy
has grown an average 6% a year since its nadir in 1998, the flight of
capital has slowed dramatically, the rouble has become quite stable,
government finances are much improved and more locally made consumer
goods are available. Even Aeroflot has acquire a reputation for punctuality
which puts many foreign carriers to shame.
Some of this may be attributable transient factors --
better oil prices, the beneficial impact of the 1998 devaluation, and
a natural bounce from the late 90s nadir. The World Bank warns that
unless market-oriented and institutional reforms continue growth could
slip back to 2%. On the other hand, reforms could boost it to a sustainable
6% as Russia catches up with Europe in the same way as poor southern
Europe caught up with rich northern Europe under the stimulus of EU
trade and investment.
Indeed President Putin appears to be giving priority
to long term economic goals. He has accepted with barely a murmur the
US military presence in the former Soviet central Asian nations, which
Moscow would still like to think of as client states. He has made only
mild verbal protests against US abrogation of the Anti-Ballistic Missile
Treaty. He has had to suffer Washington's Israeli inspired attempts
to dictate Russia's policies towards its major Muslim neigbour, Iran.
He has accepted the westward expansion of NATO and the EU to those now
thriving little bits of the Soviet empire, the Baltic states.
These are widely regarded as humiliations by Russians
- and not just the surviving Communists and the military. However, Putin
has for now accomplished enough on the home front, reviving the economy,
paying pensions, improving law and order situation, that he can withstand
critics of foreign policy. Even though Russians feel he has given away
too much to the West, they take comfort in the fact that Russia has
a younger leader than China, and a patently more coherent and intelligent
one than America.
Putin appears a realist as well as a strategic thinker.
He knows that Russia can merely obstruct, not prevent, the developments
in central Asia and eastern Europe. He may even be happy that the US
has taken on itself part of the thankless the task of dealing with Muslim
fundamentalism in central Asia. At the same time Putin hopes that cooperation
will deliver benefits which help the Russian economy sustain its modernisation,
and so ensure his own political survival.
There is a long way to go. Investment inflow is still
weak. Russians still prefer the safety of Swiss banks and Cyprus companies
to domestic ones. However, at home the government has shown intelligence
in moving to a new now, flat tax system aimed at encouraging investment
and stabilising revenue.
Overseas his policies have been rewarded by recent acknowledgement
by the EU and US that Russia is now a market economy. That may not sound
much but it is a major step forward towards joining the World Trade
Organisation and meanwhile will provide Russian exporters with a little
more protection against anti-dumping measures in those markets.
There will be much resistance in Russia, as in China,
to trade liberalisation particularly as it effects such middle technology
industries as autos. Meanwhile, access problems will make it difficult
for Russia, even assuming it makes the necessary new investments, to
regain its pre-revolution position as a food exporter. Foreign investment
in Russia remains minute compared with China.
Nonetheless, there has been a surge of western interest
and with its huge supply of skilled people. Russia is an attractive
market particularly for service industries which were neglected under
the Soviets but now face fewer obstacles from entrenched interests.
Foreign investment in natural resources has been slow to take off due
to the difficulties of dealing either with the Russian oil and metal
giants, or local interests more interested in quick rewards for themselves
than in establishing viable enterprises.
But again, things are changing. Some of the oil companies
have acquired new, modern management. Some local bosses have realised
that attracting investment and jobs has political rewards. Whether Russia
can finally make the transition to a market economy integrated with
the west and the world, as former satellites such as Poland have almost
done, remains to be seen. It lacks any equivalent of the overseas Chinese
whose capital and trade links began China's post-Mao surge.
On the other hand, Europe is not so far away and memories
of past western inspired modernisations - such as those of Peter the
Great - are deeply embedded. Whether or not this transition happens,
it is no longer a pipe-dream. It is a real possibility.
Events will certainly be watched closely by China, which
cannot be entirely pleased by the extent of the Russian rapprochement
with NATO. The recent summit in St Petersburg of the Shanghai Cooperation
Organisation, the group linking China to Russia and the central Asian
states, was clearly hard pressed to find new common ground.
Russia and China are united in worrying about Muslim
fundamentalism in central Asia. They are united in resenting what they
see as US hegemonism. They have some mutual interests in developing
trade, especially in natural resources. And for now at least Russia
is happy to make money selling advanced planes and submarines which
increase Beijing's military threat to Taiwan. But an economically revived
Russia with closer ties to Europe, if not to the US, close links with
India and more able to secure its Far East territories may not be seen
as in China's best long term interest.
China offers a big potential market for central Asian
states, but a revived Russia will through its minorities and the Soviet
era rail and pipeline systems easily outweigh Chinese influence in central
Asia. China benefited immensely from the period when Russia was enemy
of the west, then from the period of Soviet collapse. So it has reason
to be concerned with the reversal of these factors. It would be more
so were the Japanese and Russians able to put the past behind them and
look to their future mutual interests.
In short, Russia is no longer an ogre, no longer a joke.
It is a middle power just beginning to reclaim some of the influence
that an educated, industrialised, nuclear-armed country stretching from
the Bering to the Baltic and Black seas would normally expect. Ends