Montrose Journal Spring 05

PUTIN’S RUSSIA: A RULES-BASED SOCIETY? -

In the international arena, Russia is a conservative power, anxious to uphold a rules-based order. This stance reflects the country's chastened post-Soviet condition, especially as the rules still nominally in force – first and foremost, the UN Security Council veto – were made at the apogee of Soviet power. The contrast with the United States – now, of course, anything but a status quo power, as it projects its values abroad in good Leninist style –must go down as one of the richer post-cold war ironies. Seen from Moscow, today's 'world without rules' began in 1999 when NATO attacked Yugoslavia because of actions taken by the Belgrade government within its own borders, and did so without a UN Security Council mandate which, had it been sought, Russia would have blocked.  

Turning to Russia's domestic affairs, the situation might seem the reverse. President Putin may have little international clout compared to his predecessors in the Kremlin, but his power is unchallenged at home, so it should come as no surprise to find him less inclined to be bound by rules. Three actions in particular during 2004 have created the impression that the rule of law is a low priority. First came a change to the way regional governors are chosen (they will now effectively be appointed by the President instead of being directly elected as hitherto). This reform sits uncomfortably, to say the least, with the federalist spirit of the Russian constitution. Secondly, 2004 saw the destruction of the shareholders' equity in Yukos by means of tax liabilities arising from repeat audits of the company's accounts for past tax years which previously had been closed by the tax authorities themselves, and regardless also of the statute of limitations in the Russian tax code. Meanwhile, Putin's ill-advised intervention in the Ukrainian presidential election suggested that he too is not averse to a little 'Leninism' by trying to export his brand of authoritarianism to the near abroad.

In the aftermath of his Ukrainian fiasco, Putin tried to cushion his pragmatic climbdown by scoring a few debating points against western critics. In particular, he has highlighted how US support for democracy in the FSU appears to be driven by expediency rather than principle. Pro-western opposition leaders like Ukraine's Viktor Yushchenko and Georgia's Mikhail Saakashvili have been backed by the US, which has not objected to the lack of democracy in other FSU states where hard authoritarian regimes support US economic (Azerbaijan) or security (Uzbekistan) interests. It would be hard to argue with this implied equivalence as regards the way that Russia and the US pursue their respective national interests in the FSU. But even despite the poor credentials of the US as a respecter of external rules, the US (and EU) are right to be concerned about the Putin administration's respect for the rule of law within Russia. Such concern tends to be focused on the active threat to western interests from a hardline, Belarussian-style dictatorship emerging in Russia itself. But the threat from any such scenario is more likely to be the opposite; a passive threat of Russia becoming chronically destabilised, with the elite (and a good part of the population) resisting regression to autocracy and isolation.

Fortunately, and contrary to recent impressions of the Putin administration as power-hungry and rent-seeking, Putin's rule does not look likely to end in such disaster. His early career in the KGB is endlessly recalled, but his legal training deserves to be given equal weight in attempts to understand and predict his actions. His declared commitment to the rule of law is unwavering. Especially notable was his formulation in a newspaper interview early in his presidency that given the situation where citizens justified non-compliance with the law (especially tax evasion) on the grounds of the obvious lawlessness of the state itself, the only way forward for the country was for the state and citizens to become law-abiding in parallel.1 The central reform goal here has been to make legality possible by producing laws which are consistent and reasonable. The best progress on this score has come in tax reform. A useful start has also been made in de-regulation, which is at the heart of the fight against corruption. A World Bank-financed study in ten regions has shown that laws enacted in 2002 to simplify new business registration and reduce companies' vulnerability to official extortion has started to bear fruit.2 It should go without saying that the Putin administration still has many mountains to climb in this crucial area. More fundamentally still, Putin tirelessly denies plans to amend the Constitution itself to keep himself in power after his second and final term ends in 2008. The succession to Putin in 2008 is now the central test of Russia's progress and status as a law-based democracy.

The credibility of Putin's commitment to respect the Basic Law – in other words, to renounce destabilising adventurism – has suffered most of all from the Yukos affair. But on close inspection, the original impulse was, paradoxically, a stabilising one. There is a mass of evidence that the attack on Yukos and its controlling shareholders (Mikhail Khodorkosvky and partners) was triggered by a perception that they were buying control of the state – in particular via votes in the State Duma blocking government policies (especially on oil taxation) of which they disapproved. Any such behaviour would violate the original state-oligarch deal – unwritten, but very clearly spoken, notably in a meeting in the Kremlin in July 2000 – whereby the privatisations were amnestied de facto in return for an understanding that the oligarchs would not use their controversially acquired wealth to privatise the state itself.

Seen in this perspective, the underlying goal in the Yukos affair was to uphold the rules of the game in this sensitive area of relations between the state and the massive concentrations of private wealth stemming from the notorious privatisations of the 1990s. The oligarch regime which emerged in Russia in President Yeltsin's second term seems mild in comparison with Kuchma's Ukraine, which is the most extreme example yet seen in the FSU of a state being captured by business ('oligarch') clans. These established controlling ownership of every part of the media, bureaucracy and (crucially) law enforcement: the judiciary was in the pay of one or other of the inside groups.

An important lesson of Putin's presidency – and the incoming Yushchenko administration in Ukraine will most likely bear this out as well – is that in post-Soviet conditions of a weak civil society, a strong central state seems to be the only practical alternative to a hollowed-out state captured by business 'oligarchs'. The 'strong state' model can produce even more corruption than an oligarch system. A good micro-example is the City of Moscow under the ever-popular mayor Yuri Luzhkov, whose paternalist largesse accounts for Muscovites' apparent indifference to what even by Russian standards are high levels of graft in the city administration. This most corrupt corporatist version of the 'strong state' model must eventually lead to economic stagnation and failure, and were this to be the outcome in Russia as a whole by, say, the end of this decade, then the risk of destabilisation would rise. If the ruling group was no longer legitimised by strong economic growth, it could try to maintain itself in power without popular consent. The democratic legitimacy of Russia's political system is well entrenched. That legitimacy is based on one institution – the presidency –which makes sense to people given the country's political history and tradition of centralisation. All opinion polls show solid majorities in favour of the election of a new President at the end of Putin's second and final term in 2008. Russians like having the right to choose their Tsar, and good numbers would struggle to defend that right if necessary.

"The 'strong state' model can produce even more corruption than an oligarch system"