The uncertain return of Russian power

Issue: 116

Mike Haynes

Is the Cold War returning? Relations between Russia and the West now are at their lowest point since the mid-1980s, and some in the West are happy to interpret this as an impending return to the days of the Cold War. Under Vladimir Putin Russia has begun to recover from the low point of its “transition” in August 1998 when it defaulted on its $40 billion debt and the rouble lost 60 percent of its value in two months. Now, a decade on, some economic recovery has helped to give a foundation to some political recovery. The fact that Russia is a nuclear power with a permanent seat on the UN Security Council means that Moscow’s concerns are magnified in the world system and this creates difficulties and embarrassments for the United States in particular. When in May 2006 Dick Cheney, the US vice-president, denounced Russia’s use of oil and gas as “tools of intimidation and blackmail”, Putin responded by denouncing the US as “Comrade Wolf [who] knows whom to eat. He eats without listening and he is clearly not going to listen to anyone”.1

Those who believe that the Cold War was a clash between “capitalism” and “socialism” have little ability to explain this new tension since on any account Russia and the US are now part of the same system. Those who took a more sceptical view of the argument that the Cold War was some clash between systems are in less difficulty. Conflict is inherent in capitalism. The Cold War was not so much a clash between “capitalism” and “socialism” as between the globalising capitalism of the West and the more closed “state capitalisms” of the East—a clash whose real nature was disguised by the ideological claims of each side. The collapse of the USSR therefore removed conflicts at some levels, but left those at others untouched, and now, as before, Russia’s role in the global system balances cooperation and tension.

The Russian challenge?

Three aspects of Russian policy today have aroused concern in the West. The first is Russia’s reassertion of a degree of foreign policy independence. The US has stumbled in Iraq and this has provided a space for differences to be more openly expressed. A Russian government document put it bluntly in April 2007: “The myth about the unipolar world fell apart once and for all in Iraq… A strong, more self-confident Russia has become an integral part of positive changes in the world”.2 The argument was expressed more fully by President Putin at the Munich Conference on Security Policy in February 2007. Here he was sufficiently ill-mannered to state some fairly self-evident truths—from referring to the “hundreds and thousands of civilians” being killed in war today (in Iraq) to talking about the unequal trading relationships the West continues to impose on the poor countries of the world. But the centre of his attack was on the idea of a unipolar world, dominated by the US, with:

one centre of authority, one centre of force, one centre of decision making…one master…one sovereign…today we are witnessing an almost unconstrained use of force—military force…one state and, of course, first and foremost the United States, has overstepped the national borders in every way.3

The second aspect of Russian policy to cause concern has been the apparent deployment of its gas and oil power for economic and political advantage—”geostrategic blackmail”. Notoriously in January 2006 Russia temporarily cut off gas supplies to Ukraine; then Belarus appeared to be threatened and later Lithuania. These local actions threatened potential knock-on effects since 20 percent of Russian gas to Central and Western Europe goes through Belarus and 80 percent through Ukraine. Central and Western Europe are now directly dependent on Russian gas for 25 percent of their supplies, a figure that is expected to rise to around a third in 2010 and, according to some accounts, 70 percent by 2020. The idea that gas (and oil) controlled by state-based companies such as Gazprom might be used in a politically motivated way obviously raises concerns in Europe.4

The third element of concern about Russian policy has been the reconsolidation of Russian state power and its deployment against regime critics. Within Russia the Kremlin took on and jailed Russia’s biggest oligarch, Mikhail Khodorkovsky, and broke up his oil company, Yukos. The main TV media are clearly under Kremlin control, as is much of the formal political system. Beyond this, the finger of suspicion has been raised as various critics of state policy, corruption and criminalisation have died. Since 1993 over 150 journalists have been killed, for example. The most notorious killing, in October 2006, was that of Anna Politkovskaya, the best known journalist critic of Russia’s wars in Chechnya. Then in November 2006 came the spectacular killing in London of the otherwise minor figure of Alexander Litvinenko. How direct a role the Kremlin had in this remains speculative but it has not stopped people pointing the finger at the Putin regime.

But clashes of interest between states go beyond immediate triggers. Putin’s sharp words against the US are designed to get Russia a more prominent place at the high table, not to overturn it. And we obviously also need to tackle Western complaints about Russia with a pinch of salt, given the tendency of Western states also to turn a blind eye to repression wherever it is in their interests. In fact to understand what is happening we have to recognise the extent to which international tensions are structured by the basic state inequalities that exist in the global economy. The dominant player here since 1945 has been the US. Even during the Cold War the USSR struggled to challenge it, and once the USSR collapsed US power was massively increased relative to other states. In the words of Zbigniew Brzezinski, the US was now:

A power of unprecedented worldwide reach and grasp… America stands supreme in four distinctive domains of global power: militarily, it has unmatched global reach; economically, it remains the locomotive of global growth…technologically, it retains the overall lead in the cutting areas of innovation; and culturally, despite some crassness, it enjoys an appeal that is unrivalled.5

Today Russia’s policies reflect the interaction of internal and external elements, but to make sense of it we need to start with the external dimension and Russia’s changing reaction to the West’s policies of the last decade and a half.

American policy—pinning Russia back

In the midst of another diplomatic spat in spring 2007 an editorial in the Guardian claimed, “The West won the Cold War and advanced eastwards in time honoured fashion”.6 Seen from Moscow this is the truth of what has happened since 1991. The USSR broke up and Russia retreated, while the West in general and the US in particular advanced to fill the vacuum. In his 2007 Munich speech Putin quoted the words of a former Nato general secretary, Manfred Werner, from 1990: “The fact that we are ready not to place a Nato army outside of German territory gives the Soviet Union a firm security guarantee.” Today it looks very different, claimed Putin: “Nato has frontline forces on our borders.”

How should we explain the approach of the US and the West under its leadership? As the debacle in Iraq grows, few are prepared to defend the regime of George Bush, but blaming US policy on a Washington leadership supported by neoconservatives is too simplistic. Since the 1990s the US ruling class has held a shared view that this has been the US’s moment, but it is a moment that will not last and which must be maximised for its longer-term advantage. In the more liberal version of this vision this requires deployment of US soft power, a degree of self-sacrifice of immediate US interests for longer-term goals and a sensitive leadership. For the neocons the vision requires the deployment of hard power, self_interest and tough leadership. But both approaches are rooted in the same drive for global domination, and actual policy has involved elements of both. For example, from the standpoint of Russia’s leaders the recent Bush regime’s unilateralism only confirms tendencies that go back to the Clinton era and beyond that to the reign of George Bush Snr. The end of the Cold War was an opportunity to really contain Russia, at best as a “normal country”—ie a compliant and junior US client—at worst as a peripheral force. In 1992 the US Defence Planning Guidance paper said that the US should “account sufficiently for the interests of the advanced nations to discourage them from challenging our leadership or seeking to overturn the established economic and political order”.7

So far as Russia was concerned this produced a delicate balancing act. Some of the hard logic of this was spelled out at the time by Brzezinski. The focus of US power had to be on Europe and Asia, what he called, “the grand chessboard” and “the chief geopolitical prize”. Here Russia’s size and position make it “a major geo-strategic player, in spite of its weakened state and prolonged malaise”. It was therefore necessary to undermine it, externally by keeping the former Soviet bloc states beyond Moscow’s control, and internally, by balancing a concern with Russia’s economic recovery with the need to avoid strengthening Russia “politically and militarily”:

America thus faces a difficult dilemma regarding tactical balance and strategic purpose. Internal Russian recovery is essential to Russia’s democratisation and eventual Europeanisation. But any recovery of its imperial potential would be inimical to both these objectives.

Today, like many others, Brzezinski suggests that the tactics of Bush’s regime have weakened the US’s capacity to achieve its strategic objectives.8 But we should not let this argument detract from recognising the wider assumptions of an imperial strategic purpose.9 Equally the fact that the decisions made by the US sometimes reflect problems and opportunities not of its making (for example, the alacrity with which the former Central European states have turned to the West) should not distract us from also recognising that US policy has sought to use events for its own narrower ends.

US policy has produced many areas of friction with Russia but here we will mention four issues. The first has been US determination to push its global military dominance. This has partly been done by its support of the “son of Star Wars” project which has led it to unilaterally abrogate the 1972 Antiballistic Missile Treaty (one of the prizes of Cold War diplomacy) and to now threaten to locate (albeit encouraged by compliant local governments) radar bases in Poland and the Czech Republic. This system is supposed to be directed against rogue states but it only makes sense (if it makes sense!) if the threat is Russia. But American military dominance has also been reflected, from Moscow’s point of view, by US actions in Bosnia and Kosovo, Afghanistan and now Iraq.

The second tension arises from the way that the US has encouraged first the former Soviet bloc states of Central Europe and then the successor states of the USSR to link into the West, while seemingly excluding Russia. While Russian leaders expected states in its former sphere of influence to be integrated economically with the West, at one stage they naively believed this would not be accompanied by military and geo-political integration. In fact it was led by this, with Nato membership preceding the expansion of the European Union. In July 2006 Putin pointed out, “There is no more Warsaw Pact, no more Soviet Union, but Nato continues to exist and develop”.10 This is not simply an issue to the west and south of Moscow. To the east the US continues to help Japan modernise its military with half an eye on China and half on Russia. Western officials portray this in the most benign light, but a more cynical view might suggest that the wildest encirclement ideas of the Cold War hawks in Washington are being realised while many of the darkest nightmares of Russian Cold War warriors in Moscow are coming true.

A third tension is competition over oil and energy. While any deployment of energy power by Russia is seen as illegitimate, the US is determined to maintain its supplies of cheap oil by whatever economic, political and military actions are necessary. As George Bush Snr infamously put it in 1992, “The American way of life is not negotiable.” Oil and energy pipeline issues have therefore become mixed up with US policies around the globe, and not least in Iraq. The result is not merely distrust of Russian energy power but its sidelining in areas where Moscow feels it might have legitimate interests.

Finally, we should also note the aggravation of a fourth element—the imperial arrogance of US policy. Beggars cannot be choosers. The US does not have therefore even to make minor accommodations. Trivial in itself but telling symbolically has been the US tardiness in dealing with relics of the Cold War such as the 1974 Jackson-Vanek amendment which treated the USSR/Russia as an economic pariah state. During the Cold War US policymakers had to disguise their real designs to some degree in order to win hearts and minds. The real dynamics of US policy were therefore often set out in semi-confidential and confidential documents, hinted at and alluded to. Today they are discussed openly. Not everybody is prepared to grit their teeth and accept this. Russia’s leaders believe they should also be accorded a degree of respect. As one Western diplomat said at the time of the St Petersburg G8 summit in 2006, they have all “the right suits, watches and the right cars”.11

In making these points we are not trying to justify the Putin regime or defend “a lesser imperial power” against a “major imperial power”. This is not the issue. Rather our point is that Western commentators and politicians who claim that Western policy is benign and Russia’s response paranoid need to be more realistic. Of course there is self-interest and arrogance in Russia’s own position (not least in its failure to understand the grievances of the states that it formerly ruled). There is also an element of play acting and a degree of paranoia too. But, as the saying goes, just because you are paranoid it doesn’t mean that they are not out to get you.

The fall of Russia

Russia hit rock bottom both internally and externally in the crisis of the summer of 1998. It had lost its Eastern European empire in 1989. Then in 1991 the Soviet Union was broken up, leaving Russia the largest fragment with 148 million out of its population of 288 million. Economic output fell by 45 percent during the transition to market capitalism—a virtually unique peacetime collapse. And in 1998, as the rouble crashed, it all seemed for nothing. The mass of the population suffered enormously in a social catastrophe. Male life expectancy fell from 64.2 years in 1989 to 57.6 in 1994 (female life expectancy fell by 3.3 years in the same period). The birth rate fell from 13.4 (per thousand individuals per year) in 1990 to a low of 8.3 in 1999; the death rate rose from 11.2 in 1990 to a peak of 16.4 in 2003. Russia’s total population would have fallen more had it not been for migration from the “near abroad” of the former states of the USSR of 2.5 million people pushed out by equal penury and fear of anti-Russian moods.12

But in the process there were winners as well as losers. The Russian ruling class was restructured in no small part through grabbing the state property that it once managed. This involved three stages. The first was the spontaneous “nomenklatura privatisation” of 1989-92 when, as one Russian put it, many of those managing resources pursued the smell of property like a beast after prey. Formal privatisation took place in the 1992_5 period in what was, in effect, a further managerial buy out. The third stage was when Boris Yeltsin exchanged key state holdings for financial support—a set of deals that consolidated and increased the holdings of the so-called oligarchs. The aim of those at the top was to convert their de facto control of state property into de jure (legal) control of it as private property and in the process to plunder it as much as possible. Investment all but collapsed, falling to about 20 percent of the levels of a decade earlier. Inequality grew dramatically. On the basis of the 2004 Forbes Rich List it has been calculated that, while the wealth of US billionaires was equivalent to some 7 percent of output, the wealth controlled by the then 26 Russian billionaires was 19 percent of Russian output.13 Some of the new wealth was spent ostentatiously in Russia but much of it was carried abroad. Often money was laundered through the financial system in what economists call “capital flight” but some of it taken out in cruder forms: “I saw people with suitcases stuffed with money,” said one of the people who helped some of this cash re-emerge in London. “It was a fallout from what was sweeping Russia at the time; it was the Wild West. Much of the money had been made in state sell-offs and it seemed with every new convulsion there, a new wave of exiles arrived”.14

The paradox of the transition and the Yeltsin era was its combination of continuity and instability. Key state institutions survived—the bureaucracy, the military, the secret police, etc. Many of the new players turned out to be the old ones, or their children or acolytes. But the structures of power were weakened as insiders and opportunists seized their chance. What in Russia are called the “verticals” of power—the links between the top and bottom of society, and the links between the centre and the regions, were thrown into disarray. Some thought this would last forever. Boris Berezovsky suggested that 50 percent of the economy was controlled by seven oligarchs and Mikhail Khodorkovsky said, “Politics is the most lucrative field of business in Russia. And it will be this way forever”.15

This plunder weakened Russia within and without to such a degree that even members of the ruling class began to see that some greater degree of order was necessary lest Russia become a “failed state”. The problem was whether things could begin to be put back together. When power formally passed to Putin at the turn of 2000 it was not obvious that they could. How has he managed to be more successful than many anticipated?

The recovery of Russian economic and state power?

In March 1999 the Economist magazine made a spectacularly bad prediction: “The world is awash with oil and likely to remain so”, oil was selling at $10 a barrel and might fall to $5, but “basket cases” such as Russia and Nigeria would have to sell it whatever the price, and so endure “huge budget and current account deficits”.16 Today, of course, oil economies are awash with cash. By 2002 oil prices were in the range of $22 to $28 a barrel, and by mid-2006 they had hit $75 a barrel. This windfall came courtesy of George Bush and the war in Iraq.

Since 1998 Russia has grown at around 6 to 7 percent a year on average. Today it is near to exceeding its 1991 levels of per capita output, albeit with a very different income distribution. The decade and a half of lost growth appears to have come to an end. Inevitably economists debate the explanation for this turnaround. One factor is that the 1998 collapse made imports much more expensive, providing some space for Russian production to expand. The question is the balance between any internal recovery and the oil windfall. For Russia’s leaders, as well as those who supported the market transition, it is important that the state that they head be something more than an “energy superpower”, that something more has been achieved than simply turning the country from what cynics used to call “Upper Volta with rockets” to “Upper Volta with oil wells (and a few rockets)”. And it is true that as growth continues its base must widen. But taking all this into account (and allowing for a whole series of technical issues about how to deal with the continuing distortions in the measurement of output) it is difficult to escape the conclusion that energy exports have been and remain at the core of Russia’s recovery.

One OECD economist talks of “the staggering extent to which recent growth has been driven by the expansion of output and exports of the national resource sector, and especially by…Russian oil companies”. This resource sector also includes steel, aluminium, nickel and fertiliser. But beyond it, however, “Russian industry is still unable to compete with imports of many sought after consumer goods”.17 Indeed this dependence produces the fear that Russian industry will remain weakly competitive because energy sales help to keep the value of the rouble high and therefore weaken competitiveness (what economists refer to as the “Dutch disease” said to particularly characterise oil economies).

The data in tables 4 and 5 in the appendix to this article show the unbalanced distribution of gas and oil reserves and production in relation to global demand. Currently Russia is the world’s second largest oil exporter. In 2004, for example, energy exports made up 55 percent of total exports with metals a further 14 percent. Machinery and equipment were only 7 percent. Table 1, however, shows that the actual production of gas and oil is not as impressive as it has been in the past, despite their central role in the internal and external economy. Resource-rich regions, as well as Moscow and St Petersburg, have benefited disproportionately from Russia’s extractive recovery.18

Figure 1: Recovery of the Russian Economy
1989/1990 = 100

Source: derived from data in UN Economic Commission for Europe Database

Figure 1

The continued outflow of capital is now compensated by significant inflows of foreign investment. But this too is heavily concentrated in energy and extraction. Beyond these sectors foreign direct investment is focused in property, commerce and the food industries.

Table 1: Russian energy production
Data drawn from Simchera, 2007, and Goskomstat, 2005 (* data for 2004)
Year Oil production (million tonnes) Exports of oil and oil products (million tonnes) Average oil price ($ per tonne) Gas production (billion cubic metres) Gas exports (billion cubic metres)
1980 547 254
1985 542 462
1990 516 641
1995 307 162.1 103 595 180.3
2000 324 207.6 180 584 194.0
2005 470 339.1* 232* 641* 200.1*

The Putin regime has been able to use this energy driven recovery to create a degree of order within Russia, imposing what is euphemistically called “a managed democracy”. In doing this Putin has often moved cautiously. Even if his ultimate destination has been a strong Russian state, Putin’s policies seem designed to build on, rather than call into question, the post-Soviet settlement. Several elements of this are important.

The first is the relation of the Putin regime to Russia’s business class. This is the subject of some controversy. Is the regime the friend or foe of Russian business? To what extent is business colonising the state or is the state colonising business? While some commentators see the Putin regime as a threat to business and, through this, to a continued market transition, others see it as their guarantor. Similarly, while some are struck by the role of political appointees and members of the former security forces at the top of Russian companies, others are struck by the direct access that business has to the state. It is important not to overestimate the strength of the Russian state and the political regime. If much business is dependent on the state, so is the state dependent on business.

There is no contradiction between a degree of state recovery and the broader interests of those who control the Russian economy. As Thompson, another OECD economist, has put it, “For Russia’s new rich, state-building and structural reform were intended to consolidate the victories they had won in the 1990s”.19 One aspect of this is the deal Putin supposedly struck with 21 representatives of big business in July 2000. What happened is not known precisely, but the popular account is that Putin agreed to leave the changes of the 1990s untouched provided business leaders in turn supported the state and his regime and did not make political capital against him. This seems to be more or less what has happened.

The evidence against this is the fate of some of the biggest oligarchs of the Yeltsin era. Boris Berezovsky has been given political asylum in the UK, Vladimir Gusinsky lives in the US and Israel, and Mikhail Khodorkovsky—Russia’s biggest new capitalist—is in jail for tax fraud and his company, Yukos, effectively renationalised. These are spectacular cases but in each instance these oligarchs appeared as potential centres of open opposition to Putin. Beyond them, however, the pillaging of the 1990s produced a super-rich elite with over 50 dollar billionaires and some 100,000 dollar millionaires. While many ordinary Russians would like to see these join Khodorkovsky, Putin has shown no sign of wanting this. The security origins of some of the power brokers today—the so-called silovki—reflects the clannish nature of the Putin regime and the continuity of the KGB-FSB (the federal security service) nexus.20 But, compared to Yeltsin’s clique, known as “the family”, Putin’s seems to have a broader base. Certainly there is a concern with “our people”. Andrei Illarionov, an adviser who fell out with Putin, talks of “an ideology of ‘nash-ism’ (our people) offering privileges, subsidies, credits, power and authority to those who are nashy (ours)”. But significantly some now refer to those at the top who are “our people” not as a “family” but as a “corporation”.21

As one Russian commentator puts it, today Russia is a country where “interests reign supreme” and especially financial interests:

Private and corporate interests are behind most of Moscow’s major policy decisions as Russia is ruled by people who largely own it… Under President Vladimir Putin’s watch the Russian state has turned into something like Russia Inc with top Kremlin staffers and senior ministers sitting on the boards of various state-owned corporations and taking an active interest in their progress and profits.22

A second crucial aspect of the Putin regime has been the successful attempt to regain control over Russia’s resources (and some production) through the development of state and semi-state companies. The natural gas monopoly Gazprom and Rosneft, which now controls some 55 percent of Russian crude oil output, are the leading examples. Khodorkovsky’s Yukos was, by a circuitous route, taken over by Rosneft. BP has been forced to retreat in its Anglo-Russian joint ventures and Shell has been squeezed in the giant Sakhaklin-2 gas project in the Far East. The giant Russian companies that control decisive sectors of the Russian economy are certainly examples of “state capitals” but they are no longer insular as their acquisitions abroad and their appearance in the world financial markets (not least London) shows.23 As Dmitri Trenin has put it, those in control want geo_economic power as much as geo-political—”they plan to build Russia as a great power with a global reach, organised as a super-corporation”.24

The third element of Putin’s emerging policy has been to try to restore some coherence to the Russian state, to restore some of the “verticals”. This has involved trying to smash separatism, most notably in the bloody war in Chechnya. It has also involved trying to re-establish clear links between the centre and Russia’s 89 regions. In particular Putin used his powers in 2004 to impose the appointment rather than election of regional governors. It has also involved trying to re-establish a degree of state bureaucratic competence and not least to restore the tax base. Again, however, there has also been caution. Rich Russians are expected to pay their taxes but they are rewarded with a flat rate income tax of 13 percent. The regional governors are expected to give Putin his due but in turn the overwhelming number of old ones were reappointed.

The fourth direction of state policy has been to try to capture some of the gains from the economic recovery and the oil windfall. A state stabilisation fund was created—effectively a financial insurance fund to sustain the state budget for three years if oil prices fall by a half and tax revenues drop. Beyond this, as average real wages have risen sharply from the dangerously depressed levels of the 1990s, a more modest attempt has been made to deal with the extreme poverty of pensioners and lower level state employees, who experienced some of the hardest conditions in the transition. Again there is caution. The stabilisation fund has so far had a financial focus neglecting what the OECD calls “income generating” components. Poverty has fallen but it is still widespread and the class and regional gaps are huge. By value, for example, four provinces—Moscow, Moscow Region, St Petersburg and the oil rich Siberian province of Tyumen—are responsible for more than half of all output.25

Finally the Putin regime has tightened control of the political system. The elections of December 2007 are already stitched up. No one doubts that, barring something completely unforeseen, they will produce a compliant Duma. This is because in 2004 Putin changed the electoral system to weaken potential opposition. Formal politics has taken on a virtual character as pseudo parties have been created and manipulated and the TV media in particular controlled.26 The big question now is over the March 2008 presidential elections. Under the constitution Putin cannot serve a third term but he now has the power to alter the constitution if he wants and enough control of public support to do it. He insists he will not. If he maintains this position power will pass to his anointed successor. Putin could then return in 2012 while retaining a key position or he could even (it seems unlikely) risk retirement. In one sense, however, his decision is a lesser issue. Whether Putin stays, goes, or steps back, Putinism—the emerging logic of a strengthened internal and external system, based on a “managed democracy”—will continue so long as the conditions which allow it continue.

It is this recovery that has also allowed Russia to be less compliant externally. Putin can now appear as the defender of the “Russian nation”, the leader of a power which, whatever its immediate difficulties, might have a brighter future. This means that Russia’s leaders can now try to get back some at least of the power that was humiliatingly lost in the 1990s, and that they can do so on the basis of a new realism about the “benign” intentions of the West. This, from their point of view, does not mean a return to an old style Cold War. Russian capital, however ill-gained, has begun to flow abroad and with it many Russians, including its ruling class who fly backwards and forwards to the best resorts, hotels, second homes, luxury shops and so on. They do not want the old days. But it does mean that they look forward to Russian capital having some leverage in the global economy and to the Russian state being a player in a “multipolar” world. The idea of a straightforward US-Russian alliance, which briefly flickered in the 1990s, has been abandoned. So too has Gorbachev’s idea that Russia would be allowed to fit easily into “a common European home”.27

But there is an enormous amount of pragmatism in Russia’s position. There has to be. Its leaders need to maximise their advantages from a position that is still weak. This means putting pressure on the near abroad and countries such as Georgia and Ukraine to warn them of the costs of moving too close to the US. It also means trying to divide its bigger competitors to weaken their resolve. This is one reason for the bilateral energy deals with different European countries. It also lies behind the cultivation of closer relations with some countries than others. The contradictions of Russia’s relationship with Britain show the problems for Moscow. Politically the London-Washington link is so strong that Britain appears as a political problem for Moscow. But the UK also operates as an open door to the global economy. Lax City regulations allow Russian companies to float in London. Money is laundered there, football clubs are bought and the Russian rich find a welcome in “little Moscow on the Thames”. There has, therefore, to be a carefully modulated rhetoric globally—trying to turn the West’s own rhetoric against itself, pushing but pushing not too far in order to balance integration into and a degree of independence within the global economy.

Still a weak hand?

The US wants a unipolar world. Moscow wants a multipolar one. But neither can have what they want. Tables 2 and 3 show the key elements of the balance of power. The US is the dominant player but Iraq has exposed that its reach has limits. Russia on the other hand, thanks to its geography which still stretches across 11 time zones, remains a player but still a weak one compared to both the old USSR and other states today. The Russian defence budget is due to rise, but even so it is still only running at around 5 percent of the US budget, as Putin has acknowledged. Thus when Putin responded to US pressure first by threatening to retarget Russian missiles and then, in July 2007, suspending Russia’s obligations under the conventional forces in Europe treaty these gestures had a big element of posture politics.

Table 2: A tale of two powers—the USSR/Russia 1985-2007
Drawn from data in Arin, 2001, Simchera, 2007, and other sources
1985 2007
Population (millions) 277 142
Population as percent of US 116 47
Output as a percent US 35-45 8
Output per head as percent of US (PPP) 33 28
Defence expenditure as percent of GDP 13.1 6.4
Defence expenditure as percent of US 104 4-5

If Russia continues to grow this gap will diminish somewhat (though it should be remembered that Russia is still not at the relative position it was in 1989). But even if the rebound is strong and sustained the gap will remain enormous. Economically Russia now appears a second division economy. The difficulty for the Russian regime is that growth will not continue indefinitely at the high rates of the past years. Some of the causes of the current high price of oil are structural. Others reflect the situation in Iraq. Oil prices always fluctuate and when they go down they will test how diversified the Russian economy has become. From the time of Brezhnev to Gorbachev the USSR was condemned for underpinning living standards through exports of raw materials, especially oil, and failing to build a competitive industrial (or service) base. Today the situation of Russia is, it seems, little different. Russia’s oil and gas wealth is produced by around a mere 3 percent of the work force. No economy with a population the size of Russia has been able to generalise wealth on the basis of energy and raw material exports (Saudi Arabia’s population, for example, is one seventh that of Russia).

Table 3: Economic and military dimensions of power c.2005
Drawn from data in Simchera, 2007, Goskomstat, 2005, and other sources.
US Russia China UK
Population (millions) 302 142 1,321 61
Percent of global population 4.6 2.5 21.2 1.0
Percent of global GDP 20.8 1.6 12.0 3.3
Percent of global exports of goods and services 13.8 1.3 6.0 5.6
Military budget (billions of current value dollars) 582 24.9 40 29.9
Military budget as percent of GDP 3.97 4.29 2.3 2.5
Size of army 1,506,757 1,027,000 2,255,000 191,030
Intercontinental ballistic missiles 550 506 46 48

One reason for scepticism regarding Russia’s economic prospects is that investment, while rising too, still remains too low, especially in agriculture and manufacturing. If average consumption is now greater than in 1989 (but distributed differently) investment is still well under half the 1989 level. Even in the oil and gas sectors there are huge problems because of the backwardness of the technology. In gas production Rudiger Ahrend, an OECD economist, calls the situation “dire”. The basis for continued improvement is what the 2006 OECD report on Russia calls “a pattern of self-sustaining investment driven growth that can be maintained over the long-run”.28 Yet key sections of the ruling class still see their future in terms of organised plunder. The former chess champion and now Putin opponent Garry Kasparov, despite his own political weaknesses, makes a valid point when he says, “It’s not like America in the 19th century. Carnegie, Morgan, Rockefeller, they built something new. These people, they were just in the right place when the national wealth was being distributed”.29 Building, therefore, is hardly central to their nature.

The continuing tendency to withdraw profits is both cause and consequence of the fact that although some order has been restored there still remains massive inefficiency, corruption and criminalisation. Indeed some claim that the level of state corruption is significantly higher than under Yeltsin. In 2006 Transparency International, the pro-market and anti_corruption NGO, put Russia 126th out of 159 states in its corruption index. In June 2006 Putin seemed to admit to continued problems when he sacked the Russian procurator general, in part for failing to deal with corruption. In November 2006 the deputy prosecutor general estimated that bribes to state officials might amount to an extraordinary £125 billion.30

Nor is it just a question of low physical investment. Although the OECD still talks of the value of Russia’s educational base, its social infrastructure in general has suffered enormously in the last two decades. Even in oil and gas Putin was driven to ask in 2003, “What is the good of having oil and metal if we do not have the know-how to extract them?… We keep importing workers from Europe, as if we did not have our own system for training them in this country”.31 The idea that Russia can sustain an innovation boom to growth looks highly questionable.

The Putin regime combines a far from unique authoritarianism and centralisation of state power in some areas with neoliberalism in others. If the main ownership structures are now established, this does not mean that there is not a space and need for further restructuring, and this will be painful if subsidies and protection are withdrawn. In the Soviet era certain forms of state provision were subsidised to buy social peace. Now internal customers are also being asked to pay more. The state continues to have neoliberal welfare reform on the agenda, which means effectively solving the education and health care crisis by increasing prices. Thus even as the standard of living rises for some, the state is risking a confrontation. Moreover, even if expression of it is being squeezed out of the formal political system, there is still much public bitterness alongside support for the general goals of the Putin regime. One independent MP (who will probably not survive the December 2007 elections) told Western reporters that “Putin’s system is a petro-state where a small group have monopolised resources and divided them between the political class, state bureaucrats and managers. A couple of million live well, while the majority are poor”.32 This sense of division regularly comes through in opinion polls.

But sustained opposition is hard. This is only in part because of the authoritarian and oppressive nature of the regime. The manipulation of formal parties to create psuedo movements certainly sows confusion. To derail the nationalist Communist Party the Kremlin sponsored the creation of the nationalist Rodina party. To prevent a youth revolt it sponsored the right wing Nashi youth movement. Similarly repression, though mild in comparison to some countries, is periodically turned against embryonic movements from below. But a bigger problem is continuing disorientation, demoralisation and depoliticisation in Russia.

The heyday of a popular movement for change in Russia was probably the brief flowering of 1989-90. Thereafter people’s lives were ripped apart to a degree that is hard for us to imagine. While a few made good, others became more nihilistic and the majority turned in on themselves. Defensive struggles were sometimes sharp but many ordinary Russians simply struggled to survive. The most glaring sign of this is the problem of what two demographers have called “the Russian cross”—the cross on the demographic graph between the rising death rate and the falling birth rate.33 The gap between them is still huge. Demographic projections are notoriously unreliable but non-current trends see Russia’s population falling from over 140 million today to 100 million in 2050. One major reason for this is the huge rise in alcohol consumption, as a generation of Russian men drown their sorrows and death ends their lives prematurely. Russia now has 2.3 million official alcoholics.

Nonetheless, resentment periodically breaks out. Whatever support Putin commands as an individual there is still widespread concern at the situation he has ruled over. People feel the injustices of their situation—the inequalities and flaunted wealth, the corruption and crime—despite the uneven improvement.34 And economic recovery occasionally allows for some demands to be made in a slightly more positive frame of mind—employers can also grant wage increases to avert trouble. In 2003, for example, there were only 67 strikes officially recorded in Russia. These figures underestimate small day-to-day acts of resistance, which have been commonplace. But in 2004-5 there was a mini strike wave, though the strikes were almost all small. In 2006 officially recorded strikes all but disappeared, but wages continued to rise.35 There have also been continuing demonstrations, especially against reforms that affect jobs and welfare. From the point of view of the Putin regime these are little more than minor irritants, but just as we have suggested that at the top there has been less consolidation than some suggest, so the same is true at the bottom.


Table 4: Global oil consumption, production and reserves
Calculated from BP Statistical Review of World Energy 2007.
Percentage of consumption Percentage of production Percentage of estimated reserves
USA 24.1 8.0 2.5
EU 25 18.2 2.8 0.6
Saudi Arabia 2.3 13.1 21.9
Russia 3.3 12.4 6.6
Iran 2.0 5.4 11.4
Venezuela 0.7 3.7 6.6
Iraq na 2.3 9.5
Nigeria na 3.0 3.0
Libya na 2.2 3.4
Kazakhstan 0.3 1.7 3.3

Table 5: Global gas consumption, production and reserves
Calculated from BP Statistical Review of World Energy 2007
Percentage of consumption Percentage of production Percentage of estimated reserves
USA 21.7 18.3 1.3
EU 25 16.4 6.6 3.3
Russia 15.1 21.3 24.3
Iran 3.7 3.7 15.5
Qatar 0.7 1.7 14.0
Saudi Arabia 2.6 2.6 3.9
UAE 1.5 1.6 3.3
Iraq na na 1.7


1: Quoted in the Guardian, 11 May 2006.

2: Quoted in the Guardian, 11 April 2007.

3: Quoted from the official translation on the Russian president’s website.

4: Gazprom, under majority state ownership and formally headed by first deputy prime minister Dimitry Medvedev, sits on the largest reserves of natural gas in the world and -controls the third largest oil and gas energy base after Saudi Arabia and Iran.

5: Brzezinski, 1997, pp3, 24.

6: The Guardian, 12 April 2007.

7: Quoted in the Guardian, 16 February 2007.

8: Brzezinski, 2005.

9: A different US leadership might have handled things with more sophistication than the George Bush regime but a so-called realist analysis rather than a neoconservative one still recognises the inevitability of clashes of interest.

10: Quoted in the Guardian, 5 June 2007.

11: Quoted in the Guardian, 11 April 2007.

12: Khalturina and Korotaev, 2006, p66.

13: Guriev and Rachinsky, 2005, p140.

14: Quoted in the Guardian, 13 April 2007.

15: Quoted in Treisman, 2007.

16: See “Drowning in Oil” in the Economist, 6 March 1999, and later articles in same issue.

17: Ahrend, 2006, p2. See also OECD, 2004.

18: For the latest data (albeit with a positive spin) on regional inequality see World Bank, 2007.

19: Thompson, quoted in Wood, 2007, p63.

20: For popular accounts see Triesman, 2007, and Penketh, 2006.

21: Illarionov, 2006.

22: Trenin, 2006, pp95-96. In this, of course, Russia is less different from the US and UK than many make out. Here, however, the corporate state hides behind a facade, albeit weakening, that does not exist in Russia.

23: Trenin, 2006, p96. Discussing the squeeze on Western companies, Daniel Yergin writes that “this is an era in which power has shifted toward state companies and the questions -international oil companies are facing in Russia are similar to the access questions they are facing elsewhere”-the Financial Times, 20 April 2007.

24: Gazprom’s self-declared mission is “the strategic objective of becoming a global energy leader”, quoted in the Guardian, 12 April 2007.

25: Wood, 2007.

26: There are now four main parties/groups in the Duma-United Russia, A Just Russia, the Communists, and the Nationalists. As a result of the 2004 changes parties must have a minimum of 50,000 members spread over at least half of Russia’s provinces; a list system is used, so reducing the role of independents. The minimum vote needed for Duma representation was increased from 5 to 7 percent and the minimum 25 percent turnout was removed.

27: See Lavrov, 2007, for an official statement of the Russian leadership’s view of Russia’s global role. This is the text of the Russian foreign minister’s article for the US journal Foreign Affairs which was withdrawn in disputed circumstances.

28: Ahrend, 2006, p21; OECD, 2006; see also World Bank, 2007.

29: The Times Magazine, 24 March 2007.

30: The Guardian, 8 November 2006.

31: Quoted in Volosatov, 2006, pp13,16.

32: Vladimir Ryzhkov in the Financial Times, 20 April 2007.

33: Khalturina and Korotaev, 2006.

34: See the discussions of the social situation in Popov, 2007, and Wood, 2007.

35: Goskomstat, 2005.


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