December 31, 2010

Russia in 2010: One Step Forward, Two Steps Back

Where will Russia go in 2011? Under Putin and Medvedev, Russia is not a democracy but the Russian government is not heading back to Soviet-type totalitarianism. The absence of political competition is not the primary problem; it is the absence of the rule of law.

Russia today has markets and private property. It is not the Soviet totalitarian state; nor is it, strictly, a “mafia state.” That is one step forward. But Russia’s government seeks the power to intervene at will, selectively and at its own discretion, in markets and property relations. The government stands above the law. The result is two steps back. You can see this clearly in four stories from 2010.

Story no. 1: Russia suffered a harvest failure and nobody died

My first story comes from agriculture. The summer of 2010 saw a severe drought across Russia. Harvests failed disastrously. In the Soviet past, failures on similar proportions occurred in 1932 and in 1946. When that happened, there were severe regional famines in which millions of people starved to death.

After the harvest failure of 2010, two things happened that were in striking contrast with the Soviet past. First, no one died. Instead, when food prices at home threatened to rise, the Russian government responded by imposing an export ban, requiring Russian food suppliers to break their contracts with foreign buyers. Second, this exposed the fact that, for the first time since the 1920s, Russia is exporting food to the West. Under a market economy, Russian agriculture has become a competitive success. (It does not take much to be a success by Russian standards.)

The reflex responsive of the Russian administration was a bad sign, however: to try to control prices by restricting the market and breaking contracts. This will limit the incentives for Russian farmers to make the forward looking investments that will reduce harvest volatility in the future. Foreigners will become less ready to make forward contracts for Russian exports, knowing the state can override them at any time. 

Story no. 2: President Medvedev has seen the future, but can he make it work?

In 2010, President Medvedev visited Silicon Valley – the urban sprawl south of San Francisco that has generated the world’s biggest concentration of innovation start-up ventures. Now, the Russian government wants to build an analogue in the district of Skolkovo outside Moscow.

The goal is to promote five presidential high-tech directions (one is tempted to substitute the Soviet-era jargon of “priorities”) of modernization: Energy production, IT, telecommunications, and bio-medical and nuclear technologies.

There is some sound logic behind this. Yes, it’s true that economic development involves new urbanized configurations. Yes, it’s true that Russians don’t live today in the right places for innovation.

Most Russians are spread out across Russia’s vast landmass in small and medium sized towns. They are too immobile (apart from the ones that have gone to live abroad, many in places like Silicon Valley). Lots of young people need to move to big sprawling cities and suburbs to squash up and rub together, mix ideas and talents, get funding, and start up new innovation-based ventures. In fact, quite a lot of them would like to, but can’t because Moscow is congested and operates a restrictive system of residence permits.

Like other poor countries, Russia may also need to experiment in new ventures to uncover new comparative advantages.

In short, there is a respectable case for the Russian government to do more to encourage movement away from rural districts and remote small towns, and let its largest cities grow further. It should also stand ready to subsidize pioneering entrepreneurs.

But what Medvedev actually has in mind is to create a controlled environment for approved people and favoured companies to sit in a green field outside Moscow. This is not the process that gave rise to Silicon Valley. The Russian government will not be able to commit itself not to meddle and grab. The powerful military-industrial lobby will not be able to stand aside and let individual enterprise make and take profits.

If it is ever built, Russia’s new innovation city will drain the state budget of grants and subsidies. There will be just enough spin-offs that everyone will declare it a success. The aggregate net benefit will be zero or negative.

Story no. 3. You have been warned: Russia has a new law on the secret police

After the Soviet Union collapsed, Russia went from a government system of micro-controls on everything to too little government control. In the 1990s, public confiscation was replaced by “piratization” (from the title of a book by Marshall Goldman). The Russian state went from having far too much capacity to having too little capacity to raise taxes and regulate public life. In fact, the thing that gave the first Putin administration its legitimacy was public recognition that some restoration of state capacity was deeply necessary.

Up to a point.

But Prime Minister Putin is ex-KGB, and part of his mission has been to restore the power and prestige of Russia’s secret services.

Russia’s Parliament has given first reading to a new law on the FSB (the domestic security service), which illustrates the direction of movement today. It gives the FSB the power to issue legally binding warnings to people who might be about undertake illegal actions. This reinstates the legal basis of the KGB practice of controlling the behaviour of persons who were on the edge of politically or culturally deviance or defiance by warning them off.

The reinstatement of the early warning system matters not only in itself, but for what must lie beneath. The KGB’s ability to control deviance by giving out early warnings rested on a vast apparatus of informers and mass surveillance. It could hand out tens of thousands of warnings a year across the vast Soviet territory because it kept individual tabs on millions. Mass surveillance enabled the selective intervention that kept the population quiet and conformist.

The new law on the secret police does not bring back totalitarian control, but it makes little sense unless the FSB is quietly rebuilding its networks of spies and informers on a mass scale.

Story no. 4: Some go to jail, some go free

After the violent London demonstrations over tuition fees, the British police identified and arrested 180 participants suspected of carrying significant responsibility. After race riots in Moscow, the Russian police rounded up no less than 800 ringleaders (I don’t know what happened to them after that). So there is something, at least, that the Russians can do better!

Probably, no one I know is going to shed any tears over the fate of violent ultra-nationalists and fascists. I confess to feeling ever so slightly sorry for them. They were used by the Russian government as a lightning rod until the voltage ran out of control. Now they can be slapped down, at least for the sake of appearances. Moreover, the same police that could locate and arrest hundreds of suspects in the course of weekend doesn’t seem to be able to find the murderers of dozens of journalists killed in Russia in the Putin era. Hmm.

Which brings me to the latest victim of selective Russian justice: Mikhail Khodorkovskii. Khodorkovskii was put away originally for trying to break away from the “mafia state” that originally gave him his fantastic wealth. The first time, he was put away for evading taxes on his company’s profits. The second time, it was for stealing his company’s entire revenues.

If you treat this literally, it is then hard to explain how it was that his company was making taxable profits at the same time that Khodorkovskii was stealing the revenues. But the underlying principle is not that complicated. In Russia, the state decides first who is guilty. Then, it decides what they are guilty of.

It is cheering to see violent thugs get what’s coming to them, but it is still a mistake to cheer when you see a few unpleasant people put behind bars. Under the rule of law, you go to prison because you have broken the law, not because some official has decided you might be a threat.

These four stories suggest where Russia is moving: towards a state with increased discretionary power to intervene as it chooses to control prices and direct resources, subsidize favoured interests, control deviance, and lock up or kill inconvenient people. By the standards of Russia’s Soviet past it is definitely one step forward. This one step is hugely important. Russia is no longer a totalitarian state of mass mobilization and thought police. But, compared with the “normal” society that Russians deserve, and that Russia's friends wish for, it is two steps back again.

PS The best things I have read about Russia recently are:


- 3 comments by 0 or more people Not publicly viewable

  1. himmelwerft

    I hope you would not mind if I leave some comments, as a Russian and a socialist currently having left the nation due to… well, a disagreement with the current oligarchy and their rule in Russia? ;)

    > Under Putin and Medvedev, Russia is not a democracy but the Russian government is not heading back to Soviet-type totalitarianism. The absence of political competition is not the primary problem
    Russia is decidedly not a democracy. It is an oligarchy, much like Pinochetian Chile, various post-Soviet dictatorships, Sukharto’s Indonesia, Haiti under the Duvaliers, Brazilian military junta, Bangladeshi dictatorship or a myriad other structurally corrupt capitalist oligarchies and dictatorships in world history. Absence of political competition is, external opinion notwithstanding, a problem. Political opposition in Russia is dangerous business. Not because you can be formally charged on false accusations and thrown in jail (although that also happens), but because oligarchy can solve problems using violent paramilitaries or mafiosi goons to kill undesireables. And it does so. During the Khimki forest protests, the vested interests of CAC 40 giant corporations and some Russian oligarchs made it absolutely impossible for the Russian government to compromise in favour of the people. A string of assassinations, murder attempts of the top protest leaders and journalists, and skulls crushed by “some mobsters round the corner” followed immediately and did not stop regardless of what kind words were spoken by Medvedev.

    > Russia today has markets and private property. It is not the Soviet totalitarian state; nor is it, strictly, a “mafia state.”
    Having markets and private property is a feature of many capitalist dictatorships and oligarchies. It does not preclude them from being mafia states. As for totalitarian, no – it is the opposite of that. Not seeking to actively make all citizens support the government – through propaganda and force, more like interested in keeping citizens out of power.

    > The summer of 2010 saw a severe drought across Russia. Harvests failed disastrously. In the Soviet past, failures on similar proportions occurred in 1932 and in 1946. When that happened, there were severe regional famines in which millions of people starved to death.
    It is not proper to compare 1931 or 1946, because those were pre-Green Revolution years in Russia. Have you read “Climate dependence and food problems in Russia, 1900-1990”: http://books.google.ru/books?id=9a5j_JL6cqIC (N. M. Dronin,E. G. Bellinger)? Second, the harvests of 1931 and 1946 were substantially smaller – in 1946, it was ca. 46 million ton for the entire USSR, while, say, in 1940 it was 96 million ton. The population was 170 million people in 1946. Meanwhile, right now Ukraine alone gathered 39 million tons, another 8 million tons in Belarus, and around 60 million ton in Russia itself, which is obviously a huge harvest even if smaller than peak late Soviet harvests (1970-1990).

    09 Feb 2011, 06:31

  2. himmelwerft

    > Under a market economy, Russian agriculture has become a competitive success.
    The price for this success, alas, was quite high. In 1970-1990, Russians, or, should I say, Soviet citizens did not experience malnourishment and the average diet reached close 3000 calories per day. However, in 1990-2000 mass malnourishment was noted by FAO. And if Russia itself only had a short ~5% rate of malnourishment (itself a bad fact for an industrialized nation!), malnourishment in Central Asia whose economy collapsed after the USSR was gone continues until that day. I myself faced this malnourishment in 1998. It was a high price.

    Besides, food exports are horrible business. Amartya Sen correctly indicated that in absence of democracy, and even with abundance of food (1891-92, 1932-33 in Russia, 1974 in Bangladesh, 1943 in Bengal, British India, and Ireland under British rule) the ability to requisite food or export food and outbid the starving masses – even via pure market mechanisms! – can lead to mass deaths and starvation. Not necessarily, but they can. And where you say the Russian government was not right, I cannot support this. The constant exports from Russia in both Tsarist epoch and in Stalin’s time (1928-1950s) kept the calorie consumption of citizens at an extremely low level! On the other hand, when the USSR started bying grains from abroad for cattle feeding, they managed to raise the consumption of meat and thus increase the healthiness of population diet. This export-import thing is not a simple “export = good, import = bad”. Japan is a major importer of food. China imports food as well, but it was an exporter under Mao. USSR was an exporter of grains under Stalin.

    I was expecting a more nuanced analysis.

    > The powerful military-industrial lobby will not be able to stand aside and let individual enterprise make and take profits.
    Actually, there are no military contractors in Skolkovo, sir. However, there are handpicked loyal oligarchs (think Russian chaebols, except more malevolent and not thinking about the people). These oligarchs present fake innovations and bombard the government with a constant stream of petitions to give money for fake innovation projects, which are at best half-baked attempts at domestic industrial manufacturing. At worst just bying industrial plants from Germany, China, etc. without even the intention to reverse-engineer them. In short, a grandiose bluff.

    The primitivization of Russian industry since the Soviet collapse is ongoing, and the resource curse is becoming stronger, not weaker.

    I would recommend reading “Russian Industry in 100 years”: http://www.rus-stat.ru/stat/7042002-1.pdf albeit with a critical eye.

    > The new law on the secret police does not bring back totalitarian control, but it makes little sense unless the FSB is quietly rebuilding its networks of spies and informers on a mass scale.
    Sir, you will be surprised – the FSB law and the new police law (which changes the name “militsiya” to “police”) were drafted by Medvedev. Both massively expand the abilities of law enforcement. And no, not totalitarian (like I said, the government does not want people to love it), but everything dictatorial. Example: before the new law on police is even put into effect, the local police departments received papers to fill in on all citizens living on their territory. These “profile cards” would include every citizens’ sexual, political, professional characteristics. Local police officers should go, talk to citizens and fill these “profile papers” creating a vast pool of dossiers to expose political undesireables – liberals, communists, socialists, ecology activists, nationalists not allied with the current power? They recalled the dossiers when the scandal became public, but who is to say they will not try again once they get the new authorities granted by the laws “On FSB” and “On police”?

    09 Feb 2011, 06:34

  3. himmelwerft

    > After race riots in Moscow, the Russian police rounded up no less than 800 ringleaders (I don’t know what happened to them after that). So there is something, at least, that the Russians can do better!
    Actually, many commenters agree that the race riots in Moscow were a provocation by the new Moscow government to initiate a police crackdown and “clean out” the city and the region from undesireables. The police has made up a completely bogus story, calling a 19-year old Central Asia boy the “organizer” of 20000 men strong protests in Moscow and Petersburg. This cannot be true, obviously.

    > These four stories suggest where Russia is moving: towards a state with increased discretionary power to intervene as it chooses to control prices and direct resources, subsidize favoured interests, control deviance, and lock up or kill inconvenient people. By the standards of Russia’s Soviet past it is definitely one step forward. This one step is hugely important.
    A Pinochetian dictatorship is hardly a step forward from a Soviet one. At least the Soviet dictatorship, which in post-Stalinist days could not be characterized by mass terror, had a vast social support network. The Pinochetian dictatorship is actively destroying all that.

    I wonder though, professor Harrison, why you mentioned nothing about the situation in Russian education system? Have the news that astronomy has been expunged from the school curriculum (and not added to any other education curriculum), the fact that the Orthodox Church successfully lobbied the introduction of religious education in Russian schools at the same time, that the hours of physics and mathematics have been reduced in Russian schools, that gymnasium-status schools lost two of the three foreign languages they were supposed to teach (German and French), that Russia’s new education standard, makes civil safety and physical culture obligatory, but mathematics, geometry, Russian language – “facultative” subjects, of which you can only choose one but not the other (say, math OR physics OR geometry), not reached you? And how can this be reconciled with Medvedev’s idea that “modernization” can happen, if the oligarchy is actively making the Russian education system more primitive? More proof they are bluffing and posturing. Skolkovo is a Potemkin village.

    I do find some of your judgements spot-on, but my view as a Russian who lived and lives still under the current Russian regime, are obviously a bit different ;)

    You see a progress. I see a Pinochetian ultra-right, perhaps even proto-fascists dictatorship which draws more and more heavily on the support of the Church and actively discourages citizens from participating in politics.

    09 Feb 2011, 06:36


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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).



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