Russia's Choice

[General Mung Beans]

http://www.nationalreview.com/articles/ ... atter?pg=1

August 7, 2012 4:00 A.M.
Russia’s Choice
From the July 30, 2012, issue of NR

By David Satter

On the surface, Moscow has never looked more prosperous. High-end restaurants are full. Cyclists, strollers, and rollerbladers crowd Gorky Park. Newly built skyscrapers give the city a modern skyline, and streets are clogged with late-model Western cars. But there is a growing sense of unease. Against the background of plummeting oil prices and vast sums of money being urgently sent abroad, the capital is now the scene of feverish political activity. For the first time, Vladimir Putin’s system of one-man rule appears unstable. No one knows whether it can survive or, if it doesn’t, what will replace it.

After years when opposition demonstrations typically attracted no more than a few hundred, Moscow since December has witnessed at least six major demonstrations that have drawn crowds estimated at 50,000 to 100,000. Nothing like this has happened in Russia since the fall of the Soviet Union. The protesters openly refer to Putin as a “thief,” an explosive charge in a society where Putin is suspected of massive corruption but the accusation is typically not made publicly.

The country is now in a state of suspended animation. In a poll taken in December 2011, after the first demonstrations, by the Levada Center, a Moscow-based organization that conducts sociological research, 61 percent of Russians said they were sure that 2012 would not be a calm year and reported feelings of foreboding. This perception derives in part from a belief that the Putin regime will not leave the scene peacefully. According to Russian political analyst Lilya Shevtsova: “Relinquishing political control could mean not only loss of assets but also of freedom or even life. Lights burned late in the Kremlin during the Arab Spring and conclusions were drawn: Lose your grip on power and you end up like Hosni Mubarak or Muammar Qadhafi.”

The first event that led to the protests was Putin’s decision to run for a third term as president. It exposed the presidency of Dmitri Medvedev in 2008–12 as a sham. Despite his pledges to fight corruption and his denunciations of “legal nihilism,” Medvedev achieved only one thing during his tenure: He extended the president’s term in office to six years. When the parliamentary elections of December 4 were then blatantly falsified, Russians’ patience broke. Thousands took to the streets.

The Putin regime now faces an opposition that consists of three parts. (There are also permitted opposition parties, but these are controlled by the Kremlin.) The liberals include former deputy prime minister Boris Nemtsov, the anti-corruption blogger Alexei Navalny, and the youth leader Ilya Yashin. They call for honest elections and the freeing of political prisoners. The socialists are organized into an umbrella group, the Left Front, headed by Sergei Udaltsov, a former aide of the Communist-party leader Gennady Zyuganov. They call for preserving the “best of the Soviet Union” — free education and medicine, nationalization of big business, and domination of the former Soviet republics. The nationalists consist of a few public organizations and thousands of street thugs. They call for the domination of Russia by ethnic Russians and for the expulsion of Central Asian and Caucasian migrants.

Putin’s public attitude toward the protesters has been dismissive. He has said that their symbol, a white ribbon, resembles a condom. One of his aides has compared them to the White Brotherhood, a 1990s messianic sect in Russia and Ukraine that was responsible for a number of suicides.

Now, however, the authorities are beginning to resort to force.

On May 6, protesters en route to a lawful demonstration in Bolotny Square in central Moscow were stopped by a wall of heavily armed riot police. When the pressure of the crowd pushed the marchers against police lines, the police attacked with batons, and some demonstrators responded by throwing stones. In the resulting brawl, scores of demonstrators were beaten and 600 persons were detained. Twelve are now under arrest, and two others have been ordered not to travel.

On June 11, searches were carried out at the homes of opposition leaders, including Navalny, Yashin, Udaltsov, and Nemtsov. Their computers and flash drives were confiscated without being inventoried, which means they can now be doctored.

Putin has changed the law to include stiff fines for participating in unsanctioned rallies. The top fine was increased by a factor of 150, to 300,000 rubles ($9,200). An average monthly salary in Russia is 24,000 rubles ($740). At the same time, the monthly Sovershenno Sekretno reports, Putin has issued orders to investigate businessmen who have donated money to the opposition. They reportedly can expect tax audits and further investigations in the near future.

Putin almost certainly hopes that the challenge he faces can be contained, but attempts to suppress the demonstrations are likely to be ineffective. After twelve years of de facto one-man rule (including Medvedev’s term as president), Putin’s aspiration to rule for life is leading to political crisis, economic collapse, and the rise of nationalistic extremism, raising questions about whether the regime can survive.

The political crisis is the result of the regime’s steady loss of legitimacy. Officially, Putin received 63.8 percent of the vote for president. A count carried out by Golos, a vote-monitoring organization, showed the true figure to be 50.75 percent. But even without falsification, the election was a sham. Potential challengers were eliminated in advance. The state bureaucracy was put at the disposal of the Putin campaign, and Putin monopolized television. The result is that the population does not take the results of the election seriously.

In an attempt to defuse the first mass protests, Medvedev introduced a number of reforms, but they were quickly emasculated. The most important of them is the direct election of governors. To run, however, a candidate must collect signatures from 5 to 10 percent of regional legislators, which, in jurisdictions where the parliaments are dominated by the pro-Kremlin United Russia party, is a serious obstacle for candidates of other parties. Medvedev also replaced many governors at the last minute. This means that for the next four or five years many regions, including some of the most independent-minded, will not hold elections for governors. In the end, only four governors out of 83 will be elected in the first gubernatorial elections, on October 14.

A new law gives legal status to opposition parties. But electoral coalitions are prohibited, so the new parties will not be able to create a unified opposition. On April 17, Medvedev signed a decree establishing Public Television of Russia, which was supposed to be independent of government control. The director general, however, will be appointed by Putin.

The regime’s attempt to limit the freedoms that it reluctantly conceded is doubtless motivated by the realization that liberalization can be dangerous. Retrenchment, however, is unlikely to arrest the growth of the opposition. In recent years, the opposition staged protests over the regime’s efforts to undermine, under various pretexts, the right of free assembly. The protests had limited success. But the regime’s manipulation and bad faith in the matter of reforms to the electoral system could lead to protests on the fundamental issue of political freedom that are national in scope.

Putin’s determination not to share or surrender power is leading not only to a political crisis but, in a related development, to a seriously deteriorating economy. Despite a 4 percent rate of growth and $540 billion in reserves, Russia suffers from massive capital flight, which this year is expected to reach at least $70 billion. Russia’s businessmen are moving their families out of the country and seeking foreign passports.

The reason is the absence of law. Putin is given credit in some quarters for rebuilding state institutions after many years under Yeltsin when they barely functioned and the country was dominated by gangsters. But Putin did not restore the rule of law. He merely made it possible for bureaucrats to replace gangsters as the primary agents of criminality.

In Russia today, the corruption market is appraised by the think tank Indem at more than $300 billion annually, or a quarter of GDP. This puts Russia on a level with Cambodia and the Central African Republic. It is estimated that one-third of the cost of putting up a building in central Moscow is for construction and two-thirds is for bribes. Bribe-takers can usually keep only part of the bribe. The rest is shared with higher-ups to ensure the bribe-taker’s protection. Thus bribery has become a system.

A further consequence of this corruption is the insecurity of property. Russian businessmen live in fear of “raiding.” If under Yeltsin the preferred way of taking over property was often to arrange the murder of the owner, the pattern today is for the raiders, almost always state officials or their close relatives and friends, to appropriate property with the help of the organs of law enforcement.

A typical scheme is to place an infiltrator in a target company who will make prearranged charges of corruption, which are then investigated by law-enforcement officials in the pay of the raiders. If the possibility of being charged with a crime doesn’t persuade an owner to hand over his enterprise, he can be arrested. While he awaits trial, a judge, also in the pay of the raiders, can issue an order allowing the raiders to assume the property. There are thousands of persons in pretrial detention who have wrongly been accused of crimes at the instigation of their competitors.

An example of how the system operates is the fate of Nikolai Maximov. Vladimir Lisin, a steel magnate, agreed to buy a majority stake in Maximov’s company, the Maxi Group, but then refused to pay the agreed sum for the stake. He accused Maximov of transferring large sums out of the company to the account of his girlfriend. Lisin’s group offered to settle the matter for $100 million, but Maximov refused. Confident he would prevail in international arbitration, he demanded $287 million that he said he was owed. He called a news conference at the Marriott Hotel in central Moscow on February 14, 2012, to describe how he was being pressured. Besides reporters, however, the attendees included armed men, who arrested Maximov.

An investigator asked him why he declined the offer of $100 million. Maximov said that the investigator urged him to accept it and told him: “You won’t like the people in jail. They aren’t your type.” He was then flown to a prison in Yekaterinburg. The following month, an international commercial-arbitration panel in Moscow ruled in Maximov’s favor. With the ICA’s ruling in hand, Maximov’s lawyers appealed to courts in the Netherlands, Luxembourg, and Cyprus and succeeded in freezing the shares in six European steel mills of Lisin’s company, Novolipetsk. In response, the police investigated Maximov for fraud. Lawyers for Novolipetsk had obtained rulings suggesting that Russian courts can claim jurisdiction even if in the parties’ contract arbitration was specified as the means for settling disputes. They then argued that because Russian courts do not recognize the ruling of the arbitration panel, it was fraudulent for Maximov’s lawyers to have presented the ruling of the international commercial-arbitration panel to foreign judges in the Netherlands and elsewhere.

Because of the extent of the corruption, the Russian economy is stagnant. In net terms, Russia is losing $7 billion to $8 billion of capital every month, equivalent to 5 percent of monthly GDP. Most businesses devote enormous time and attention to protecting themselves against raiding. This entails developing their connections to law enforcement. For fear, again, of being targeted by raiders, Russians are reluctant even to expand existing businesses.

Russia increasingly resembles a Third World economy. Crude oil and gas now account for 75 percent of the value of its exports. At the same time, two-thirds of Russian industry is uncompetitive, producing low-quality goods for the internal market and countries such as Iran. It is supported by the revenue from oil and gas. The state’s deficit when the oil-and-gas sector is subtracted is now expected to be 12.7 percent of GDP.

To reverse this situation, Russia needs normal conditions for investment. Those are not possible without the rule of law. Trying to assure his reelection, Putin’s government authorized $161 billion in additional spending through 2018, including increased pensions and a freeze on gas prices. One of the purposes of this move is to help preserve the domestic peace. But the government now needs an oil price of $150 a barrel over the next few years to meet its obligations. This may be unattainable. A crash in the oil price would plunge Russia into crisis immediately.

A final factor in Russia’s growing internal crisis is an increase in ethnic tensions. Russia faces a terrorist threat from the North Caucasus, and in many cases Russians have responded to it with racism and xenophobia.

Putin became president in 2000 because of the second Chechen war, which was launched after four apartment blocks were blown up in Russia in September 1999 in attacks that were blamed on the Chechens. A fifth bomb did not explode, and those who placed it were arrested and turned out to be not Chechens but agents of the Federal Security Service (FSB). But this finding had little influence on the subsequent course of events.

The decision to launch a new war had far-reaching consequences. Russia managed to subdue the separatist revolt in Chechnya, but the rebellion spread to the rest of the North Caucasus and metamorphosed into an Islamic insurgency. In 2007, Doku Umarov, a veteran Chechen field commander who became head of the resistance, proclaimed himself the leader of an Islamic emirate embracing the entire North Caucasus.

The shift in ideology led to a greater emphasis on terrorism. Umarov took credit for the bombing in November 2009 of the Nevsky Express train between Moscow and St. Petersburg, in which 27 were killed. He also took credit for the suicide attacks in March 2010 on the Moscow metro, where 40 were killed and 95 injured, and for the suicide bombing in January 2011 at the Domodedovo airport, where 36 were killed and 160 wounded. Moscow became the only European capital to be hit by terrorists repeatedly.

Meanwhile, extreme nationalists, including neo-Nazis, gained strength within Russia. After Putin was elected president in 1999, he promised “to destroy the terrorists in their outhouses.” Such statements, and the renewed pursuit of a war of extermination in Chechnya, led to a sharp rise in anti-Caucasian sentiment. Soon, popular support for discrimination against people from the Caucasus was at 55 percent, and it remains at that level to this day.

In 2006, a conflict between Russians and local Chechens in Kondopoga, a town of 35,000 in Karelia, the Russian region that borders Finland, led to anarchy, a pogrom against Chechens, and a takeover of the city by an enraged Russian crowd. At roughly the same time, 13 were killed and 47 injured when a bomb exploded in Moscow’s Cherkizovsky Market, where many of the traders are from the Caucasus and Central Asia. By 2008, there were an estimated 30,000 aggressive and fascist-leaning nationalists in the five or six largest Russian cities. Even as the violence grew, the police remained indifferent, particularly to the killing of non-Russians.

Since then, the police have begun to act against nationalist extremists. They have carried out mass arrests, and the incidence of violent acts has sharply declined. In 2011 there were “only” 20 murders and 130 injuries that were ethnically motivated. The tension between Caucasians and Russian nationalists, however, continues to simmer just beneath the surface and could explode into violence at any time.

When Putin announced in September that he would run for president again, Russians began calculating how old they would be when he finally left office in 2014, after two more terms. For most, the prospect was one of national stagnation and professional futility caused by the need to be part of a corrupt system. Some decided to vote with their feet. In the last three years, 1.25 million Russians have left Russia, and 40 percent between the ages of 18 and 24 would like to leave.

The key to Putin’s success was a steadily expanding economy. Although Russians were aware of the corruption, Putin retained support because, during his two terms as president, the economy grew at an average rate of 7 percent a year, making it possible for ordinary Russians to experience a significant increase in their standard of living and for persons connected to the regime to benefit from the corruption in spectacular fashion.

Now Russian investment bankers are warning their clients of an approaching economic crisis that will be worse than the one in 2008. If it arrives, a protest movement in the capital could be reinforced by strikes in the industrial centers. After a certain point, at least a part of the elite would be liable to abandon the regime and ally themselves with the protesters.

It might be assumed that the Russian leadership, insofar as it is the beneficiary of massive corruption, has every incentive to stick together in the face of a powerful social movement that calls for its members to be held to account. This, however, is not necessarily the case. In a game without rules in which huge amounts of money are at stake, hatreds develop quickly and jealousy can lead to betrayal. Although based ultimately on personal ties to Putin, the Russian leadership can be divided into two factions: the liberals, who are considered slightly more Western-oriented, and the “siloviki” (the power bloc), which includes many former members of the security services. The former are led supposedly by Medvedev; the latter, by Igor Sechin, until recently Putin’s deputy prime minister.

Over the years, hints about tensions between the factions have circulated. But the most striking evidence came with the discovery of the bodies of Konstantin Druzenko, an officer with the Federal Narcotics Control Service (FSKN), and Sergei Lomako, a former colleague of Druzenko’s, in a St. Petersburg ditch on October 27, 2007.

The FSKN was reputedly aligned with the liberals. An FSKN spokesman said the two men were victims of poisoning. Their deaths happened in the context of a conflict — between the FSKN and the FSB — that became public after the arrest, on October 2, 2007, of General Alexander Bulbov, the head of the FSKN’s operational department, on charges of bribery and illegal wiretapping. He had been leading the agency’s investigation of a massive smuggling operation that was run by relatives of high-ranking officers of the FSB. “We nearly had a fight between two security agencies,” said a former security-service officer familiar with the circumstances surrounding the arrest of Bulbov and the other FSKN officers. “This time, the agents were able to keep their cool, and there was no gunfight. But if this battle continues, you can be sure they will start shooting at each other. And it would be difficult to stop.”

An end to the Putin regime would represent a turning point for Russia. It is often wrongly assumed in the West that Yeltsin was a democrat and that Putin suppressed the freedom that Yeltsin tried to create. In fact, it was the massive corruption of the Yeltsin entourage that led Yeltsin to engineer the elevation of Putin, a former KGB officer, as his successor. Putin’s first official act was to issue a preemptive pardon to Yeltsin, freeing him of responsibility for any crimes committed while in office. With the spectacular increase in oil prices, the scale of corruption in Russia did grow significantly after Putin took power, but the Yeltsin and Putin regimes are nonetheless inextricably linked.

The possible fall of the Putin regime raises the question of what is likely to succeed it. Neither the regime itself nor the opposition is giving this question serious thought. It sometimes seems as if the two sides share a desire not to look ahead. Putin has tried to appeal to Russians on the basis not of his plans for the future but rather of his claim to being the guarantor of “stability.” The opposition, in part because it is composed of disparate groups, has limited itself to calls for honest elections.

Removing Putin might be the easy part. There is agreement across many sectors of Russian society that he has to go. Only a segment of the opposition, however, has liberal-democratic values, and for those values to emerge victorious in any political struggle after Putin is gone, Russia must face the question of why Russia has failed to establish democracy in the past.

To the extent that the opposition has an issue beyond the call for honest elections, that issue is corruption. An attack on corruption is certainly necessary. But corruption is only a symptom of a deeper ill, which is disregard for the moral worth of the individual. It was the notion of the individual as raw material for the achievement of political ends that made possible the triumph of a Soviet regime that was ready to create “heaven on earth” at the cost of millions of lives. It was the same disregard for the value of the individual that led Yeltsin’s “young reformers” to introduce capitalism without law and to build market institutions at the expense of the criminalization of the country.

To restore respect for the individual as the foundation for a new beginning, Russia must take an honest look at its past. It has failed to face the full truth about the crimes of the Communist regime. Under Putin, projects for commemoration of the victims of Communism were abandoned, and mass-burial sites were left unexplored. The only attempt to acknowledge the past in Lyubanskaya Square, the site of the buildings of state security, was the erection of a plaque honoring Yuri Andropov, the former Soviet leader and head of the KGB, on the wall of the present FSB building.

No attempt has been made to examine seriously the crimes of the post-Soviet period, either, including the 1993 shelling of the Russian parliament, the 1995 carpet-bombing of Grozny, and the murders and swindles that accompanied privatization of industry. In the case of Putin’s period in high office, the crimes include the strange apartment bombings in 1999 that were used to justify the second Chechen war; the sacrifice of hundreds of hostages during both the 2002 Moscow Theater siege and the 2004 school siege in Beslan; the radiation poisoning of Alexander Litvinenko in London; and the unsolved murders of the journalists Anna Politkovskaya and Paul Klebnikov and the rights activist Natalya Estemirova.

Russia now stands on the verge of important events that may have significance not only for Russians but also for the West. There will be temptations toward radicalism as Russians, under the pressure of the battle with an authoritarian regime, are exposed to the political appeal of extreme ideologies. They can avoid these extremes and create a new basis for their country’s future, but to do that and to take advantage of post-Soviet Russia’s second chance at democracy, they will have to focus on the value of the individual and let truth be their guide.

— Mr. Satter is a senior fellow at the Hudson Institute. He is the author of It Was a Long Time Ago and It Never Happened Anyway: Russia and the Communist Past and the director of a documentary about the fall of the Soviet Union, Age of Delirium, which is based on his book of the same title. This article appeared in the July 30, 2012, issue of National Review.

Very interesting and in-depth article on Putin's Russia.

[madd0ct0r]

that is a good article. more sources would be nice.

as always, the question is how bad to things have to get for the population to gamble on regime change?

[Haruko]

There was a lot about that article which interested me, one of which was the explanation, with contemporary Russia as case point, of how corruption can parasitize an economy that should be flourishing.

[K. A. Pital]

Corruption is rampant in many post-collapse economies. This guy is mentioning some correct things but other stuff is just... weird, shall we say.

On the surface, Moscow has never looked more prosperous. High-end restaurants are full.

This is the problem of mistaking the appearance of a capital city which is a financial transit hub for the nation. Singapore is a hub for Malaysia, Shanghai and Hong Kong are hubs for China, Moscow is a hub for Russia. New York is such a hub in the US. Of course they look "prosperous". That's the very point of concentrating capital flows in and out of the entire nation, y'know.

The socialists are organized into an umbrella group, the Left Front, headed by Sergei Udaltsov, a former aide of the Communist-party leader Gennady Zyuganov. They call for preserving the “best of the Soviet Union” — free education and medicine, nationalization of big business, and domination of the former Soviet republics.

The Left Front did not call for "domination of former Soviet republics". If anything, current government's "we own and rule ya" approach to the gas deals with Ukraine and Belarus has caused the left-wing to criticize the government as sub-imperialist or even engaging in fully fledged imperialism.

Despite a 4 percent rate of growth and $540 billion in reserves, Russia suffers from massive capital flight, which this year is expected to reach at least $70 billion.

Capital flight has always been Russia's bane since the transition to capitalism. It managed to have capital inflow only for a few years out of the more than 20 years since 1991.

[Haruko]

Isn't Singapore different from the other examples by being a sovereign nation? Sorry if I am making an irrelevant point, heh. I know Singapore was once part of Malaysia.

[Tritio]

Isn't Singapore different from the other examples by being a sovereign nation? Sorry if I am making an irrelevant point, heh. I know Singapore was once part of Malaysia.

That's true, Singapore is different from Shanghai, Hong Kong and Moscow as it is a sovereign nation, but Stas Bush does have a point there; Malaysia is one of the largest and has been one of the largest trading partners with Singapore.

Anyway, thanks for sharing the article. It does cover quite a bit of ground regarding Putin and Russia.

[General Mung Beans]

Isn't Singapore different from the other examples by being a sovereign nation? Sorry if I am making an irrelevant point, heh. I know Singapore was once part of Malaysia.

That's true, Singapore is different from Shanghai, Hong Kong and Moscow as it is a sovereign nation, but Stas Bush does have a point there; Malaysia is one of the largest and has been one of the largest trading partners with Singapore.

Anyway, thanks for sharing the article. It does cover quite a bit of ground regarding Putin and Russia.

You're welcome. BTW, Hong Kong while part of China enjoys a lot of autonomy too.