Russia A History

15. Rebuilding Russia

GREGORY L. FREEZE

THE first years of the twenty-first century witnessed a spectacular recovery in Russia—the rebuilding of central state power, a fast-paced economic boom, and reassertion of that country’s status as a major global power. Leading this renaissance was Vladimir Putin, former KGB officer and Boris Yeltsin’s anointed successor, a man determined to restore Russia to its ‘rightful’ place in the world. He benefited from the fortuitous surge in the global economy (which generated an insatiable demand for Russia’s abundant energy resources); that windfall enabled Putin not only to claim responsibility for reversing a decade of catastrophic economic decline but also to re-establish a centralized state. His two-term presidency (2000–8) thus brought both prosperity and power: high rates of economic growth, reassertion of Moscow’s control over subordinate regions, creation of more effective instruments of rule, and increased support for the military. In 2008 Putin, who opposed changing the constitutional two-term limit, ceded the presidency to his protégé Dmitrii Medvedev, but retained real power as prime minister. The Medvedev presidency, however, was soon confronted with a steep global recession that had devastating consequences for the Russian economy, which had remained so heavily dependent on energy exports. Globalization under Putin had returned Russia to the ranks of world powers, economic and political; the global financial crisis under Medvedev threatened to erase all the gains of the Putin era.

The End of the Yeltsin Era

Boris Yeltsin’s final months in office could hardly have been more tumultuous. After a band of Chechen commandos invaded the neighbouring Russian republic of Dagestan and inflicted heavy casualties, Yeltsin summarily dismissed the current prime minister Sergei Stepashin and appointed a virtual unknown, Vladimir Putin—the fifth prime minister in two years. Putin came from the former KGB, where he had served as an intelligence officer in East Germany, with the rank of lieutenant-colonel, before resigning amidst the abortive coup of August 1991 (‘As soon as the coup began, I immediately decided which side I was on’) and joining the anti-coup forces led by Leningrad mayor Anatolii Sobchak. Putin subsequently became a top aide to Sobchak, with the specific charge of attracting foreign investment. After Sobchak lost re-election as mayor in 1996, Putin moved to Moscow to serve as an assistant to Pavel Borodin, a Yeltsin aide responsible for managing Kremlin properties. Putin quickly climbed the Kremlin hierarchy, appointed first as deputy chief of staff for relations with the subordinate regions (March 1997), next as director of the secret police, the FSB (July 1998), and finally as the head of the Security Council (March 1999). In August the Chechnya crisis and Stepashin’s dismissal catapulted Putin into the post of prime minister. Within a few weeks, after bombings (officially attributed to Chechen terrorists) in Moscow and other cities cost 310 lives, Putin persuaded Yeltsin to order federal forces to invade Chechnya and eradicate the source of the terrorism.

With Yeltsin’s second and final term due to expire in July 2000, the Kremlin came to view Putin as a viable successor. Why Putin was chosen has been the subject of much speculation. The athletic 48-year-old Putin was certainly a striking contrast to the doddering, besotted, 69-year-old Yeltsin. Putin was articulate and well educated; he first received a degree in law, later earned a ‘candidate’ degree (Ph.D.) in economics, and had strong ties to influential liberal economists. His résumé glistened with experience: the service in Germany, Petersburg, and Moscow provided valuable preparation in critical areas of foreign and domestic policy. Putin also came across as a man of the people, willing—whether as cool calculation or a flash of temper—to use shocking vulgarities to make his point and an impression. He also acted like a president even before he became one: he wielded unprecedented authority as prime minister, playing a far more important and independent role in policy-making than had any of his predecessors. As Yeltsin looked for a successor, Putin’s meteoric rise in popularity—from a Yeltsinesque 2 per cent approval rating in August 1999 to 50 per cent four months later—gave every reason to believe that Putin could prevail even in a hotly contested presidential election. Some of Yeltsin’s critics adduce an additional reason for choosing Putin: kompromat (compromising materials), including allegations that his government, not terrorists, perpetrated the bombings used to justify the invasion of Chechnya. This kompromat, they argue, guaranteed that as president Putin would not dare to turn against Yeltsin and the ‘Family’.

While such accusations do not seem credible, they do highlight an important reason for Putin’s skyrocketing popularity: the Chechen conflict enabled Putin to demonstrate his mettle in an all-out military campaign to establish Russian control over Chechnya and eradicate terrorism. Contemporary polls showed that the ‘second’ Chechen war elicited public support both for the campaign and the prime minister, whose decisive leadership promised a clear military victory. And the military campaign appeared to succeed: within months, after relentless artillery bombardment, Russian forces stormed the Chechen capital of Groznyi—from which they had been so ignominiously expelled earlier—and launched search-and-destroy operations against pockets of guerrilla resistance. Although Chechnya hardly became a model of tranquillity, Putin demonstrated a willingness to use massive force, on a far greater scale than in the first Chechen war, and these early victories propelled his approval rating ever higher.

All this provided a favourable background for the new Duma elections of 19 December 1999. This time the Kremlin was determined to ensure the election of a supportive Duma—in contrast to the hostile majorities that prevailed in the 1993 and 1995 elections. Within a month of Putin’s appointment as prime minister, pro-Kremlin figures established a new party, ‘Unity’ (Edinstvo), to represent the regime in the election; it offered no specific programme other than to proclaim a commitment to the country’s ‘territorial integrity and national greatness’. Bankrolled by the oligarchs, bathed in favourable media coverage, and endorsed by a growing number of weathervane governors, the new party catapulted from nothing to win almost as many votes as the long-established Communist Party. Together with allied parties and independents, Unity headed a pro-government majority in the Duma and, given Putin’s popularity (even among Communists), ensured a cooperative Duma—quite unlike what Yeltsin had had to endure.

In the flush of that electoral victory, Yeltsin used his new year’s address on 31 December 1999 to drop a bombshell: he announced his resignation, effective immediately, with Prime Minister Putin (as the constitution stipulated) ascending to the office of acting president. Although Yeltsin rhetorically spoke of inaugurating a new millennium with a new president, the main purpose was to hasten the elections, which by law had to be held within three months of his resignation. Seeking to capitalize on Putin’s popularity, perhaps fearful that it might fade by summer (especially if the country became mired in a protracted Chechen war), Yeltsin resigned early in order to ensure Putin’s election. Putin immediately rewarded the former president: his first act was to guarantee immunity to Yeltsin and his immediate family from prosecution—a step widely regarded as a payback (if not precondition) for his early promotion.

With elections scheduled for 26 March 2000, Putin was the only real candidate. The few serious contenders, such as the former prime minister Evgenii Primakov and Moscow mayor Iurii Luzhkov, became the target of smear campaigns in oligarch-owned media and withdrew their candidacy. As in 1996, the nominally ‘independent’ media provided lavish coverage of Putin, from his everyday perorations to his bravado as co-pilot in a military jet flown to Chechnya six days before the election (a dramatic contrast to ‘Tsar Boris’). Putin won a majority (53 per cent) in the first round and thus avoided a run-off such as Yeltsin had had to endure in 1996. Indeed, whereas Yeltsin barely edged out the communist Gennadii Ziuganov in the first round in 1996, Putin received nearly twice as many votes (39.7 million) as Ziuganov (21.9 million). Despite claims of vote-rigging, Putin was a clear winner; even if a run-off had been necessary, few doubt that he would have dealt Ziuganov a crushing defeat. Putin thus became president with both a cooperative Duma and a popular mandate; he had an unprecedented opportunity to embark on a new course and realize his vision of a new, more prosperous, and more powerful Russia.

The Putin Vision

Boris Yeltsin had no coherent political philosophy or goals, but the same could hardly be said of Vladimir Putin. On 29 December 1999, two days before Yeltsin resigned and made him acting president, Putin posted on the internet a manifesto called ‘Russia at the Turn of the Millennium’, which had been prepared under his guidance by the newly established Centre for Strategic Development. Thereafter Putin regularly presented his views in an address to the Federal Assembly (a joint session of the two houses of parliament), a ‘state of the union’ speech identifying achievements, elucidating problems and setting goals. He also held an annual televised press conference ‘with the nation’, a kind of virtual town meeting, where citizens phoned in, wrote emails, and appeared on live TV asking Putin to address broad issues and their own personal problems. These three-hour town meetings were carefully staged, excluded political critics, and allowed Putin to demonstrate his amazing grasp of detail and data (aided, to be sure, by having the questions in advance). But these personal appearances, interviews, and speeches (routinely posted on the presidential website) revealed a firm commitment to several core principles and values.

One was patriotism—a salient theme in his rhetoric. He emphasized that patriotism was essential for binding so heterogeneous, so dispersed a nation together, especially at a time of adversity which required the country to rebuild its basic institutions, economy, and power. In his first day in office Putin reiterated that a crisis dictates decisive action: ‘Russia is in the midst of one of the most difficult periods in its history. For the first time in the past 200–300 years, it is facing a real threat of sliding into the second, and possibly, even third echelon of world states.’ In the face of adversity, he declared, ‘patriotism is a source of courage, staunchness and strength of our people. If we lose patriotism and national pride and dignity, which are related to it, we will lose ourselves as a nation capable of great achievements.’ To nurture that patriotism, Putin refurbished evocative, and unifying, national symbols. In December 2000, for example, he persuaded the parliament to adopt a new national anthem (with new lyrics, including references to God, but using the music from the Soviet anthem), to proclaim the two-headed tsarist eagle as a state emblem, and to codify the use of the tricolour as the Russian flag. He also amended Yeltsin’s decision to rename 7 November (the Soviet commemoration of the October Revolution) as ‘the day of concord and reconciliation’. Putin shifted the holiday to 4 November to celebrate ‘the day of national unity’, recalling the defeat of Polish occupiers in the Kremlin by a popular militia in 1612. He later restored the red flag, and then the red star, for Russian military forces. It seemed entirely natural when, asked at a town meeting ‘What do you love most?’ Putin instantly replied: ‘Russia.’ Disingenuous or not, such rhetoric helped to consolidate his image as national leader and to revalorize commitment to the country and its resurrection.

A second leitmotif was Putin’s nuanced conception of Russia’s past and its place in the larger scheme of things. In general, he portrayed Russia as an integral part of Europe and bore little sympathy for the then fashionable theory of ‘Eurasianism’, which holds that Russia is a civilization nurtured by both European and Asian roots. Although a Europeanist, Putin none the less rejected the idea that Russia must replicate European development and insisted that it must follow its own course, that it need not obey the demands of Western countries: ‘We are a major European nation; we have always been an integral part of Europe and share all its values and the ideals of freedom and democracy. But we will carry out this process ourselves, taking into account all our specific characteristics, and do not intend to report to anyone on the progress we make.’ He also expressed a positive, but qualified, view of the Soviet experience. His ‘Millennium Manifesto’ declared that it ‘would be a mistake not to recognize the unquestionable achievements’ of the Soviet era, but added that ‘it would be an even bigger mistake not to realize the outrageous price our country and its people had to pay for that social experiment’. He reiterated that view in April 2005 when he characterized the break-up of the Soviet Union as ‘the greatest geopolitical catastrophe of the twentieth century’ but promptly added that it was impossible to fantasize about resurrecting the old Soviet state. That qualified nostalgia corresponded to the general public mood; a 2001 poll showed that 79 per cent regretted the breakup of the USSR, but that 58 per cent deemed its re-establishment impossible.

A third core element was Putin’s belief in a strong state. As the ‘Millennium Manifesto’ stressed, ‘our state and its institutions and structures have always played an exceptionally important role in the life of country and its people’. A strong state, he argued, was a precondition for individual liberty, for only it could provide security and stability. As he explained in July 2000, ‘an effective state and democratic state’ alone can defend basic freedoms and create ‘the conditions for the social well-being for our motherland’. Six years later he defended his efforts to rebuild a strong state, which could ensure ‘the implementation of the laws that have been adopted’ and see that they were adopted in the first place. In particular, Putin insisted on the need to reclaim the power that Yeltsin had devolved on the eighty-nine regions of the Russian Federation. Putin’s idea of a ‘new federalism’ was essentially a call to restore the ‘power vertical’, the hierarchy of authority that accorded primacy to central institutions, laws, and practices. Putin’s stint as Yeltsin’s deputy chief of staff for relations with the regions had convinced him that ‘the vertikal, the vertical chain of government, had been destroyed and that it had to be restored’. In some sense, Putin was simply affirming the importance of ‘good governance’—a central theme since the late 1990s, when even ardent advocates of globalization (such as the World Bank) rejected the neoliberal programme and emphasized the need for effective governance. The United States, itself once a bastion of neoliberalism, came to the same view; its Millennium Challenge Accounts, established in 2002, made good governance a precondition for US foreign aid. Putin, at least in part, simply applied that new theme in global development to Russia itself.

But Putin went further, arguing not only for good governance but for a strong state, which should play a prominent role in the economic sphere. Reflecting the new emphasis on the linkage between ‘good governance’ and economic growth, as well as the strong statist traditions of Russian history, Putin insisted that the state must direct economic development. That view permeated his kandidat dissertation, ‘The Strategic Planning of Regional Resources during the Formation of a Market Economy’, defended at the St Petersburg Mining Institute in 1997 (after Putin moved to Moscow and became immersed in administrative duties). The 218–page dissertation, distilled in an article published two years later, specifically argued that the state should have the final voice in energy and natural resource policy. It was not, however, a reversion to a Soviet command economy: ‘The state must regulate the extractive complex using purely market methods, and in this regard the state must assist the development of processing industries based on the extractive complex.’ Such a state, argued Putin, would enable Russia to grow at twice the rate of the West and reduce ‘Russia’s lag behind developed countries in terms of GDP per capita’. Although some passages were allegedly plagiarized, the dissertation expressed Putin’s own vision of a ‘managed economy’, the antithesis of the neoliberal ‘Washington Consensus’, yet in no ways identical with the étatisme of the Stalinist command economy.

A fourth, less salient component of Putin’s thinking was a stress on social solidarity and justice. At one level, he referred to the need to provide the social services and safety net that so distinguished the Soviet system; even if that meant adjustments (converting some benefits to monetary amounts, or reconfiguring the social security system of pensions), Putin professed a commitment to the idea of a ‘social market’—one rooted in the fundamentals of the free market, but constrained to serve the essential needs of the population. In May 2004, for example, he declared that the market must support the social sphere—by developing a mortgage market, reforming health care, and implementing educational reform. That ‘social market’ idea remained a consistent theme; when asked in December 2008 to define Russia’s political and social system, he responded that it is ‘a social welfare state with a market economy’.

Economy: From Bust to Boom

The crisis of 1998 triggered a catastrophic drop in GDP, but then gave way to a burst of sustained economic growth. The turnaround was already apparent in 1999, with clear signs of recovery, including a modest increase in GDP, and that heralded eight years of impressive growth, with an average annual increase of 7 per cent in GDP. By 2007 Russia had largely overcome the devastating contraction of the 1990s, its GDP slightly surpassing that of 1991 (but still below the level in 1989). Under Putin the GDP in ‘purchasing power parity’ (PPP, which corrects distortions of nominal currency values) rose from 1.115 trillion dollars (2000) to 2.087 trillion (2007), making Russia’s economy the eighth largest in the world.

This economic surge had a salutary impact on a host of indicators. The per capita GDP (PPP) rose from 4,200 dollars (2000) to 14,600 dollars (2008); personal income also increased (fourfold). The growth also brought a huge increase in state revenues, which enabled the government to increase expenditures on social needs (e.g. pensions) and state institutions, yet run a budget surplus for seven straight years. The government was also able to retire some of the public foreign debt inherited from Soviet times and doubled in the Yeltsin years; by 2008 early repayment had saved billions of dollars on servicing the debt and reduced public debt from 130 per cent to 18 per cent of GDP (below that of developed European states). Putin’s government simultaneously amassed huge foreign exchange reserves (rising from a mere 8 billion dollars in 1999 to 460 billion dollars by the end of his presidency, peaking a few months later at 598 billion dollars)—the third largest foreign exchange reserves (surpassed only by China and Japan). In 2004 his government created a Stabilization Fund (special resources for a ‘rainy day’), which was divided in February 2008 into a Reserve Fund (liquid assets to cushion fluctuation in budget revenues) and National Well-Being Fund (based on a Norwegian model and designed to turn petrodollars into profitable investments in blue-chip companies).

This rapid growth was primarily due to the red-hot global economy of those years, which generated a sharp surge in demand for commodities, especially hydrocarbons, metal, and timber—Russia’s principal exports. The rising demand for oil, for example, brought a 1,225 per cent increase in the price on global markets (from 12 dollars a barrel in 1998 to 147 dollars in July 2008). Each dollar increase in oil prices, in turn, meant approximately an additional billion dollars in Russian export earnings. This same pattern prevailed in the prices for other Russian commodity exports, such as natural gas and metals like steel and aluminium. The Russian economic boom was also due, paradoxically, to the crisis of 1998, which led to a sharp devaluation of the rouble that, in turn, made exports ‘cheaper’ and imports ‘dearer’. The result was not only more exports but a surge in domestic demand, especially for consumer goods; the increase in personal incomes also stimulated greater consumer demand that provided a further spur to production and growth.

But the global economic boom was not the only cause of Russia’s economic recovery: government policy was also a factor. In contrast to the neoliberal ‘Washington Consensus’ that dictated Russian policy in the 1990s (privatization, deregulation, macroeconomic stability, and budget austerity that marginalized the state), the new ‘Moscow Consensus’ ascribed a major role to the state. Given Russia’s traditional étatisme and the new global emphasis on ‘good governance’ (propounded by the World Bank and leading economists), Putin’s stress on the state was neither original nor surprising. In Russia’s case, it meant more government control, even controlling ownership; that was especially true of ‘strategic’ sectors—the energy and metal production that dominated Russia’s exports and generated growth and prosperity. It was not, however, merely a matter of ‘renationalization’ in key sectors: Putin also sought to stimulate private investment by improving the business environment—by simplifying the licensing procedure, by introducing international accounting standards, and by requiring greater transparency. His government also cut the corporate tax rate from 32 to 24 per cent to encourage foreign direct investment (FDI), which had been negligible in the 1990s—in contrast to other transition communist states. Although the accrued FDI did increase (from 12 billion dollars in 2000 to 45 billion in 2007), it remained comparatively modest and tended to be narrowly focused in the hydrocarbon sector, as multinationals attempted to exploit Russia’s enormous natural resources. Putin took steps to staunch capital flight, as Russian entrepreneurs and enterprises shifted their wealth to safe havens abroad; he not only reduced the outflow of capital but even managed, by 2006–8, to achieve some capital repatriation for investment in Russia. Impressive as the growth was, it did have its dark sides.

Above all, Russia was heavily dependent on commodities, but the demand (and price) for these goods directly reflect international economic conditions, good as well as bad, and historically these have been highly volatile. Russia’s commodity dependence was extraordinary; in 2006, for example, oil and gas alone accounted for 55 per cent of export earnings and 52 per cent of treasury revenues (up from 25 per cent in 2003). The sheer profitability of commodities tended to distort investment and growth, with far less allocation of fixed capital for other sectors, such as manufacturing. Failure to diversify, in turn, left Russia unusually dependent on commodity exports and hence all the more vulnerable to global economic dynamics. No less important, Russia found it difficult to increase, or even sustain, current production levels. The pipeline system was thirty to forty years old and costly to maintain; new oil fields in the north and north-east posed severe climatic and soil conditions, making their development increasingly expensive and problematic. The government compounded these problems by limiting the role of foreign companies in ‘strategic’ economic spheres, thereby forfeiting the chance to attract the FDI needed to exploit the new deposits.

Despite Putin’s pro-business policies, Russia’s business environment still laboured under a poor reputation. Thus the World Bank’s ‘Doing Business’ reports ranked Russia 120th of 181 countries, listed serious difficulties and disadvantages, and emphasized the pervasive corruption. Annual reports by Transparency International—based on surveys of businesses—gave Russia a low ranking; the report for 2008, for example, ranked Russia 147th of 180 countries (below Kenya and Bangladesh). A Transparency International survey that focused on 22 developed and rapidly developing countries placed Russia at the very bottom (below India, Mexico, and China). A study by INDEM (Information Science for Democracy, founded in 1990 as one of the first Russian NGOs) reported a sevenfold increase in bribes between 2001 and 2005; the next year it found that companies diverted 7 per cent of their turnover for bribes and kickbacks. It was not only a matter of rampant bribery; the requisite institutional framework (laws and organizations to regulate the economic sphere) remained inadequate and invited abuse and delay. The Putin government attempted to improve corporate governance and the banking sector, but failed to meet the international standards needed to reassure foreign investors. Not that ‘regulation’ was effective in developed countries, even in the United States;until the financial crash of 2008, however, Western institutional safeguards seemed sufficient and put Russia at a distinct disadvantage.

Some critics argue that the ‘Moscow Consensus’ so exaggerated the state’s role that it was counter-productive. They argue that Putin favoured large-scale enterprises like Gazprom (the natural gas monopoly) to the detriment of small and medium-sized enterprises, which play a central role in the economic growth of developed countries. Thus, whereas these small enterprises account for over half of economic activity in developed countries, in Russia they produce just 15 per cent of the GDP. Putin’s critics also argued that state intervention can lead to political distortions: Putin wanted not only to ensure state control over strategic sectors, but also to rein in politically active oligarchs, especially those linked to Yeltsin’s ‘Family’ and those who displayed political aspirations. In particular, it was widely thought that political motivation, not economic planning, led to the prosecution of powerful ‘oligarchs’ like Boris Berezovskii, Vladimir Gusinskii, and Mikhail Khodorkovskii. Whatever the merits of such accusations, they had a chilling effect on global investors and tarnished Russia’s image in international business circles. Finally, some critics argued that renationalization led to slower growth, even stagnation, as in oil production; the cumbersome state proved far less efficient and tended to repulse, not attract, FDI.

Politics and Power

Such criticism and reservations notwithstanding, the Putin presidency brought prosperity to the people and popularity to its president. His approval ratings rose to stratospheric heights—75 per cent in December 2005 and 86 per cent three years later. That popularity guaranteed an overwhelming victory in presidential elections; his 53 per cent in March 2000 jumped to 71 per cent in March 2004 (with the Communist candidate garnering just 14 per cent). Although Putin experienced brief phases of popular dissatisfaction (most notably in 2005, when he modified the various entitlements of pensioners), the overall trajectory was precisely the opposite of Yeltsin—upward, not downward.

Putin converted popularity into power. Although initially beholden to the ‘Family’ and its oligarchs, he reduced their role and replaced them with his ‘own’ people. The most striking change was the growing presence of the siloviki (people of the ‘power ministries’—the security organs, interior ministry, and military). He showed a strong preference for people from his home base, St Petersburg, and appointed these people to the Security Council, Presidential Administration, and executive branch. For all his adulation of the state, Putin distrusted rank-and-file officialdom and relied on trusted associates to impose his will.

Putin also made the election of a ‘presidential parliament’—one ruled by supporters, not adversaries—a priority. The election of 1999, on the eve of Putin’s accession to the presidency, produced a ‘loyal’ Duma, and Putin (who claimed to be a ‘supra-party president’ and ran as an independent) actively promoted a new presidential party, ‘United Russia’. By winning the support of other parties, by dispensing patronage, and by establishing a large base of party members, the pro-government party won an overwhelming majority in the 2003 and 2007 Duma elections. As a result, pro-government deputies increased from 26 per cent in 1993 to 75 per cent in 2007 (consisting mostly of United Russia party members), with a corresponding decrease in parliamentary opposition. The Communist Party, once the largest party in the Duma, fell from 33 per cent in 1995 to 12 per cent in 2007, its membership rolls shrinking from 500,000 in the mid-1990s to 165,000 in October 2007 (when United Russia, revealingly, reported a membership of 2 million). The nationalist Liberal Democratic Party of Russia, headed by the flamboyant Vladimir Zhirinovskii, dropped from 24 per cent (1993) to 12 per cent. Even more dramatic was the decline of the liberal parties, which fell from 29 per cent in 1993 to 4 per cent in 2007 and failed to meet the minimum threshold to qualify for representation in the Duma.

The Putin regime used that parliamentary majority to change the political system. Arguing that a plethora of small parties can lead to political instability, in 2001 the Duma passed the government-sponsored ‘Law on Parties’ which restricted electoral participation to ‘national parties’—that is, those which not only had a minimum number of members, but which had branches all across Russia. The goal was to empower a few national parties and to eliminate small parties representing a particular region, ethnicity, confession, and the like. That same logic underlay the decision to replace the 1993 electoral system, which allocated one-half of the Duma seats to ‘single mandate districts’ (with the election of individuals, regardless of party affiliation), and the other half by ‘proportionate representation’ (allocated on the basis of a party’s share of the general vote). At Putin’s suggestion, in May 2005 parliament made proportionate representation the sole basis of the electoral system, thereby reinforcing the power of registered national parties. To marginalize small parties still further, parliament raised the minimum share of votes (from 5 to 7 per cent) as a precondition for representation in the Duma. The changes were controversial; critics complained that it denied some voters any representation, while advocates argued that these rules precluded the representation of radical fringe groups, promoted the formation of viable parties, and thereby ensured political stability and a productive parliament.

The ongoing war in Chechnya, which initially raised Putin’s popularity, began to arouse mounting criticism, especially from Western governments and human rights organizations. Although Russian forces established some semblance of control, they failed to crush all resistance or to end devastating terrorist acts. And the war took a heavy toll—on the Russian military (at least 4,572 killed and 15,549 wounded, with other counts running much higher), insurgents (at least 13,000), and civilians (low-end estimates ran between 30,000 and 40,000). This carnage eroded popular support in Russia itself (with 69 per cent, by 2005, favouring an end to the fighting and peaceful resolution), impelling the Kremlin to ‘Chechenize’ the conflict by putting pro-Moscow Chechens in charge and relying on Chechen, not Russian, forces. Moscow arranged for Ramzan Kadyrov to succeed his father (killed in a terrorist attack) as the president of Chechnya; the young Kadyrov quickly earned a reputation for brutality and the ‘disappearances’ of 2,000 to 3,000 fellow Chechens. The repression in Chechnya, even if provoked by criminal acts of terrorism, elicited sharp criticism in Western circles and reinforced criticism of Putin for ‘authoritarian’ tendencies.

Criticism of ‘human rights’ violations also gained currency from the well-publicized prosecution of leading oligarchs. The most sensational cause célèbre commenced in 2003, when Mikhail Khodorkovskii, the richest man in Russia and the sixteenth richest in the world, became the target of police investigations and prosecution. Khodorkovskii, by all accounts, had amassed his fortune during perestroika and the Yeltsin years by dubious means; during the ‘loans for shares’ phase, he acquired the oil company Yukos—worth billions of dollars—for a fraction of its real value. But it was not Khodorkovskii’s past but his political ambitions—including financial support for oppositionist forces—that reportedly triggered a full-scale investigation by the procuracy. In October 2003 he was arrested by a squad of special forces as he boarded a private jet and brought to Moscow for prosecution on charges of fraudulent privatization, use of an illegal offshore company to conceal profits, and corporate and individual tax evasion. Authorities claimed that Yukos owed 15 billion dollars in back taxes and fines, and that Khodorkovskii personally owed another 2 billion dollars. Convicted in May 2005, he was sentenced to nine years in a corrective labour camp—triggering outcries by Putin’s critics, at home and abroad, that the prosecution was purely political.

The Khodorkovskii case also seemed to substantiate fears that Putin wanted not only to silence oligarchs but to muzzle the media. In the Yeltsin era, as oligarchs acquired television channels and prominent newspapers, the result was not so much a free press as a media dominated by special interests, kompromat, and scurrilous gossip. That kind of journalism, especially when directed against those in power, did little to endear the media to authorities. Putin himself was incensed by negative coverage of the Chechnya war and criticism of his failure to respond personally to the sinking of the submarine Kursk in August 2000; he also took exception to the caricature of his persona in a popular TV show ‘The Puppets’ (Kukly). He gave vent to his vexation in a public speech where he said that ‘sometimes [the media] turn into means of mass disinformation and tools of struggle against the state’. His government deliberately acted to bring the media under control. That was dramatically evident in May 2000 when masked security officers raided the media giant owned by Vladimir Gusinskii; state pressure (and debts) forced Gusinskii to relinquish his media assets (most importantly, an influential TV channel); Gazprom, the state natural gas monopoly, gained control of Gusinskii’s holdings and, in short order, virtually all other television stations. Putin’s government also dealt harshly with individual journalists, such as Andrei Babitskii, who worked for the American-financed Radio Liberty and dispatched highly critical accounts of events in Chechnya. Nor did the regime do much to protect investigative journalists; the murder of Anna Politkovskaia in October 2006 (which Putin dismissed as ‘insignificant’) was but one of eighty-eight journalists slain between 1996 and 2006. The annual ‘World Press Freedom Index’, compiled by Reporters without Borders, placed Russia in the bottom quintal of surveyed countries (141st of 173 countries, just above Ethiopia and Tunisia).

Equally controversial—and fodder for charges of ‘authoritarianism’—was the government’s decision to regulate and restrict the non-governmental organizations (NGOs) which had proliferated in post-Soviet Russia. By 2001 the government had registered some 400,000 NGOs; that number swelled to 500,000 by 2006. In the view of many Westerners, the NGO gives voice to civil society, performs essential services, and lobbies states and international organizations for ‘good causes’. But the murky legal status of the NGO in international law invites abuses, especially by ‘GONGOs’—‘government-organized NGOs’, funded by states and only masquerading as representatives of civil society. Russian sensitivity to foreign-funded NGOs intensified when these played a salient, sometimes decisive role in the ‘colour’ revolutions—in Georgia (2003), Ukraine (2004), and Kyrgyzstan (2005), all the more when (as in Georgia and Ukraine) they brought to power regimes seeking ties with the West, not Russia. Moscow’s suspicions were not unfounded; in 2005, for example, the US government awarded 85 million dollars to a variety of organizations in Russia with the goal of promoting ‘democratization’. Private organizations, such as George Soros’s ‘Open Society’, also provided financial support for Russian NGOs. Putin complained about the subversive role of foreign-funded NGOs and in 2006 initiated legislation requiring NGOs to register, indicate the source of funding, and refrain from activities detrimental to Russian interests. Western observers, especially in the United States, denounced these measures as an attempt to throttle a burgeoning civil society and democratic forces. Increasingly, the Western media and specialists discerned a resurgence of authoritarianism; the Economist Intelligence Unit, for example, ranked Russia 107th of 167 states in terms of its democratization.

Western criticism elicited scathing rejoinders from Moscow. In April 2007 Putin complained that such attacks seek to foment internal turmoil ‘in order to plunder once again the nation’s resources with impunity’ and ultimately ‘to deprive our country of its economic and political independence’. He complained that ‘there has been an increasing influx of money from abroad, which is being used to intervene directly in our internal affairs’. He called this intervention ‘colonialism’ in a new guise, with the old mission of ‘civilization’ glossed as ‘democratization’, but with the same goal: to advance the authors’ vested interests. When the British foreign secretary demanded that Russia change its constitution (which blocked the extradition of a Russian citizen who, according to London, had murdered a former KGB officer residing in England), a livid Putin did not mince words: ‘The British officials are making proposals to change our Constitution that are insulting for our nation. London forgets that Great Britain is no longer a colonial power and that Russia has never been its colony.’ Rebuffing such Western intervention, Putin reaffirmed his commitment to ‘the development of a free, democratic country’, but on Russia’s terms: ‘Russia … will decide for itself the pace, terms, and conditions of moving towards democracy.’ He added that the United States—so eager to teach democracy to others—has failed to reform the electoral college (which subverts the will of the majority), to regulate campaign finance (to end the plutocratization of politics), or to avert the voting irregularities that determined the outcome of the 2000 presidential election.

Rebuilding the Russian State

Yeltsin had presided over the demolition of the centralized Russian state. That was partly due to the economic crisis: an impoverished nation could ill afford the subsidies, services, and military establishment of the Soviet era. But the state’s decline was also due to the neoliberal goal of minimizing the government and its budget (deemed unproductive). The ‘failing state’ syndrome in Russia also had political roots—the stalemate between the presidency and parliament, the decentralization that paralysed the centre’s capacity to rule and even collect taxes. Putin undertook to rebuild the state by transforming its tax system, institutions of governance, and the military.

One priority was re-establishing a centralized state administration. The eighty-nine administrative units became virtually autonomous under Yeltsin—issuing their own laws, ignoring directives from Moscow, retaining most tax revenues, and concluding ‘bilateral treaties’ with Moscow. From the outset Putin sought to create ‘a single vertical line of executive power’. He forced provincial units to increase tax transfers to Moscow (from 30 to 70 per cent), gave federal law precedence over local ‘constitutions’ and laws, and demanded strict observance of Moscow’s policies. He also established seven super-districts headed by a polpred (plenipotentiary), a viceroy charged with overseeing the subordinate administrative units and ensuring compliance with Moscow’s directives. But the polpred failed to control the subordinate regions, especially the popularly elected governors, and Putin then took steps to undercut the governors’ power. He first eliminated their ex officio membership in the Federation Council (the upper house of parliament) and replaced them with locally elected representatives. The key change, however, was to replace the popular election of governors by a new system: from February 2005 all were to be nominated by the president, with confirmation by the invariably pliant local legislatures. The governor henceforth represented Putin, not the local region.

A second focus was taxation. The first step was vigorous tax collection to detect fraud and combat arrears; in 2000, Putin’s first year as president, tax revenues jumped 60 per cent. The Putin government expanded tax audits (examining the filings of 440,000 enterprises and 311,000 individuals in 2001). The government, moreover, simplified taxation such that the government collected 98 per cent of its revenues from four main sources—the value-added tax, excise, profits, and user fees for natural resources. The government also adopted a flat income tax (13 per cent) and merged sundry levies into a single social security tax. Moscow made a concerted effort to combat the misuse of public funds by adopting a new budget code, increasing transparency, closely auditing state procurements, and resisting Duma proposals for a splurge in social expenditures. As a result, the government could cut taxes (for example, lowering the corporate tax rate) yet achieve a budget surplus (first in 2000, with a 6 billion dollar surplus, followed by surpluses every year through 2008).

In other spheres, however, Putin’s record was less impressive and, in some cases, such as reform of the judiciary, positively disappointing. Putin himself indulged in rhetoric about a ‘dictatorship of law’—a Rechtsstaat based on the rule of law. He did make some improvements, including increased funding for the judiciary (a fourfold increase in the salaries and 18 per cent increase in the number of judges) and decriminalization of minor offences (replacing incarceration with fines, thereby reducing the prison population from 1,084,000 inmates in 2001 to 878,000 in 2007). Much else remained on paper, including the lofty principles embodied in the Criminal Procedural Code of 2002, which enhanced the rights of defence lawyers, limited preliminary detention to 48 hours, affirmed habeas corpus, and guaranteed the accused a two-hour meeting with an advocate prior to any interrogation. In reality, as the Khodorkovskii case demonstrated, the Kremlin still resorted to ‘telephone justice’, with calls from above ensuring the ‘right’ verdict. Not only did the promise to expand the jury system to all eighty-nine administrative districts fail to have the desired impact, but the regime severely limited its competence in December 2008, specifically excluding the jury from cases involving terrorism, hostage-taking, illegal armed units, treason, attempts to overthrow authority, sabotage, and organizing massive disorder or revolt.

Nor did Putin’s team succeed in trimming the bureaucracy and improving its quality. On the contrary, the civil service became bigger if not better, growing by 50 per cent (from 1.0 to 1.5 million in 2000–6). Putin himself complained that state officials were ‘ill-prepared for working out and implementing the decisions appropriate to the country’s present needs’, and on another occasion declared that ‘we should limit the power of bureaucrats, make them comply with laws, and provide for the transparency and openness of bureaucratic procedures’. Despite some flowery rhetoric, Putin also failed to eradicate corruption; as he admitted himself in May 2006, little had been achieved in eliminating a ‘major obstacle’ to development—corruption.

Military reform proved equally elusive. The tragic sinking of the nuclear submarine Kursk in August 2000 symbolized the pitiable state of the military: the sole recovery vehicle of the Northern Fleet was inoperative, having been cannibalized for spare parts. The increase in state revenues did, however, enable the government to increase the military budget from 7 billion dollars in 2001 to 30 billion in 2006. That spending enabled the development and testing of a new ICBM, the RS-24 (with a 10,000-kilometre range and MIRV capability) and the renewed production of nuclear submarines (with the launching of several in 2007—the first in seventeen years). That same year the government adopted a seven-year, 200 billion dollar rearmament plan to create a new generation of missiles, planes, and aircraft carriers. However, as Putin emphasized in May 2006, ‘we must not sacrifice the interests of socio-economic development to develop our military complex’. As a result, the Russian military budget remained comparatively small (that of the United States being twenty-five times greater) and did not even suffice to achieve an acceptable level of combat readiness. As the chief of the general staff declared in December 2008, only 17 per cent of the military units were combat ready, half of the warships were at anchor, and the like. Finally, still more problematic was the transformation of the military from a conventional force into one better suited to fight insurgencies and respond rapidly to crises. In particular, the government failed to abolish conscription and create an all-volunteer professional army, partly because of the spectre of high costs (exaggerated by military opponents of the change) and partly because of the low rate of re-enlistment by contract soldiers. As a result, Putin left the military slightly improved, but much as he found it—underfunded, unprepared, and untransformed.

Society and Culture

The prosperity of the Putin years significantly raised living standards. That meant, above all, a significant drop in the poverty level, as the number of those with incomes below the subsistence minimum fell from 40 to 16 per cent during Putin’s two terms. Not only the economic boom but government policy accounted for this decrease, especially its decision to raise pensions and keep pace with inflation. Unemployment, similarly, fell by half (from 12.4 to 5.9 per cent between January 1999 and January 2008). The rise in personal income (12 per cent per annum) reduced the army of poor and created a small, but growing, ‘middle class’, with 20 per cent of the population self-identifying themselves in this category. But the social sphere also offered negatives: the demographic crisis deepened, as the population continued to decline (from 146.3 million in 2001 to 142.0 million in 2008).

Prosperity also failed to diminish inequality. The decile ratio (the proportion of the richest 10 per cent to the poorest 10 per cent), which had already jumped from a relatively egalitarian 4.5 (1991) to 13.8 (2001), edged upward to 15.6 by late 2007 (compared to 15.9 in the United States and 13.6 in the UK). Another measure of inequality, the Gini coefficient, rose from 0.399 in 2001 to 0.415 in 2008. And, apart from the handful of ‘oligarchs’ (such as Khodorkovskii) who ran afoul of the regime, the rich became the super-rich, with the number of billionaires increasing from 17 (2003) to 53 (2006) and controlling some 400 billion dollars in assets (or about one-third of the GDP).

A stronger, richer state could afford more social services, but Putin’s government was no spendthrift, preferring instead to build up foreign exchange reserves and a stabilization fund. The state budget allocated 3 to 4 per cent of the GDP for health and education; and nearly 6 per cent for social security—in real terms, a marked improvement over the 1990s. In education, for example, the number of students in higher education (including new private universities as well as state institutions) rose from 4.7 million (2000–1) to 7.5 million (2007–8). Such gains were reflected in the World Bank’s ‘Human Development Index’ (HDI), an aggregated numerical rating that calculated a host of different variables (such as health services, education, and gender empowerment): Russia, while still significantly below other developed countries, none the less lifted its rating from 0.776 in 1995 to 0.806 in 2006.

But Russia still lagged far behind the developed countries. That was apparent in its rank in the World Bank’s HDI: despite the improved score, in 2006 Russia was only 73rd of 179 countries and, over the entire post-Soviet era (1990–2006), had actually suffered a 0.014 drop in its aggregate HDI indicator (compared to a 0.156 rise in China). That decline was due mainly to the disastrous 1990s, but also reflected Putin’s reluctance to invest in the social sector. Thus in public health Russia’s ranking was even below its HDI score; revealingly, the World Health Organization ranked Russia 127th out of 192 countries. Official reports cited serious deficiencies: much of the medical equipment was obsolescent, the drug supply met only 30 to 40 per cent of demand, and more than two-thirds of those polled (in August 2006) complained that they could not get ‘good’ health care. The result was a decline in life expectancy; during Putin’s tenure, 2000–8, it dropped from 67.2 to 65.9 years. Russia, like other developed countries, also faces a looming pension crisis; by 2010 sheer demography—the widespread phenomenon of population ageing, with a higher mean age—dictated that the pension costs would rise steeply (50 per cent in a few years, according to some projections), and precisely at a time when the proportion of working population to retired elder would shrink. Another dark side, crime, also significantly worsened under Putin: the number of reported crimes rose 21 per cent (from 2.95 million to 3.58 million in 2000–8). In short, the Putin era witnessed some improvements in the social sphere, but the country still faced major challenges—some were due to the ‘catastroika’ of the 1990s, some reflected budget austerity, and others (in particular, demographic) resulted from long-term processes that were hardly unique to Russia.

By contrast, the picture in the cultural sphere was much brighter, for the relative affluence of the Putin era proved a tremendous boon for creativity in the arts. The resurgence was particularly apparent in cinema, with the production of prize-winning films that earned international renown. Nikita Mikhalkov’s The Twelve (2007), based on the famous Twelve Angry Men, adapted the plot to show a Chechen youth who had allegedly murdered his Russian stepfather: the jury overcame ethnic stereotypes to declare the youth ‘not guilty’. Aleksandr Sokurov directed Russian Ark (2003), an innovative (if dizzying) film about the entire history of Imperial Russia, staged with 867 actors and produced in a single, uninterrupted shooting of 96 minutes, with the Hermitage as its backdrop. Contemporary Russian art, repressed in the Soviet era and ignored in the perestroika era and immediate post-Soviet years, suddenly came into favour after the turn of the twenty-first century. Ilya Kabakov’s 1981 painting La Chambre de luxe (1981) sold for 4.1 million dollars, and in 1998 the Tretiakov Art Museum displayed contemporary art in its first exhibition on twentieth-century Russian art. Buoyed by this demand, much of it coming from the wealthy ‘new Russians’, Sotheby’s opened a Moscow branch in May 2007, and Christie’s also made plans to enter the new lucrative Russian market. Literature also produced some popular but sophisticated best-selling novels, such as Viktor Pelevin’s The Sacred Book of the Werewolf (2005) and Vladimir Sorokin’s dystopian novel A Day in the Life of an Oprichnik (2006).

The Putin era also witnessed a revival of religion, especially the Orthodox Church. The resurgence of Orthodoxy had begun during the perestroika and Yeltsin eras, but accelerated under Putin. The president himself, who unabashedly and (to all appearances) sincerely identified with Orthodoxy, emphasized his ties to the Church from the very outset, with a procession to the Cathedral of Annunciation immediately after his inauguration in May 2000. In subsequent years he reaffirmed those ties to the Church, with quasi-pilgrimages to hallowed sites and public expression of respect for the Church, its leaders, and the faith.

The public, especially ethnic Russians, also displayed a growing identification with the Church. Whereas 24 per cent of the population self-described themselves as Orthodox in 1990, that quotient reached 62 per cent in 2005 and 73 per cent in 2008. Some observers, however, regarded such professions of piety to be more rhetorical than real; church attendance remained extremely low and only 2 per cent knew all of the Ten Commandments. Nonetheless, the popular affirmation of belief stimulated the recovery of institutional Orthodoxy, the number of registered parishes growing from 8,729 in 1999 to more than 12,214 parishes in 2006. After the death of Patriarch Aleksii II, closely associated with the Putin government, on 5 December 2008, the Church elected Kirill I and conducted the enthronement ceremony on 1 February 2009. The new patriarch brought a more liberal reputation to the office, especially in theological and liturgical issues, even in the contentious question of ecumenical ties (perhaps heralding better relations with the Vatican). Kirill was also quick to express a commitment to social issues: ‘Our Christian duty is to care for the suffering, for the orphaned, the poor, the disabled, the elderly, the prisoners, and the homeless. We can help all of these to regain hope. The voice of the Church should reinforce the voice of the weak and those deprived of power, so that they may find fitting justice.’

The new prominence of the Orthodox Church, including the demonstrative display of ties to the country’s leaders and government, aroused deep concern among secularists and adherents of other confessions. Most controversial of all were the attempts by the Church to reclaim a role in education, including demands for ‘religious education’ and even instruction in the ‘foundations of Orthodox culture’. That provoked vehement opposition from secularists, including academicians; even state officials spoke in favour of allowing only generic instruction in ‘world religions’, not a specifically Orthodox curricular requirement. The government’s caution derived from the fact that Russia remains, despite the renaissance of Orthodoxy, a multi-confessional state. Of the total registered local religious communities (22,523), the remaining 10,309 (45.8 per cent) belong to a variety of Christian and non-Christian groups. By far the largest was Islam, with 3,668 communities (16 per cent of the registered religious groups), which represent a Muslim population estimated at 20 to 24 million, with strong concentrations in the north Caucasus, Tatarstan, and Bashkortostan. Muslims constituted the fastest growing segment of the population, increasing 40 per cent since 1989, with 2.5 million in Moscow itself. Muslims also used the religious freedom in post-Soviet Russia to reclaim property and reopen mosques, which increased from 150 in 1991 to approximately 6,000 in 2006.

Russia and the World

The economic boom and state-building encouraged the Putin leadership to reclaim Russia’s former status as a major power. In talks with the Italian prime minister in 2007, Putin bluntly asserted his country’s claim to global power: ‘As Russia’s economic, political and military capabilities grow in the world, it is emerging as a competitor—a competitor that has already been written off. The West wants to put Russia in some pre-defined place, but Russia will find its place in the world all by itself.’ From the very outset, Putin embraced an ambitious foreign policy that would eventually be called the ‘new realism’. Its basic premiss was that Russia should foreground its economic and business interests, yet continue to seek integration into the global economy. Putin showed some sensitivity to ‘soft power’ as an alternative to military force. He also demonstrated a willingness to cooperate with the West in the wake of 11 September 2001, agreeing to open Russian air space for the NATO campaign in Afghanistan and acquiescing in the creation of temporary US airbases in Uzbekistan and Kyrgyzstan.

However, Moscow’s response to 9/11 did not presage better relations with Washington, which steadily worsened thereafter. To be sure, Putin famously charmed the American president George W. Bush, who, after a summit in June 2001, gushed: ‘I looked into that man’s eyes and saw that he is direct and trustworthy. We had a very good dialogue. And I saw his soul.’ But others in his administration saw something else—a former KGB officer, a challenge to American dominance, an obstacle to the onward march of ‘democracy’. At the very outset of the Bush presidency, his then national security adviser, Condoleezza Rice, declared that ‘Russia is a threat to the West in general and to our European allies in particular’. Six years later Vice-President Richard Cheney, in a meeting of East European leaders, accused Moscow of using energy as a political weapon and demanded that it ‘return to democratic reform’.

The challenge from Washington did not go unanswered. Shortly after the Cheney speech (which ignited an uproar in Russia), Putin bristled that ‘we are categorically against such intervention into our affairs’, and a high-ranking official (and regime ideologue), Viacheslav Surkov, declared that Russia must defend its rights as a ‘sovereign democracy’. The minister of foreign affairs, Sergei Lavrov, castigated America’s arrogant ‘transformational diplomacy’ (codeword for the promotion of democracy), neo-containment rhetoric, and unipolarity. Putin himself responded in kind to what he saw as American hypocrisy and provocations. Thus, after Bush unveiled a memorial to the ‘victims of communism’ (accompanied by a wave of anti-Soviet declarations), Putin recommended that the United States—which was so generous in exposing the dark sides of Russian history—look back at its own sorry record: ‘We have not used nuclear weapons against a civilian population [as in Hiroshima and Nagasaki]. We have not sprayed thousands of kilometres with chemicals [an allusion to agent orange], or dropped seven times more bombs [in Vietnam]’ than in all of the Second World War. In early 2007 Putin fumed that Russia is ‘constantly being taught about democracy, but for some reason those who teach us do not want to learn it themselves’.

Substantive differences fuelled the rancour and rhetoric. One was Moscow’s concern about American expansionism, especially in ‘post-Soviet space’—the former Soviet republics and Russia’s neighbours. Above all, Putin opposed Washington’s campaign to promote pro-Western democracy by financing the ‘colour revolutions’, bringing to power regimes which would not only replicate Western democracy but also ally with the West against Moscow. American intervention succeeded in Ukraine, Georgia, and Kyrgyzstan, where support (monetary, not merely rhetorical) for ‘democratic forces’ helped to topple current governments and install pro-Western regimes. It was precisely this foreign intervention that provoked the 2006 decision to regulate NGOs that relied on Western, official or private, financing.

A second flashpoint of contention was the Middle East. Russia deemed the American military attack on Iraq an unjustified, illegal violation of the UN Charter. Putin emphasized that the Americans had failed to find weapons of mass destruction—the putative reason for launching a military invasion without authorization from the UN Security Council. Iran was another bone of contention. The West, led by Washington, accused Iran of seeking to develop nuclear weapons and insisted on harsh sanctions to prevent the ‘nuclearization’ of Iran. Moscow, however, resisted such demands and refused to cancel its contract to build a nuclear plant at Bushehr (ostensibly for peaceful purposes). It also reportedly sold sophisticated anti-aircraft battery units to Iran, which severely complicated American and Israeli threats to launch a pre-emptive military strike against Iran’s nuclear installations.

A third issue was disarmament and nuclear deterrence. The dispute erupted at the very beginning of the Bush presidency, when Washington decided unilaterally to renounce the ABM treaty of 1972—which limited each side to a single missile defence system—and to resume development of Reagan’s ‘Star Wars’, the National Missile Defence (NMD) system, initially in North America, but later in Europe as well. The NMD in Europe was purportedly intended to neutralize a potential Iranian or North Korean missile threat by positioning a missile defence unit in Poland and an advanced radar system in the Czech Republic. Russia vehemently objected, suspecting that the real objective was to neutralize Russia’s own nuclear deterrence. Given the size of Russia’s nuclear arsenal, Moscow’s argument did not seem very compelling; no doubt more weighty were other considerations, especially the fear that NMD would generate new technological spin-offs (to Russia’s disadvantage) and strengthen America’s strategic superiority. The Putin government also realized that NMD would unleash a new arms race (forcing Russia to undertake a costly modernization of its own nuclear defence system), which was most unwelcome at a point when Moscow sought to limit military expenditures in order to concentrate on economic development and diversification. Another thorny issue was the 1990 Conventional Forces in Europe (CFE) between NATO and the Warsaw Pact Countries, which limited the size and deployment of military forces along the borders of Western states and the Soviet bloc. That agreement had been revised in 1999 (to account for the break-up of the USSR and Warsaw Pact), but the revised text gave rise to new disputes, with the result that only Russia and three close allies ratified the new text. Angered by the Western refusal to ratify the revised text, Russia formally withdrew from the CFE in December 2007, declaring that it could no longer tolerate a one-sided disarmament policy.

A fourth issue was NATO expansion: to Moscow’s consternation, NATO—under American leadership—actively recruited and incorporated former Warsaw bloc countries and even former Soviet republics. Russia grew increasingly alarmed as NATO expanded eastward, encompassing former Warsaw Pact countries and former Soviet republics in the Baltics, with the ex-communist lands coming to comprise 40 per cent of NATO membership. Nor did the campaign show any signs of stopping: the United States vigorously supported the inclusion of Ukraine and Georgia, especially after their ‘orange’ and ‘rose’ revolutions brought pro-Western regimes to power. Some European members of NATO opposed the American démarche, partly because of Russia’s opposition but also because neither Ukraine nor Georgia met the prerequisites for membership. Washington none the less extracted a NATO declaration of ‘intent’ to initiate the process of admission to NATO. Putin in turn protested that some in the West ‘have not been able to move on from the stereotypes of bloc thinking and prejudices, which are a carry-over from the epoch of global confrontation’. All this led to a famous Putin outburst about American hegemonism in a Munich conference in February 2007: ‘The United States has overstepped its borders in all spheres—economic, political, and humanitarian—and has imposed itself on other states.’

The mounting tensions with Washington encouraged Moscow to strengthen its ties to Europe. Not only was the latter its main trade partner, but it was also a natural partner for Russia as a ‘European’ country. Closer relations, however, proved elusive, in large measure because of recurring reports about military abuses in Chechnya and other human rights violations—which Moscow dismissed as unacceptable interference in its internal affairs. Tensions were also inflamed by Russia’s conflict with Ukraine over natural gas exports: Moscow’s decision to shut down the gas pipelines in January 2006 and January 2009 caused considerable hardship in Europe, which relied on Russia for a quarter of its natural gas and suspected that Russia was not only putting pressure on Ukraine but also indulging in political pressure and blackmail.

Amidst these complications, Putin—the ‘Europeanist’—gradually began to reorient strategy to the East, especially China. The latter was a major target of arms exports and shared many of Russia’s foreign policy aims—especially, its concern about the ‘unipolar hegemonism’ of the United States, the latter’s penchant for ‘humanitarian intervention’ and violation of state sovereignty, NATO enlargement, and the Islamist fundamentalism which threatened both Russia and China. In 2001, the ‘Shanghai Five’, established five years earlier by Russia, China, and three former Soviet republics (Kazakhstan, Kyrgyzstan, and Uzbekistan), was reconstituted as the Shanghai Cooperation Organization (SCO), tasked not only with promoting economic relations but also with coordinating policy and enhancing mutual ties. In 2004 SCO established an ‘anti-terrorist centre’ to combat the radical Islamist movements and the following year resolved to reduce American influence and military presence in the region. In August 2005 Russia and China held their first joint military exercises, underscoring that SCO and their bilateral ties had moved significantly beyond the economic sphere.

The Putin government, with little success, sought to maintain its influence in the ‘near abroad’—the former Soviet republics—partly because these countries now held a sizeable Russian diaspora, partly for geopolitical reasons. It had no success whatsoever in the Baltic states, which hastened to join the European Union and NATO and flagrantly violated the rights of ethnic Russians on their territories. Relations with Moldova, Ukraine, and Georgia steadily deteriorated. In Moldova’s case, Russia continued to support Trans-Dniester, a pro-Russian secessionist territory; despite agreements to withdraw Russian forces, Russia continued to deploy a military contingent and support the region’s demands for autonomy. Relations with Ukraine sharply deteriorated after the ‘orange revolution’ in late 2004, both because Moscow had backed the losing candidate for president and because the new government in Kiev tilted strongly toward the West. Apart from historical enmity (including Ukrainian demands that golodomor, the famine which accompanied collectivization in the early 1930s, be recognized as genocide), there were other, more urgent contemporary issues. One was the status of the Crimea (which Khrushchev generously transferred to Ukraine in 1954, but which had a population composed primarily of ethnic Russians). The two sides had earlier agreed to ‘share’ the Black Sea fleet, but that too became a point of contention. Economics, above all the price of natural gas, also played a role. Given Ukraine’s Western tilt, Moscow saw no reason to continue Ukraine’s 60 per cent discount on natural gas prices (a subsidy amounting to three to five billion dollars a year); Kiev’s refusal to pay old debts and to negotiate new rates led Russia to shut off gas deliveries on two occasions, which ended in temporary agreements, but did not remove the question as a source of future conflict. Relations with Georgia, especially after the ‘rose revolution’ in 2003, also became increasingly acrimonious. As Georgia strengthened its ties to the West, Russia bolstered support for two secessionist areas of Georgia, Abkhazia and South Ossetia, populated by a non-Georgian majority; Russian peacekeepers had enabled both territories to remain virtually autonomous since the early 1990s. In August 2008, in a bid to reassert control (and with the promise of American support), Georgia launched an offensive in South Ossetia, but quickly suffered a devastating defeat at the hand of Russian forces. Russia’s action elicited much criticism, especially from the American administration, adding to the rancour in Russian-American relations. Russia (and only one other state, Nicaragua) formally recognized the independence of South Ossetia and Abkhazia, to the fury of officials in Washington and Tbilisi. Moscow’s action, however, should not have come as a surprise. Two years earlier, as the West prepared to recognize an independent Kosovo, Putin warned that such an action would provide a precedent: ‘If someone believes that Kosovo can be granted full state independence, then why should we refuse the same to Abkhazia or South Ossetia?’

Some areas of the former Soviet Union, however, maintained close ties to Moscow. Belarus, indeed, even sought some kind of quasi-political union; while such proposals were current in the 1990s, Putin was less enamoured and the public likewise became increasingly sceptical, given the Belarusian economy and the ill repute of its mercurial president Aleksandr Lukashenko. Moscow attached far greater importance to its relations with the countries of Central Asia, partly because of the sympathies of Russian and Russified populations there, but also because they shared a common desire to contain Islamist fundamentalism and terrorism.

As Putin’s tenure drew to a close in early 2008, it was clear that Moscow was seeking to reassert its stature as a major power. But in fact Putin’s regime had achieved little; his gratuitous attacks, however popular at home, aggravated tensions with the West. The United States, in particular, increasingly came to regard Russia as a threat to its power and to the process of democratization.

2008: A New President

As Putin’s second term drew to a close, with prosperity at home and Putin’s popularity at an all-time high, his supporters proposed to amend the constitutional limit of two consecutive terms in the presidency. However, Putin himself rejected that proposal and instead promoted the candidacy of his deputy prime minister, Dmitrii Medvedev. Like Putin, Medvedev came from St Petersburg, had a law degree (he even taught Roman civil law at St Petersburg University), and had worked for that city’s liberal mayor Sobchak in the early 1990s. In 1999 Putin appointed Medvedev deputy head of the governmental administration, next made him deputy head of the presidential administration, and then promoted him to be its director in 2003. At one point in 2000 Medvedev also served as chairman of the board of directors of Gazprom, the state’s natural gas monopoly. In 2005 Putin designated Medvedev first deputy prime minister, with responsibility for health care, demography, agriculture, and education, thereby giving him visibility in high-profile issues. Despite conjecture about Medvedev’s possible liberalism, during the election campaign he unequivocally embraced Putin’s ideal of a strong ‘vertical’ authority: ‘I am deeply convinced that, if Russia turns into a parliamentary republic, it will soon cease to exist. What it needs is a strong presidential authority. These lands were brought together over centuries, and it is simply impossible to govern them in any other way.’

Medvedev held an insuperable advantage in the presidential campaign. He not only had Putin’s public support but quickly announced that he would appoint the popular Putin as prime minister, ensuring that Putin and his policies would remain in place. Indeed, the pair campaigned as a team under the slogan ‘Together we shall win.’ The opposition, divided and weak, deprived of the state-controlled mass media, had little prospect of victory. Western observers questioned the legitimacy of the election; the Organization for Security and Cooperation in Europe (which routinely monitors elections) declined to participate, citing ‘severe restrictions on its observers by the Russian government’. Those who did come to observe reported a ‘fair but unequal election’. One study found that Medvedev had six times more coverage than his rivals; some oppositionists claimed forged election protocols. Few, however, doubt that Medvedev won a landslide victory, with 71.3 per cent of the vote against 18.0 per cent and 9.5 per cent for the next two candidates.

With Medvedev’s election and installation as president in May, Putin became prime minister. The new government enjoyed popularity and power: although the two were often described as a ‘tandem’, Putin unquestionably was a power unto himself. Some of his popularity even rubbed off on the ‘government’, which traditionally had extremely low approval ratings, but now saw its approval shoot up to 60 per cent, with still higher ratings for Medvedev and Putin.

The post-Putin ‘tandem’ continued Putin’s foreign and domestic policies. In foreign policy Russia continued to oppose the placement of NMD facilities in Poland and the Czech Republic; failing to persuade the Bush administration to reconsider, Moscow remained hopeful that the new government of Barak Obama would be prepared to compromise. Moscow did succeed in persuading NATO to delay plans to admit Ukraine and Georgia, despite strong pressure from the American government. The military conflict with Georgia in August 2008 exacerbated tensions, but neither the United States nor its European allies pressed their demands that Russia withdraw its forces and recognize Georgia’s sovereignty over the breakaway regions. The Medvedev presidency also reaffirmed Putin’s domestic policies in a long-term plan called ‘Strategy for 2020’, which was drafted in June 2008 and outlined goals and policies for the next dozen years. The plan envisioned a fivefold increase in wages, threefold increase in housing construction, doubling in research and development, and a demographic transformation (with the population growing to 145 million and life expectancy rising from 65 to 70). Such optimistic projections derived largely from the high rate of economic growth in the first months of 2008; buoyed by an investment boom, in the first quarter of 2008 the GDP grew at an annual rate of 8.5 per cent, among the highest in all the Putin years. The future could hardly have looked brighter when the price of oil reached $147 a barrel in July 2008. At that point, Russia seemed clearly poised for years of continuous prosperity and power.

From Global Boom to Global Recession

The American banking and mortgage meltdown in the second half of 2008 triggered a global crisis, with severe repercussions for all the globalized states, Russia included. The Russian leadership had no doubts about where to place the blame. As the contagion spread, on 1 October 2008 Putin bluntly declared that ‘everything happening now in the economic and financial sphere began in the United States’, and a month later President Medvedev hammered home the same theme: ‘The US economy … pulled financial markets all around the globe down with it in its fall’, adding that Americans ‘did not listen to the numerous warnings from its partners (including from us)’.

Moscow had good cause for anger and alarm: the crisis had an immediate, devastating impact on the Russian economy. Oil prices plunged: from 147 dollars a barrel in July to less than 40 dollars by the end of the year—a 73 per cent drop. To rescue a falling rouble and failing corporations, the government had to raid the foreign exchange reserves that it had carefully accumulated; the reserves—once the world’s third largest—shrank from 598 billion dollars to 426.5 billion by early January, and dropped to 388 billion a month later (a decrease of 35 per cent). These measures, however, failed to staunch the decline of the rouble, which lost a third of its value against the dollar and returned to its exchange value at the time of the 1998 crisis. The Russian stock exchange nosedived, dropping from a high of 2,488 points in May 2008 to 507 by February 2009 (an 80 per cent decline). The crisis in the financial, banking, and securities sector carried over to the ‘real economy’, bringing a sudden halt to the high growth rate of the GDP. Putin initially projected an overall growth rate of 6 per cent in 2008, but later calculations reduced that to 5.6 per cent—the lowest since 4.7 per cent in 2002 and saved only by the high growth rate in the first half of the year.

The crisis did not spare the oligarchs. Although the magnitude of the crisis evoked images of 1998, this time roles were reversed: in 1998 the oligarchs had bailed out the government, but now the state had to rescue the oligarchs. Authoritative sources reported that the twenty-five richest oligarchs lost 240 billion dollars, that they and individual companies struggled to service the colossal corporate debt (478 billion dollars) amassed in recent years. The case of the aluminium magnate Oleg Deripaska was instructive. His original wealth of 30.5 billion dollars had shrunk to 9.6 billion, with an outstanding debt of 18.6 billion. Oligarchs appealed to the government for emergency loans (Deripaska receiving 4.6 billion dollars, for example) and sought to sell valuable assets to achieve greater liquidity (Roman Abramovich, for example, purportedly seeking a buyer for his English football club, Chelsea).

The financial crisis also had a profound impact on state finances. Instead of the budget surpluses, the precipitous drop in global energy prices—source of more than half of the state revenues—meant a fall in revenues and a ballooning deficit. In early January 2009 the government projected a deficit equal to 3.2 per cent of the GDP, but a month later revised that estimate and projected a deficit of 6.1 to 7.6 per cent; outsiders forecast an even larger deficit (on the order of 8 to 8.5 per cent). Such projections depended, first and foremost, on the price of oil, and as the price of oil dropped below 40 dollars a barrel, Moscow was forced to revise its budget projections (which earlier assumed the price of oil would be twice as high), with the inevitable consequence of still greater deficits.

Despite the global economic crisis (which reduced the demand for Russia’s energy exports) and internal financial problems, the government not only resisted budget cuts but even made plans to increase pensions and unemployment compensation. Those policies helped to sustain high popular approval ratings for both Putin (83 per cent) and Medvedev (78 per cent) in December 2008, four months into the crisis. There was, to be sure, growing concern; those who thought the country was moving in the right direction dropped from 61 to 43 per cent during the same four months. Although the approval ratings showed some slippage, even for Putin, faith in his leadership remained unwavering.

Putin certainly did all in his power to buoy confidence. Apart from assistance for debt-ridden companies and banks (with a 200 billion dollar stimulus package), Putin staged his seventh ‘national town meeting’ on 4 December 2008—as before, a well-rehearsed and impressive conference with the public, not just journalists, which lasted over three hours and allowed the prime minister to respond to phone calls, emails, text messages, and live interaction with small groups around the country. He answered 76 questions and demonstrated his usual mastery of detail, grasp of broader issues, empathy for fellow citizens, and flashes of humour. The public voiced a broad range of concerns—demands for tougher sanctions against paedophiles, the dangers of inflation, the violence perpetrated by ‘skinheads’ against minorities, traffic congestion, and even the weather (‘When will it snow?’, to which Putin responded ‘That’s up to God’). Other than the weather, Putin made clear that everything else was up to him and his government. Putin also exuded sympathy for those in need, like that in a message from an elderly woman: ‘To Putin. From Nadezhda Mukhanova, a pensioner, 68 years old. My pension is 3,500 roubles [116 dollars]; fire wood costs 10,000 roubles [333 dollars]. How can I survive?’ In such cases Putin promised to have the relevant ministry investigate or to direct local authorities to take action. As for the general economic crisis, a confident Putin offered reassurance: ‘Russia has seen greater problems and coped with them. We shall cope with the present crisis too if we follow the right course and are purposeful about our complicated economic and social matters.’ He noted that the country’s large foreign exchange reserves would ‘allow us to plan for a soft landing’.

By early 2009, however, the prospects for a soft landing appeared to be fading. Putin predicted that the GDP would grow by 2.5 per cent in 2009, but other estimates were far more pessimistic, with forecasts that the GDP would decline by 3.0 to 15.0 per cent, depending on the price of oil and metals on international markets. In June 2009 the World Bank offered a more disinterested forcast, predicting that the GDP would decline by 7.5 per cent in 2009, but actually show a growth of 2.5 per cent in 2010. The range in projections reflected not so much political prejudice or posturing as the uncertainties in the global economy; given Russia’s reliance on commodity exports, the health of the global economy—and the demand for Russian resources—would determine the magnitude and duration of the Russian recession. Putin had achieved much during his two terms, promoting prosperity at home, amassing huge foreign exchange reserves, creating a stabilization fund, and reestablishing a centralized government. He positioned Russia as well as possible, but a country that gained so much from global boom was fated to lose just as much from a global bust. His plans for a ‘soft landing’ would depend heavily on global market forces far beyond his control.