Editor’s Note: This article responds to “The Russia Enigma”, a series of essays that ran in the Holidays (November/December) 2006 issue of The American Interest.

Liberalism in Russia is on its last legs. On this general observation, Allen Lynch, Lilia Shevtsova and Paul Dibb agree. As to why liberalism in Russia has faltered, however, they differ. Their fears about the consequences of liberalism’s failure also range considerably. Who’s right?

For Lynch, liberalism as a political philosophy to guide policy reforms never had much chance in Russia because Russian society, like other advanced industrial European societies in the 20th century, preferred social democratic ideas and policies to classical liberal ones. Russia’s current political institutions and current leader, Vladimir Putin, reflect society’s preferences. Hoping for some other government or some different kind of leader is wishful thinking, or worse. For Western governments to pressure the current regime toward liberal institutions would not only cut against the grain of Russia’s natural current course; it could lead to negative consequences. In this view, Putin is the best Russians can hope for, and the best the West should hope for, too.

Shevtsova implicitly shares Lynch’s interpretation of Russian society as an illiberal one, but blames Russia’s so-called liberals of the 1990s for not creating the proper liberal democratic institutions that might have helped push her fellow citizens in the right direction. For Shevtsova, the 1993 constitution, ratified in the wake of the October 1993 shelling of parliament, marks the original sin of the Russian liberals working with President Boris Yeltsin at the time. Putin’s increasingly autocratic regime is the inevitable consequence of these foundational failures of institutional design. Unlike Lynch, Shevtsova does not think of Putin as a great leader but instead foresees a difficult period in dealing with what she calls “imitation democracy.” She also blames Western elites for practicing “imitation partnership” and therefore allowing “illiberal democracy” or “bureaucratic authoritarianism” (phrases she uses interchangeably) to take hold in Russia. Dibb also sees illiberal tendencies growing, but with new, pernicious implications for the international system, now that Russian power is expanding as a result of expanding oil and gas revenues.

As in all countries, the Russian story is a complex mix of socio-economic forces, institutions and individuals: in other words, structure and agency. And Russian liberals are not the only individuals capable of autonomous action. Distinguishing between that which was bound to happen in Russia in the wake of the Soviet collapse and that which occurred as a result of individual decisions is crucial both for understanding the current Russian condition and for mapping paths along which it might change.

Revolutionary Change
and Putin’s Thermidor

The end of communism in Europe triggered a level of economic and political dislocation rivaled only by what transpired in France after 1789 or Russia in 1917. In addition to trying to create new political and economic institutions in the wake of communism’s collapse, most of the countries in the region faced a third challenge of defining new borders. In several countries in the region, this triple transformation is still ongoing.

On the eve of this transformational experiment, many, like political scientist Adam Przeworski, predicted that market “reforms” (an exceedingly small and technical term that did not capture the scale of change needed to dismantle communism and build capitalism) and democratization could not take place at the same time.¹ If newly elected reformers tried to pursue the painful macroeconomic and structural reforms needed to transform communism into capitalism, then the masses—especially workers and pensioners—would revolt, reject their neoliberal leaders and embrace (again) social democratic politicians. This analysis predicted one of two outcomes: Either democracy would be preserved and neoliberalism would be undermined, or democracy would have to wait until the necessary liberal economic reforms were completed. In his grander account of the decline of liberalism and the rise of the European welfare state, Lynch offers a similar explanation for why democracy and economic liberalism are at odds, not only in Russia and the broader post-communist world but throughout Europe.

In the long run, Lynch may be right: Enfranchising the masses may eventually lead to the death of European liberalism as a guide for public policy. In the first post-communist decade, however, economic liberalism and democracy instead proved mutually reinforcing. Those countries most successful in consolidating democracy, such as Poland and Mongolia, were also the most successful in implementing liberal economic reforms and the fastest to jumpstart economic growth. Conversely, those countries slower to consolidate democracy, like Slovakia and Tajikistan, experienced partial economic reforms and slower growth rates.

It is true that the pursuit of neoliberal economic reforms in the wake of communist collapse did produce tremendous economic dislocation throughout the region, one even deeper than the Great Depression in the West. But workers and pensioners did not use their newly acquired access to democratic institutions to thwart economic liberalism. Instead, democratic institutions offered a mechanism to keep these social groups engaged in and acquiescent to the reform process, however painful. In countries where implementing neoliberalism was less successful, it was not workers but rent-seekers—that is, “business” elites who profited from the rents generated by partial reform—who impeded reform and growth.

Russia was the paradigmatic case of rent-seeking. Russian business elites with close ties to the state profited immensely from partial economic reforms, pocketing their first big rents from their access to subsidized government credits at a time of soaring inflation. The most successful of these rent-seekers (euphemistically called “bankers”) then leveraged their initial capital accumulation and their personal relations with officials in charge of privatization to acquire control over Russia’s most prized assets in the oil, gas and minerals sectors.

These so-called oligarchs had an added advantage in that their government friends were called “liberals.” For instance, the loans-for-shares program, a corrupt, insider scheme that resulted in the greatest transfer of state assets into private hands ever undertaken in history, was overseen by Russian “liberal” Anatoly Chubais. Whatever Chubais’ personal beliefs about capitalism and democracy may be, labeling loans-for-shares a “liberal” policy was a grotesque malapropism. In fact, the illiberal and corrupt manner in which former state companies were given to cronies of Yeltsin’s Kremlin readily facilitated the extraordinary reappropriation of these assets by a new illiberal crowd in Putin’s Kremlin. Former KGB officials, bitter that they had acquired virtually nothing in the first wave of privatization, now have control of some of Russia’s most prized commercial assets in the oil, gas, transport, aerospace and communications sectors.

Economic liberalism in Russia has faltered and been discredited, then, not because of the Mongols, the rule of the Romanovs, the principles of the Orthodox Church, the social democratic preferences of the Russian people, or the 1993 constitution. It has faltered as a consequence of concrete policy decisions taken by specific flesh-and-blood individuals.

And many other flesh-and-blood individuals have been harmed in the process. The same chaotic economic transformation that created billionaire oligarchs traumatized the vast majority of Russians. Whatever else they may involve, all revolutions are abrupt dramas surrounding the redistribution of property rights in the absence of shared rules of the game. And all revolutions ultimately prove exhausting. “Thermidor” is the term first coined during the French Revolution—and made famous by Crane Brinton’s 1938 classic, The Anatomy of Revolution—to describe the period in which rules, certainty and stability begin to be restored. By the end of the 1990s, especially after the August 1998 financial crash, Russians desperately wanted Thermidor, and the task of any leader coming after Yeltsin would have been to supply it.

For purely accidental reasons, specifically because of the personal preferences of Russian tycoon Boris Berezovsky and his Kremlin pal Valentin Yumashev (Yeltsin’s chief of administration and now his son-in-law), the task of implementing Thermidor fell to Vladimir Putin. Once Putin was chosen, the Kremlin and Berezovsky then mobilized their full arsenals of private and public resources, including their national television networks, to produce a Putin electoral victory. Putin’s previous work experiences, skills as a candidate or ideological orientation had little to do with his success. The Kremlin, not the people, chose Putin to become Yeltsin’s successor. Had Putin decided to run as an independent candidate, he would have stood no chance. Had Berezovsky, Yumashev and Yeltsin chosen another successor with a different background and ideological orientation—say, liberal Vladimir Ryzhkov or nationalist Vladimir Zhirinovsky—the task of restoring stability still would have remained the central focus of their administrations.

Once selected, however, Putin did respond to societal demands for stability. In meeting those demands, Putin benefited tremendously from structural forces not of his own making. First and foremost, the 1998 financial crash compelled tight fiscal policy and responsible monetary policy, which, in combination with a devalued ruble, finally generated positive economic growth in Russia for the first time since independence. Putin had nothing to do with these policies. Ironically, it was instead Prime Minister Evgeny Primakov and his Communist minister for the economy who presided over Russia when tight “neoliberal” fiscal and monetary policies helped to spur Russia’s first post-Communist-era growth.

Second, Putin came to power at precisely the moment when world energy prices began to soar. Again, he had nothing to do with this, but the Russian economy and government budget most certainly benefited. Any other leader in Putin’s place—liberal, nationalist or communist—would have enjoyed the same up-ticks in economic growth, political stability and popular support from these exogenous factors.

Putin inherited one more asset from Russia’s recent past, the 1993 constitution, which endowed him with super-presidential powers. Without this constitution, Putin would have been either more constrained in pursuing subsequent autocratic policies or more aggressive in transgressing the political rules of the game.

At the beginning of this decade, then, the sources of Russian stability and economic growth—which was cause and which was effect are not easy to determine—had little to do with presidential policy. Putin, however, took advantage of a positive economic environment and his enormous presidential powers to implement some of his own initiatives, both for good and for ill.

As to economic policy, Putin initially pursued several sweeping liberal reforms, including a 13 percent flat tax, a major reduction in the corporate tax and the creation of a stabilization fund in which to park much of the windfall revenues from soaring energy prices. Crafted in the late 1990s in think-tanks by liberal economists, some of whom eventually joined Putin’s government, these bold liberal reforms cut against the will of Russian society. As Lynch pointed out, Russian attitudes about markets and the social role of the state correlate closely with European social democratic proclivities. It would be unthinkable to enact a 13 percent flat tax in Germany, and it has proven impossible (so far) to legislate one into existence even in the far more liberal United States. Likewise, keeping billions of rubles sealed away in a stabilization fund in the name of sound fiscal practice is not a policy that an American president could follow for long. In poor, “social democratic” Russia, the successful pursuit of this policy for several years now is the most profound evidence that social forces do not neatly dictate government actions, especially when governments enjoy the institutional autonomy provided by a super-presidential constitution. Paradoxically, Russia’s politically illiberal regime helped to implement liberal economic reforms.

As to political reforms, Putin took advantage of the same constellation of empowering economic trends and institutional powers to pursue illiberal, anti-democratic changes. Putin did not inherit a consolidated democracy when he became president in 2000, and he has not radically violated the 1993 constitution, cancelled elections or arrested hundreds of political opponents.² Russia today remains much freer and more democratic than the Soviet Union ever was. Yet the actual democratic content of the formal institutions of Russian democracy has eroded considerably in the past six years. Putin has systematically weakened or destroyed every check on his power, while at the same time strengthening the state’s ability to violate the constitutional rights of citizens. He has undermined the power of Russia’s regional leaders, the independent media, big business, both houses of parliament, the Russian prime minister and his government (as opposed to the presidential administration), independent political parties and genuine civil society. At the same time, he has increased the role of the Federal Security Service (the FSB, the successor to the KGB) in governing Russia and arbitrarily wielded the power of state institutions such as the courts, the tax inspectors and the police for political ends. Throughout his time in office, Putin has waged a brutal war in Chechnya against citizens of his own country. The Russian polity evinces considerably less pluralism today than it did in 2000, and the human rights of individual Russian citizens are less secure.

Like his liberal economic reforms, none of these political changes was the inevitable result of Russian history or a reflection of society’s demands. (Indeed, a majority of Russians have embraced democratic values for several years, even if the defense of democratic institutions is not a priority for most.) Rather, they were the direct result of Putin’s decisions. A different leader—that is, a more democratically inclined leader—could have come to power by the same accidental means that Putin did, been as lucky with devaluation and rising energy prices, and nonetheless pursued policies to strengthen democracy. Agency matters.

Autocracy, Stability and Growth

Would the strengthening of democracy earlier in the decade have undermined Russia’s economic boom? Or, put another way, has growing autocracy in Russia stimulated economic growth? Despite many claims to the contrary, the causal links between these correlated developments are not easy to discern.

Political stability generally does encourage economic development, but authoritarian rule only sometimes produces long-term stability.³ For every China, there is an Angola. Democracy is a much more stable regime type over the long run. In Putin’s Russia, the authoritarian contributions to political stability, and therefore economic growth, are very difficult to isolate from the more general effects of skyrocketing energy revenues, sound macroeconomic policy and the retirement of an erratic, unhealthy Boris Yeltsin. Would the Russian economy have grown more slowly had NTV been allowed to operate as an independent television network? Has Putin’s appointment of governors (as opposed to their election) produced any positive effect on regional investment patterns? And most absurdly, how does the harassment of civil society groups and the occasional murder of investigative journalists contribute to either political stability or economic growth?

In fact, if the correlation between growing authoritarianism and economic growth may have been innocuous in the first part of the decade, there are now signs that a causal relationship does exist and that it is negative. Most strikingly, Putin and his Kremlin associates have used their unconstrained political powers to redistribute some of Russia’s most valuable properties. The seizure and then reselling of Yukos assets to state-owned Rosneft was the most egregious act of state-led redistribution, which not only destroyed value in Russia’s most profitable oil company, but slowed investment (foreign and domestic) and spurred capital flight. State pressure also compelled the owners of the private Russian oil company, Sibneft, to sell their stakes to the state-owned Gazprom in 2005. Royal Dutch Shell also was pressured to sell a majority share to Gazprom in its Sakhalin-2 project in Siberia. Together with other sales, these asset transfers have transformed a once-private and thriving energy sector into a state-dominated and less efficient part of the Russian economy.⁴ The remaining three private oil producers—LUKoil, TNK-BP and Surgut—all face varying degrees of pressure to sell out to Putin loyalists. Under the banner of a program called “national champions”, Putin’s autocratic regime also has directed the redistribution of major assets in the banking, aerospace, automobile and heavy machinery industries in a way that reasserts state control. Ownership is also becoming much more concentrated.

This unconstrained Russian state also has destroyed Western wealth and discouraged investment by arbitrarily enforcing environmental regulations against foreign oil investors, shutting out foreign partners in the development of the Shtokman gas field, and denying a visa to the largest portfolio investor in Russia, British citizen William Browder. During this same period, according to the Russian think tank INDEM, corruption increased tenfold from $31 billion in 2001 to $319 billion in 2005. Russia’s ranking on economic competitiveness, business friendliness and transparency have all fallen in parallel to the rise of autocracy.

Even despite the rise of this predatory state and the subsequent decline of secure property rights, the Russian economy has continued to grow, but mainly because of high world energy prices. And strikingly, even with Russia’s resource advantages, Russian growth rates under Putin hover well below the region’s average. In 2000, the year Putin was elected president, Russia had the second-fastest growing economy in the post-Soviet space, behind only gas-rich Turkmenistan. By 2005 Russia had fallen to 13th in the region, outpacing only Ukraine and Kyrgyzstan, both of which were recovering from “color” revolutions. During Putin’s second term, the government has all but abandoned the pursuit of liberal economic reforms not because of social resistance, but because, as Lilia Shevtsova rightly argued, oil revenues have undermined the government’s will to reform. Putin’s liberal economic advisor Andrei Illarionov resigned in protest, becoming one of the regime’s most vocal critics.

The assumed positive relationship between growing Russian autocracy and stability is also not so clear. Decision-making within the Russian state has become more centralized and the size of the state, measured by the number of federal employees, has nearly doubled. But it is not obvious that the Russian state has become any more effective in providing basic public goods as a result.⁵ As to security, the most basic public good the state should provide, the number of terrorist attacks in Russia has increased substantially in this decade compared to the Yeltsin era. The second Chechen war is now in its seventh year, with no end in sight, but with signs that the conflict is spreading beyond Chechnya’s borders. The murder rate in Putin’s Russia has also risen: Between the “anarchic” years of 1995–99, the average annual number of murders was 30,200, while during the “orderly” years of 2000–04 the number was 32,200. In this decade, Reporters Without Borders has counted 21 journalists murdered in Russia, including most recently Anna Politkovskaya, Russia’s most courageous investigative journalist, who was assassinated in the elevator just outside her apartment in October. Another Kremlin critic, former KGB officer Alexander Litvinenko, was killed in London in November, poisoned with radioactive Polonium-210.

Furthermore, basic health care has stagnated during the Putin era. Even the federal state’s ability to execute policy at the regional level has not grown appreciably during Putin’s reign. Of course, just as giving Putin personal credit for Russia’s growing economy is silly, blaming him for these negative governance trends is also unfair. However, if Putin is trying to build a more effective state, as Shevtsova, Lynch and Dibb all assume, he has yet to make serious progress toward this goal.

Yet it is still the case that Russians are wealthier today than ever before, while most enjoy recently introduced individual freedoms that are unique in Russian history, prodding Lynch to conclude that Putin’s regime is “the best the Russians have had in a long time.” The potential truth in Lynch’s claim, however, has much to do with the list of awful autocrats who have ruled Russia in the past and little to do with Putin’s own achievements in the present. Compared to the past, Putin may look good. But another kind of leader and another kind of political system—a liberal democratic regime—could do much better. Neither Russia’s history, nor its culture, nor its geography would prevent a different leader from speeding and deepening Russia’s economic rebound while simultaneously rekindling democratic development and accelerating Russia’s integration into the international system. Moreover, the strengthening of institutions of horizontal accountability, such as a real opposition party, a genuinely independent media or a court system not beholden to Kremlin control, would help to tame corruption, secure property rights, and thereby encourage investment and even more substantial economic growth.

The Domestic-International Nexus

Putin’s Russia is better than Stalin’s Russia, but Western leaders should want and still expect better of Russia. To date, the pernicious effects of Russia’s new autocratic regime on Western national interests have been limited, but not trivial. Not unlike his Soviet predecessors, Putin understands the world primarily in zero-sum terms, especially when dealing with the United States. Because Putin and his entourage do not embrace democratic values, they cannot be counted on to act internationally according to norms that help coordinate the behavior of Western democracies. Common interests, such as the fight against terrorism, do still unite Russia and the West, but the depth of this unity has receded in recent years as the number and severity of disputes have grown.

A democratic Russia, or even one with a liberal in the Kremlin, would act differently. A democrat in the Kremlin would have celebrated the Orange Revolution in Ukraine, worked with Europe to weaken the Belarusian dictator, Alexander Lukashenko, and cooperated more closely with the United States in pressuring Tehran to accept a deal on nuclear fuel. And all of these policies would have advanced Russian national interests. It is also hard to imagine someone like Ryzhkov, Boris Nemtsov or Grigory Yavlinsky encouraging Uzbek leader Islam Karimov to close down the American base in Uzbekistan, selling anti-aircraft weapons to Iran, threatening war with Georgia, or rounding up and expelling Georgian immigrants. There should be no question that the West has obvious interests in who rules Russia.

Whether the West can do anything about political trends inside Russia at this moment is another matter. Given the Kremlin’s newly acquired riches and the failures of the Bush Administration to respect human rights in its own behavior, the West, and especially Washington, has little influence over Russian domestic developments. But even the West’s limited capacity should be used whenever possible, whether to encourage the Kremlin to register political parties and NGOs, to press Moscow police authorities to seriously investigate the murder of Anna Politkovskaya, to help subsidize the monitoring of elections and the development of independent media, or to provide scholarships for Russians to study in the West.

U.S. policies of democracy assistance will not undermine Putin, and they most certainly will not produce a more rabid nationalist as Putin’s successor. Putin’s own actions—whether the creation of neo-fascist youth groups and nationalist political parties, the crude use of racist language in reference to people from the Caucasus, or beating the drums of war with Georgia—are doing infinitely more to stimulate the emergence of Russian fascism than any Western policy. Ignoring these internal developments and pretending that Putin is our “best bet” is exactly what Putin’s team seeks, and what the West must reject.

Russians are neither destined to be ruled by despots nor damned forever to be in conflict with the West. Individual leaders, not historical, societal or cultural structures, make history, even in Russia. Just as a leader with autocratic proclivities like Putin has pushed Russia toward greater autocracy, a new leader with democratic proclivities can push Russia again toward democratization and eventually greater integration with the Western community of democracies.

At the margins, external actors can also make history. Even while working closely with Putin on matters of mutual interest, Western leaders must recommit to the objective of creating the conditions for a democratic leader to emerge in the long term. Such a strategy does not constitute interference in the sovereign affairs of another country, nor is it a fool’s errand that will counterproductively usher in Russian fascism. Rather, the promotion of democracy and human rights in Russia affirms the West’s commitment to universal values—values that most Russians already embrace.