Future of Russia

I wrote an assignment paper for the class on what Russia’s near future might be and thought it would be a good idea to share it out and to keep it online to compare with what actually happens next in Russia.

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“Russia is in a transition…from one transitional point to the other” – a western journalist working in Moscow has recently remarked. Indeed, transition and unexpected change have been the hallmarks of many studies of contemporary Russia since its very dawn following the disintegration of Soviet Union in 1991. Defeat of communism in Russia in 1991 was followed by almost a decade of an economic slump (40% loss of GDP by 1996), market economy reforms with varying degree of success, remarkable democratic development, evident weakening of the Russian state, humiliating defeat in a bloody war in North Caucasus. At the turn of the XXI century another much to the contrary of the previous decade trend took hold on Russia: strengthening of the state institutions, first of all the institution of Russian presidency, combined with profound weakening of other branches of the government and a manifest drawback of democratic development in the country to authoritarian rule, economic growth averaging 7% per year, deterioration of Russia’s relations with the West, in particular with the US and “a victorious small war” in North Caucasus.

Even the nearest future of Russia is a highly disputable topic that brings about very different outlooks for the country’s future. However, when speaking of the challenges that Russia faces there are some points that many observers have in common as well, these normally include demographic crisis in Russia, economic development issues, geopolitical changes, Russia’s political system. In this memo I will focus on the above problems, trying to identify what the future of Russia might be.

Russia’s political system

In an extremely personalized political system as it is in Russia now, change of president is deemed to provoke significant, perhaps even tectonic changes. President Vladimir Putin, 55, that is normally seen as the author and face of the new Russian strength, significance, authoritarianism, economic growth formally stepped down 7 May 2008 and his handpicked successor Dmitry Medvedev, 42, ascended to Russian presidency. This does not look exactly as change of government, as the next day Putin was confirmed as Russia’s Prime Minister and is widely believed to be in control of the situation from behind the scene. Unlike democratic countries where political struggle is especially intense during the election campaign and the struggle is normally over after the elections, in Russia the most recent election campaign was very quiet and the real struggle is believed to unfold after the elections when it is going to be decided whether Putin will remain in charge of the country until 2020 as he already stated or Medvedev will outwit his former boss and become the real ruler of Russia.

Russia is a presidential republic according to its constitution, so the outcome of this “diarchy” is going to have important systemic implications: either the informal ties will be the main governing framework of the country in the next few years and Putin being Medvedev’s subordinate on paper will effectively remain the head of the country or Medvedev will gradually assume the full power of presidency that Russian constitution ascribes to him. In an alternative, but unlikely course of events, Russian political system might become more pluralist, dualist, if you will, if Putin and Medvedev build up and institutionalize each their own power bases as the president and the PM.

Unlike many political commentators who tend to focus on Russia’s leadership personalities, Russian historians point out, that Putin’s Russia is only trying to recreate a pre-communist (i.e. pre 1917 Russian state), tsarist Russia of today, indicating the same level of concentration of power, personality cult, minorities’ suppression, government’s reliance on Russian Orthodox Church as a state-building institution and the idea of paternalistic state, etc.

It is easy to spot how greatly mismatched the evolving epoch of globalization and the contemporary Russian political trends above can be. While globalization fosters autonomous and fractured governance, deregulation of the markets in important ways, Russian leadership takes pride in the so called “power vertical” (i.e. extreme concentration of powers in one person’s hands) that allows the president supposedly effectively govern the country and virtually eliminates federalism in Russian Federation.

Future of democracy in Russia is one of the most popular discussion topics. Vladimir Putin is often accused of curbing political freedoms and democratic reforms in the country. However, Putin’s reforms did not encounter much opposition from the Russian people, on the contrary, Putin has become equated by the public with relative stability and prosperity Russia has enjoyed in the past several years. Most of the Russian liberals attribute Putin’s success to high oil prices and are hoping that when the prices drop, Russian public will be disenchanted with Putin and authoritarianism and revert to liberal ideas. However, deterioration of the economic fortunes will not necessarily make Russian people more receptive to liberal ideas as the last parliamentary elections’ results in December 2007 suggest. The two parties, apart from the winning government sponsored United Russia, that genuinely earned substantial share of votes in what was described by independent observers as non-transparent and unjust elections, were Russian nationalists and communists.

Geopolitical changes

The issue of Russia’s territorial integrity has played a great role in the politics of new Russia. While Yeltsin became the father of the formula for the Russian regions “take as much sovereignty as you can swallow” in the beginning of 1990s, Putin became known as the president that abolished regional governor’s elections in 2004 altogether in an attempt to strengthen federal government’s control over regional elites. In the first Russo-Chechen war of 1994-1996 Russian army suffered humiliating defeat that from a small Chechen irregular army. Chechens in the beginning of 1990s numbered around 1 m people in comparison to 148 m of Russian population. Following the defeat Russia’s territorial integrity was broken de-facto if no de-jure, as the Chechens enjoyed full independence, except formal recognition. Following the second Russo-Chechen war, that started in 1999 and lasted for several years of active warfare Russian military crushed the Chechen resistance, Vladimir Putin claimed victory, installing puppet governor in Chechnya.

Despite decisive victory in Chechnya, the situation in the republic is still far from quiet and moreover, the unrest spread across North Caucasus region, which is in the south of European Russia. Separatist movement spread across North Caucasus that is comprised of seven predominantly Moslem populated republics. Even though in the recent war Russia proved to have military superiority, it will require additional time and effort to achieve a lasting peace, because sole reliance on crude strength is not going to work in long term.

This is a serious issue, because as the old-fashioned communist ideology of “people’s friendship” gradually fades away with the older generations and newly found nationalism comes to its replacement. Number of the murdered people because of racial prejudice increased in Russia from 17 in 2004 to 42 in 2007, in the first two months of 2008 in Moscow alone 18 people were murdered because of their racial origin. Russian supreme court’s head has admitted that most of the racial attacks go unreported or go reported under non-race related articles. Most of the victims are citizens of Russia, many of these come from the Caucasus. In fact, Caucasophobia (intolerance toward people that come from the Caucasus region) surpassed anti-Semitism in Russia in the beginning of 1990s. So it is a challenge to the Russian state to find other common ground, than communist ideology for its diverse peoples.

Some Russian historians argue that unlike other European colonial powers, Russian geography did not allow separate ways of political development of the mainland and the colonies. While in European imperialist countries mainland could undergo major political changes, leaving their colonies almost unaffected, in Russia as soon as the mainland started having problems it immediately resulted in the colonies’ secessionist movements. So it is impossible to have democracy in Russia and some kind of other type of rule in the non-Russian constituencies of Russian Federation. That means that either Russia should become a democracy and possibly face shrinking of its territory or stay autocracy and learn to leave with permanent estrangement and suspicion from the West.

Putin answered the Russians’ “quest for greatness”, it is important to underscore that Russian leaderships, both “democrat” Yeltsin and “authoritarian” Putin were eager to prove to the Russian people that Russia is still a super power. In 2005 Putin famously declared USSR disbandment “the greatest geopolitical catastrophe of the XX century”. The Russian quest for greatness, essentially aimed at recreation of another edition of the Russian empire potentially may shape Western-Russian discourse in the next decade. Needless to say, that the Russian-Western relations are bound to be adversarial, if this scenario takes firm hold.

Another important geopolitical issue that Russia cannot ignore is rise of China. Russia and China founded Shanghai Cooperation Organization in 2001 that promotes mutual understanding of these two countries as well as Central Asian states. First feared by the West as a possible military alliance SCO has not evolved into any type of military structure. Russia and China compete over Central Asian energy resources, Indian companies start to infiltrate into the region as well. Besides Russia has profound fear of China because of the underpopulated Russian Far East region and neighbouring populous and fast growing China.

Overall Russia is facing increased competition in its “near abroad”, CIS countries, for resources and political influence. Russia’s attempts to expand its influence into other parts of the world have not been particularly successful and CIS remains the main arena which Russia still considers its domain and will compete with other foreign powers. The main issue at stake is of course Ukraine, a country of 50 m people if it were to sway under Russia’s influence would greatly increase chances of another Russian empire’s reincarnation.

Economic development

Rising global ambitions of Russia are often attributed to the renewed economic strength that Russians acquired because of the high oil prices in the past several years (from $12 in 1998 to $64 in 2007), that provided opportunities for fast growth of the country’s economy. Economists argue though how much of the growth can be attributed to the oil prices and how much of it is caused by other factors, like for instance better governance and market reforms.

Russia depended upon energy (mainly oil and natural gas) exports for critical shares of its total export earnings (around 50% in 2003) and government revenues. Oil export revenues also are used to help pay off Russia’s large foreign debt. Thus, oil price fluctuations are of definite concern to Russia. The sharp rebound in oil prices over the past few years has been good news overall for Russia — and especially its oil sector — after an extremely difficult 1998 and early 1999. During 2000-2004, for instance, Russia’s top oil producers made windfall profits, resulting in billions of dollars worth of additional tax revenues to the Russian government. Many Russian oil companies also have begun to upgrade decaying oil infrastructure and to undertake new exploratory drilling.

In addition to oil prices, Russian oil production has rebounded over the past few years. In 2004, Russia produced around 9.3 million bbl/d of oil, up over 50%, from 6.1 million bbl/d, in 1998. For 2005, Russian oil production is expected to average about 9.5 million bbl/d, with consumption of 2.6 million bbl/d and net exports of 6.8 million bbl/d.

Despite favorable foreign trade conditions Russia’s foreign debt calculated by international methodology increased 48% year-on-year in 2007 to $459.6 billion, Russia’s foreign debt grew in the reporting period largely due to private-sector borrowing, according to the Russian Central Bank.

Russia’s leadership has stated on number of occasions that it is determined to diversify Russian economy, however, the exports growth trend over the past three years shows that in fact mineral resources’ share in Russian exports has grown, while machinery’s share has simultaneously grown in Russia’s imports. The positive trend is that agricultural imports have shown downward tendency in the same period.

Diversification of Russian economy still is unresolved issue, so the country is bound to get a strong economic shock if energy prices suddenly drop. Russia’s economic problems are certain to rise also after oil prices stabilize at any highest imaginable level, because the country’s leadership has grown used to virtually unlimited financial resources and stopped economic reforms, because there are no incentives to do so.

According to estimates Russia needs ca. $1 trillion investment into social and physical infrastructure of the country over the next ten years to revive it. They investment is to be found in the West predominantly, but with the strained relations and growing suspicion between them this might prove a difficult objective to achieve, especially because of growing centralization and corruption (i.e. diminishing efficiency of investment) in Russia.

This could be compensated with low level of social security support, but this is not the case either. In 1997 over 150 types of social protection covering 236 categories of the population existed in Russia just at the federal level, and in total 2/3 of the population were entitled to welfare benefits. Almost none of this assistance was means-tested; much of it emerged chaotically, at several different administrative levels, in response to tight budget constraints and immediate social exigencies. Although modest monetization of the healthcare support has been performed in 2006, not much has been done since then and this remains an important unresolved issue, especially if the energy exports’ revenue drop sharply.

Demography

Russia’s population peaked in the early 1990s (at the time of the end of the Soviet Union) with about 148 million people in the country. Today, Russia’s population is approximately 142 million. The United States Census Bureau estimates that Russia’s population will decline from the current 142 million to a mere 111 million by 2050, a loss of more than 30 million people and a decrease of more than 20%. Russian men’s life expectancy is under the retirement age of 60. The problem is generally attributed to hard economic conditions, unhealthy life styles, poor healthcare that result in high mortality rates and low birth rates.

At the worst years Russia’s population was declining at the rate of 750000 per year. In 2007 the decline was only 200000 and births were up by 14%. Scientists are divided whether it is a long term effect or just a consequence of the so called “mini baby boom” of 1980s in Russia.

Russia’s labour force reached 75 million people in 2007 for the first time since the dawn of reforms in 1992. However, according to the government estimates as soon as in 2009-2010, the absence of democratic reserves will force the government either to lift restrictions on labor force import or put up with decline in the GDP growth. Unemployment in the country was only 3.2% in 2007. The sources of labour import from culturally and geographically close Former Soviet Union countries have practically dried up, so the labour will have to be imported from somewhere else. Rise of xenophobia and relatively closed economy in Russia do not facilitate import of labour force from racially different parts of the world. A policy choice will have to be made not only about labour import, but also about increasing tolerance for other cultures.

Conclusions

Future of Russia will greatly depend on how the country adapts to globalization processes. Speaking of globalization in Russia’s case, one has to bear in mind, that a big country like Russia is not only affected by globalization, but is also capable of exerting significant influence over this process. Russia will have to adapt to its somewhat reduced international importance, learn multilateral approaches in international politics, define its place on the international scene. Russian attempts to recreate Russian empire will lead to further aggravation of its relations with the US and EU, potentially also with China.

If Russia fails to effectively decentralize the economy and political life, it will be less capable of competing with other new and old economic powers. The prospects of integrity of the vast territory under Russian control might be in question if Russian government does not allow more freedoms to the regions. If it does, this will not necessarily mean that Russia will stay exactly in the same borders as it is now. Possibility of Russian borders’ changes is a high probability in any case in the course of the next several decades.

Russia was built and has survived so far as a highly centralized state, that have relied heavily on the military and expansionist ideology. Unless the very foundations of the state are thoroughly revised and updated, Russia might face gradual decline as the world power in the long run. At the same time, revision of the state foundations will unrecognizably change Russia itself. So further tremendous changes can be expected in Russia in the next several decades that will be influenced by the outside world, but also the outside world will be affected to some extent by the events in Russia.

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