On May 22, two free-market liberals will meet in the Kremlin: one an ex-oilman who is the son of a US president, the other an ex-KGB agent who is the son of a Saint Petersburg maintenance man. Despite their very different backgrounds, Presidents George W. Bush and Vladimir Putin are forging a remarkably close partnership. Indeed, cooperation in the international war on terrorism, the recent agreement to reduce stockpiles of nuclear weapons, and Russia's rapprochement with NATO appear to be only the beginning of a process that is deepening by the day Russia's integration with the West.
But it is in economics, surprisingly, that the two men seem to share the most common ground. President Bush may be tempted to believe that Russia's current economic success is purely the result of high world oil prices. Prices aside, the difference between how Russian oil companies were managed in the early 1990s and how they are managed now is too dramatic to ignore. So, too, are management improvements in the food industry which have boosted output and quality. Throughout the economy, resources are finally flowing into the ever more efficient and well-organized market sector, rather than into the poorly managed Soviet industrial dinosaurs.
For those who know Russia, this is a staggering turn of events. Four years ago, big Russian companies were interested in state subsidies, not structural reforms. Now, business leaders believe that the stock-market capitalization of their companies depends on the investment climate. The value of their assets matters to them. They want to know how much they can borrow from abroad, or at what price shares in their companies may be sold in New York or London.
Putin does not deserve all the credit for this sea change, but what he has achieved over the last two years is far more than anyone had the right to expect: a simplified tax code, progress toward WTO membership, legal reform, greater transparency. Still, if oil prices fall sharply, he will face a huge political problem: bold structural reforms usually require years, not months, to show results. Russia's recent strong growth partly reflects the reforms of the early 1990s, and the reform achievements of 2000 and 2001 will feed through to measurable economic performance only in, say, 2005.
But Putin has a true politician's sense of how to handle adversity. Here, he resembles former US President Reagan, whose popularity was rooted in an ability to feel the pulse of the public more accurately than his opponents. What distinguishes such leaders, whatever the political context, is that they understand what the public wants.
Russia's pundits predict that if growth falls, so too will public support for reform. The public wants everything to be fine, in a simple, commonsense way. It wants economic growth and it wants it now. So Putin recently addressed the time-lag problem in a disarmingly simple way: in his state of the nation address in April, he demanded 8% growth this year, not the tepid 3-4% rate his government's ministers were targeting. In doing this, he seemed to be following the credo of Stanislav Strumilin, a mastermind of the Soviet "War Economy" in the late 1920s, who said: "I'd rather stand for high rates of growth than sit [in jail] for low ones."
But by proclaiming his adherence to this goal, Putin is not exhorting workers to become Stakhonovites and "exceed production norms." Central planning is not about to stage a comeback. Instead, Putin is stoking public support for reform by lighting a fire under the state bureaucracy.
For Russia's public knows deep in its bones that Russia's bloated yet ineffective state is the greatest threat to its economy. It knows that the bureaucratic apparatus remains outrageously large, and that civil servants retain numerous expensive perks - cars, dachas, medical services, and more - while most ordinary Russians scrape by on meager wages and vegetable gardens.
The public also knows that bureaucrats will use any tactic to ensure inertia, and hence their own survival. For example, the Soviet system of public-finance management remains virtually intact. State spending left over from the previous year is routinely included in the federal budget, regardless of whether the renewed authorization serves a specific and necessary purpose. Military reforms have stalled, as if Russia had all the time in the world to rationalize and modernize its defenses. In short, bureaucrats do everything they can to force the government to sit on its hands.
So the Russia that George W. Bush will visit is one of post-revolutionary economic stabilization, accompanied by a reactionary struggle against central authority - a struggle waged not by Russia's regions, but by the state's own bureaucrats. Some might argue that it is Putin's revitalization of central power that is reactionary. But liberal ideology does not demand an incompetent and weak state. It demands a state with limited aspirations to interfere in civil and economic life, but with the authority and resources to act decisively in those areas where it must. That is the type of state Putin is building.
On May 22, two free-market liberals will meet in the Kremlin: one an ex-oilman who is the son of a US president, the other an ex-KGB agent who is the son of a Saint Petersburg maintenance man. Despite their very different backgrounds, Presidents George W. Bush and Vladimir Putin are forging a remarkably close partnership. Indeed, cooperation in the international war on terrorism, the recent agreement to reduce stockpiles of nuclear weapons, and Russia's rapprochement with NATO appear to be only the beginning of a process that is deepening by the day Russia's integration with the West.
But it is in economics, surprisingly, that the two men seem to share the most common ground. President Bush may be tempted to believe that Russia's current economic success is purely the result of high world oil prices. Prices aside, the difference between how Russian oil companies were managed in the early 1990s and how they are managed now is too dramatic to ignore. So, too, are management improvements in the food industry which have boosted output and quality. Throughout the economy, resources are finally flowing into the ever more efficient and well-organized market sector, rather than into the poorly managed Soviet industrial dinosaurs.
For those who know Russia, this is a staggering turn of events. Four years ago, big Russian companies were interested in state subsidies, not structural reforms. Now, business leaders believe that the stock-market capitalization of their companies depends on the investment climate. The value of their assets matters to them. They want to know how much they can borrow from abroad, or at what price shares in their companies may be sold in New York or London.
Putin does not deserve all the credit for this sea change, but what he has achieved over the last two years is far more than anyone had the right to expect: a simplified tax code, progress toward WTO membership, legal reform, greater transparency. Still, if oil prices fall sharply, he will face a huge political problem: bold structural reforms usually require years, not months, to show results. Russia's recent strong growth partly reflects the reforms of the early 1990s, and the reform achievements of 2000 and 2001 will feed through to measurable economic performance only in, say, 2005.
But Putin has a true politician's sense of how to handle adversity. Here, he resembles former US President Reagan, whose popularity was rooted in an ability to feel the pulse of the public more accurately than his opponents. What distinguishes such leaders, whatever the political context, is that they understand what the public wants.
Russia's pundits predict that if growth falls, so too will public support for reform. The public wants everything to be fine, in a simple, commonsense way. It wants economic growth and it wants it now. So Putin recently addressed the time-lag problem in a disarmingly simple way: in his state of the nation address in April, he demanded 8% growth this year, not the tepid 3-4% rate his government's ministers were targeting. In doing this, he seemed to be following the credo of Stanislav Strumilin, a mastermind of the Soviet "War Economy" in the late 1920s, who said: "I'd rather stand for high rates of growth than sit [in jail] for low ones."
SUMMER SALE: Save 40% on all new Digital or Digital Plus subscriptions
Subscribe now to gain greater access to Project Syndicate – including every commentary and our entire On Point suite of subscriber-exclusive content – starting at just $49.99
Subscribe Now
But by proclaiming his adherence to this goal, Putin is not exhorting workers to become Stakhonovites and "exceed production norms." Central planning is not about to stage a comeback. Instead, Putin is stoking public support for reform by lighting a fire under the state bureaucracy.
For Russia's public knows deep in its bones that Russia's bloated yet ineffective state is the greatest threat to its economy. It knows that the bureaucratic apparatus remains outrageously large, and that civil servants retain numerous expensive perks - cars, dachas, medical services, and more - while most ordinary Russians scrape by on meager wages and vegetable gardens.
The public also knows that bureaucrats will use any tactic to ensure inertia, and hence their own survival. For example, the Soviet system of public-finance management remains virtually intact. State spending left over from the previous year is routinely included in the federal budget, regardless of whether the renewed authorization serves a specific and necessary purpose. Military reforms have stalled, as if Russia had all the time in the world to rationalize and modernize its defenses. In short, bureaucrats do everything they can to force the government to sit on its hands.
So the Russia that George W. Bush will visit is one of post-revolutionary economic stabilization, accompanied by a reactionary struggle against central authority - a struggle waged not by Russia's regions, but by the state's own bureaucrats. Some might argue that it is Putin's revitalization of central power that is reactionary. But liberal ideology does not demand an incompetent and weak state. It demands a state with limited aspirations to interfere in civil and economic life, but with the authority and resources to act decisively in those areas where it must. That is the type of state Putin is building.