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Johnson's Russia List #41 Date: Wed, 27 Feb 2008  From: La Russophobe  <mailto:[log in to unmask]> [log in to unmask] Subject: Complete Nemtsov report now online You may wish to advise your readers that the complete report on the Putin years by Boris Nemtsov is now available online as a PDF:  <http://www.420megs.com/users/larussophobe/nemtsov%20bookform-1.pdf> http://www.420megs.com/users/larussophobe/nemtsov%20bookform-1.pdf Through the good offices of the La Russophobe blog's expert translator and columnist David Essel. 
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Boris Nemtsov First Deputy Prime Minister of the Russian Federation 1997-1998

PUTIN - THE BOTTOM LINE

An independent expert report

Vladimir Milov, Deputy Minister of Energy 2002 

0 Introduction 3

1 Corruption is Corroding Russia 5

2 The Army That Got Forgot 11

3 Oh Dear, the Roads... 15

4 Russia Dying Out 16

5 Pension Crisis 19

6 Basman Courts 21

7 Flouting the Constitution 23

8 The Collapse of the "National Projects" 25

9 Enemies All Around. Except China 28

10 Worsening Inequality 32

11 Economic Bubble 33

12 Conclusion: The Alternative 35

App1 About the Authors 39

 

Introduction

The eight years of Putin’s rule are coming to an end and the time

has come to take a look at the bottom line. Many placed great

hopes in Putin’s presidency. Some results have been achieved:

official propaganda like to make much of the fact that during the

years of his rule (2000-2007), the country’s GNP has gone up by

70%, real incomes have, according to the statistics, have more

than doubled and poverty has been reduced with the number of

people with incomes below the official subsistence level down

from 29% in 2000 to 16% in 2007. The budget has a surplus and

the state’s financial prospects higher than ever: in January 2008

Russia’s gold and foreign currency reserves reached 480 billion

dollars, third largest in the world after China (which has over 1.5

trillion) and Japan (980 billion). The Russian Stabilisation Fund has

grown to 157 billion dollars.

All this is true. But it’s only the lesser part of the truth. There are

other results of Putin’s rule which are not covered by the state

media. And these are shockers. During the years of Putin’s rule,

export prices of oil amounted to an average of $40 per barrel while

recently they have been over $60. For comparison: the average

prices of oil during the Yeltsin years stood at $16.70. The colossal

opportunities opened up by high oil prices should have been used

by Putin to modernise the country, carry out economic reforms,

create a modern army, and establish public health and pension

systems.

None of this was done. The army, the pension system, public

health, secondary education, and the road system have all

degraded. The economy is not doing well either: a stroke of luck

was the main reason it was possible to bring relative order to the

financial sphere but it also created bubbles in the share markets

and in real estate while investments in the real parts of the

economy have risen very cautiously while production capability

has not been modernised during this time. The opportunities

offered by the oil windfall have been missed. As under Brezhnev,

super-income from the export of oil and gas have to a large extent

been frittered away and necessary reforms left undone.

As a result, as we reach the end of Putin’s presidency, we once

again find ourselves with the stable empty and the door open –

without a social security system that works properly, facing a

growing deficit in the pension fund, with an army straight out of

the last century, with state companies in immense debt, and with a

level of corruption completely unprecedented in all of Russia’s

history. Furthermore, despite the fact that some oligarchs have

been sent into exile or put into prison, the remainder continue to

enrich themselves – Russia is looking to lead the world in number

of billionaires. The increase in the wealth of some oligarchs – for

example, Putin’s friends and Russia’s richest man Roman

Abramovich – has come straight from government funds. But it all

could have been otherwise.

It all could have been otherwise – Russia could have taken a

different road. In the 1990s, we experience the collapse of the

communist system, the results of which were far more serious than

had been expected. Despite that, however, the economy began to

grow before Putin came to the presidency: in 1999 GNP rose by

6.4% and industrial production by 11%.It proved possible to

reduce crime in the second half of the 1990s (crime figures began

dropping in 1996-1997), mortality rates and falling birth rates, all

of whose roots went back to Soviet times (rising crime rates and

falling birth rates were first noted in the second half of the 1980s;

mortality began rising in the early 1970s).

Page 3

In 1997, after overcoming the most serious consequences of the

collapse of socialism and the completion of the semi-reforms of

the early 1990s, the Russian government for the first time set out to

make systemic reforms aimed at transforming the country into a

modern democratic state with a competitive market economy. The

loans-for-shares privatisations were stopped and the government

began to take action against the influence of the oligarchs.

Oligarchic pressuring and the collapse of the state share pyramids

prevented these reforms from being completed.

However, many of the ideas from those days were included in

Putin’s “first plan” – the programme for socio-economic reforms

mooted in 2000 at the start of Putin’s first term. The main heading

of this plan were: building of a law-abiding state and of civilised

markets, the lowering of bureaucratic barriers, allowing private

investments to contribute to the economy, the development of

small and middle business, and the implementation of important

social reforms. A number of important steps were taken back then,

at the start of Vladimir Putin’s presidency – tax and land reform

among them. The passing of the Law on Land Ownership put that

issue into gear: land, one of the country’s main resources, ceased

to belong to no-one and acquired a legal status and a value. The

production of a whole series of systemic legal codes and laws

brought us closer to having a law-governed state.

From the very beginning, however, Putin’s government

distinguished itself by its authoritarianism in the political arena.

Many were outraged by the return to the Soviet national anthem,

the disbandment of the independent TV channels NTV, TV6, and

TVS, and the virtual dissolution of the Federation Council as an

independent organ of the state. On the other hand there were

others believed that authoritarian modernisation was a possible

way for the state to go and many were ready to forgive the state its

authoritarian ways if only the country was put in order. But as

Viktor Chernomyrdin’s famous phrase has it: “one had hoped for

the best but the result was as always”.: authoritarianism triumphed

under Putin but no modernisation came about from it.

In 2003, when unprecedented pressure was first deployed against

business and the decimation of YUKOS was begun, it became

clear that we had taken the wrong track. The the further down it

we went, the worse things got: falsified Duma and presidential

elections carried out with the crudest of uses of administrative

resources in 2003-2004; the unsuccessful interference in the

Ukrainian elections; the passage of a whole range of laws

restricting freedom of speech, assembly, and the activities of

political parties and associations; aggressive foreign policies; and a

gradual drawing of the country into confrontation with the rest of

the world. Russia became ever more a police state. All the reforms

of the early 2000s were made to fail and were replaced instead by

greedy redistribution. Corruption became rampant. At the same

time, state propaganda, as back in Brezhnev’s days, was endless

used to brainwash people. “All is fine, life’s better now, life’s

happier” says the propaganda from the Kremlin.

This brochure aims to be a sober and realistic analysis of how our

live have changed during the years of Putin’s rule. Someone has

already coined this phrase: “Life’s better now… but nastier”. We

would like to open the eyes of our fellow-citizens to the sort of

Russia that Putin and his successors are making for us.

We would like as many Russians as possible to look the truth in

the eyes and recognise what is happening to our country. Let

people think about these most serious problems lurking behind the

icing of official propaganda and shameless dissimulation. Let them

understand that these problems will not just go away: the only

thing that’s going away is the time of our oil riches

Page 4

And these issues will have to be resolved. We do have an

alternative to propose. But in order to make this happen, we are

going to have to take matters into our own hands. Putin’s and his

band of men will not lend a hand: their eight years in power has

been long enough to make that clear.

1. Corruption is Corroding Russia

One of the worst and blackest results of Vladimir Putin’s

presidency has been Russia’s dive into an unprecedented mire of

corruption. We are officially one of the world’s top countries when

it comes to theft by civil servants. Russia has dropped to 143rd

place in the worldwide rating of perceived corruption issued by

Transparency International, making our country one of the most

corrupt on earth. Our neighbours on the list are Gambia,

Indonesia, Togo, Angola, and Guinea-Bissau. We lag far below

such countries as Zambia (123rd), Ukraine (118th), Egypt (105th),

Georgia (79th), and South Africa (43rd). Back in 2000, we were

rather ‘better” placed at 82nd but we have now reached nearly the

bottom. According the the INDEM Foundation [TN: "Information

Science for Democracy", Russian NGO founded in 1990] the volume of

corrupt business conducted in Russia rose from under $40 billion in

2001 to $300 billion today.1(!). Bribes and racketeering by civil servants

is ubiquitous.

Putin has proved even more cunning that the oligarchs and other

disciples of corruption who parasited off the reforms of the 1990s.

There was plenty of corruption in the 1990s, too, but it was open

to view – the free press could report on incidents of corruption

with hindrance. In 1997, some members of the government were

fired for receiving an advance of $90K each for a book about

privatisation. Today’s practitioners of corruption laugh at this

pathetic sum.

Today theft by civil servants is measured in billions and is hidden

from the eyes of the people: large share-owners cover for dozens

of secret beneficiaries, “friends of president Putin”, hiding behind

their backs. Information on who the real owners are is carefully

protected by the secret services and the subject of corruption in

the higher echelons of power is taboo for the Kremlin-controlled

media.

Meanwhile, bribery and the convergence of the civil service with

business has become the norm at all levels of the government –

federal, regional, and local. Spouting phrases about the “revenge

of the oligarchs”, Russia is witnessing the rapid enrichment of a

new and more powerful Putin oligarch – at your expense and

mine. Assets are being removed from state ownership and handed

over to the control of private people, property is being purchased

with state money back from the oligarchs at stunning prices, a

friends-of-Putin oil export monopoly is being created, and a

Kremlin “black safe” is being funded. This is a brief outline of the

criminal system of government that has taken shape under Putin.

The Oscar-winner in the transfer of important assets into the hands

of secret third parties is Gazprom. In just three years, without any

kind of tender and by means of an opaque procedure, three

important assets servicing the company’s cash flow have been

transferred to third-party ownership. The first of these was the

Gazprom insurance subsidiary Sogaz: in 2005 its ownership was

transferred to divisions of Rossiya Bank in Petersburg. At the time

Page 5

1 INDEM Foundation, The Dynamics of Russian Corruption 2001-2005. [TN: /www.indem.ru]

of the transfer. Rossiya Bank’s assets were valued at approximately

the same as Sogaz’ worth – $1 billion. However, Sogaz was not

sold at open auction but simply transferred into the Petersburg

bank’s ownership.

In 2006, Rossiya Bank was handed the management of the

Gazfond pension funds which amounting to over $6 billion. In

late 2006/early 2007, these funds were used to buy out 50% of the

shares of Gazprombank, which by late 2007 was second in assets

to Sberbank.2

According to the media, Rossiya Bank was set up in 1990 by inter

alia the General Manager of the Leningrad District Office of the

CPSU, now its chairman, Yuri Kovalchuk, an acquaintance of

President Putin’s from his time working in Petersburg. The full list

of the bank’s owners is unknown.

One of the largest deals done by Putin’s friends in the Rossiya Bank

was the seizure of the giant Gazprom-Media holding, which

includes the NTV, TNT, television channels and other media

interests. Before Gazprombank fell into the hands of Kovalchuk &

Co., in July 2005 Gazprom’s media interests (the Gazprom-Media

group and shares in the NTV and TNT televisions channels) were

transferred to the bank for a payment of just $166 million3. Two

years later, in July 2007, vice premier Dmitri Medvedev estimated

the value of Gazprom-Media’s assets as $7.5 billion4. It would

appear that Gazprom gave its assets to friends of president Putin

for a fraction of their real worth! Compared to this deal, the loans

for shares auctions look like exemplars of honesty and

transparency.

“Russia – Land of Possibilities”, cynically proclaim Rossiya Bank’s

billboards in central St. Petersburg on the Nevsky Prospekt and by

St. Isaac’s Cathedral. Folded into the hands of Yuri Kovalchik, these

media assets are not just business. They are a full-scale political

resource to be used for mass influence of public opinion. In effect,

Kuvalchuk controls a gigantic non-government media holding

which todays own four television channels (NTV, TNT, REN TV,

and Channel5 St. Petersburg), one of the country’s widest

circulation newspapers (Komsomolskaya Pravda), and dozens of

other small television and radio stations and newspapers.

This whole gigantic media empire – Putin-media – presents

serious competition to the state television channels and other

media. Its might is beyond comparison with that of the previous

influence of Gusinsky and Berezovsky. It is difficult to imagine that

this resource is not going to be used to further Putin’s political

interests.

Yuri Kovalchuk’s brother Mikhail head the Kurchatov [Atomic

Energy] Institute and recently became acting vice-president of the

Russian Academy of Sciences. It is he who is to distribute the 130

billion roubles allocated to nanotechnology development. Yuri

Kovalchuk’s son Boris, a former adviser to vice-premier Dmitri

Page 6

2 Sources for this and the previous paragraph; articles in Vedomosti 21 January 2005 – Sogaz sold to Petersburg: Russia’s most profitable insurer won by Rossiya

Bank; 23 August 2006 – 3% of Gazprom Placed: Sogaz Purchases Gazfond’s Management Company; 30 October 2006 – Into Reliable Hands: Gazprom Transfers

its Bank to Gazfond.

3 Source: Annual Accounts for 2005 of Gazprombank. These accounts were drawn up in accordance with international financial reporting standards.

4 Source: Vedomosti, 6 July 2007 – Expensive Media: Gazprom-Media Could Be Worth $7.5 Billion

Medvedev, now head the Russian government’s department of

‘priority national projects”. This department oversees the funds

allocated to “national projects”.

Gazprom is not the only structure to have been looted under Putin.

In 2004, as a result of a supplementary share issue at SvyazBank,

which was set up in the 1990s specially to serve state

communications enterprises, over 50% of the shares ended up in

the ownership of a company by the name of RTK-Leasing.

Following this share issue, companies in the communications

business which previously used the services of other banks began

to move the accounts to SVyazBank. In early 2005, the Society for

the Protection of Consumer Rights addressed a request to the

Public Prosecutor’s Office, the Ministry of the Interior, and the

Treasury that review be carried out5. However, nothing much was

done.

The owner of RTK-Leasing is said to be Geoffrey Galmond6. His

name is frequently linked with that of the Russian Minister of

Information Technology and Communications, Leonid Reiman. But

who are the real beneficiaries?

This is how under Putin massive assets are removed for state

control and land up in the hands of private individuals.

Another historic deal was the buy-out in September 2005 of 75%

of the shares of Sibneft from Putin’s friend oligarch Roman

Abramovich for $13.7 billion7.

The state could easily not have bought Sibneft (at the time of the

sale it was the smallest of Russia’s vertically integrated oil

companies and had falling production). It could have paid

considerably less for it – particularly if one bears in mind that

Abramovich originally acquired control of the company for $100

million.

Sibneft, however, was bought for the highest possible, artificially

exaggerated8, price and half of it, furthermore, was financed

directly by the state. In June-July 2005 the state, through a

company called RosNefteGaz which was specially set up for the

purpose, paid Gazprom $7.2 billion and received 10.7% of

Gazprom’s shares in exchange9. These were the same shares that

12 years previously by a decree of president Yeltsin in 1993 to

Gazprom had been allocated for purchase by vouchers10. The state

could have increased its share in Gazprom for absolutely nothing

by using these shares.

Page 7

5 Source: Vedomosti, 26 May 2005 – Postmen and Bankers to Be Checked

6 Source: Vedomosti, 5 July 2006 – Russian Billions: How much is Geoffrey Galmond Worth?

7 Source: Annual Accounts for 2005 of Gazprom. These accounts were drawn up in accordance with international financial reporting standards.

8 Source: Vedomosti, 28 September 2005 – Sibneft Inflated

9 Source: Annual Accounts for 2005 of Gazprom. These accounts were drawn up in accordance with international financial reporting standards.

10 Point 4 of Presidential decree #58 of 26 January 1993.

Why pay Abramovich over $7 billion from state funds (the rest of

the money came for Gazprom’s budget) to increase the state’s

shareholding in Gazprom when the authorities to all intents and

purposes controlled the company? What can this be called other

than diversion of assets?

Why pay $13.7 billion for Sibneft when less could have been

paid> And did the payment go to Abramovich? He is said to be the

owner of Millhouse, which sold Sibneft to Gazprom. But no-one

actually knows the names of the true owners of Millhouse. It is

said that Abramovich has an influential partner, co-owner of

Millhouse. Who is he?

In fact, why did Sibneft need to be nationalised at all? If it had

been bought by private owners, its efficiency would almost

certainly not have dropped as it did under Gazprom’s management

and the state would not have had to pay all that money for it.

Incidentally, according to Gazprom’s accounts, the company’s and

its subsidiaries capitalization in mid 2004 included 17.5% of

Gazprom shares. By 30 June 2007 – 0.5%11. In 2005 the state

bought back 10.7% of the shares. Where did the other 6.3% of

Gazprom shares, today worth nearly $20 billion, go? Who owns

them?

Why does Gazprom divvy up hundreds of millions of dollars of

yearly profit from transit fees and re-export of Central Asian gas

with the co-owners of the Swiss trader RosUkrEnergo? Who is

behind this middleman?

All the above deals done by Gazprom were concluded during the

time presidential successor to Putin Dmitri Medvedev was

chairman of its board of directors. What role did he personally

play in all these deals and is his selection as successor perhaps a

result of them?

Yet another affair during Putin’s time is the rise and rise of the

business of hitherto unknown Swiss oil trading house Gunvor

through which about a third of Russia’s oil exports are effected

(almost all of Surgutneftegaz’s production, a considerable

proportion of Gaspromneft’s, Rosneft’s and others). This company

controls oil exports to the tune of not less than $40 billion

annually.

When Putin had only just come to power, a state monopoly on

Russian oil exports was actively being discussed. This monopoly

was to all intents and purposes introduced, but not as a state

monopoly but rather a private one. Behind Gunvor stands Gennadi

Timchenko, an old comrade of Putin’s from his St. Petersburg

days12.

In a letter to the British paper The Guardian, another co-owner of

Gunvor, Swede Thorburn Tornkvist admitted that the mighty oil

trading house does have a “third co-owner”. Who that might be

remains unknown.

It is also unclear who owns Surgutneftegaz, Gunvor’s main

supplier. It is believed that the company is controlled via a chain of

Page 8

11 Source: First Semi Annual Accounts for 2007 of Gazprom by international financial reporting standards.

12 Source: Luke Harding, The Guardian, 22 December 2007 – Secretive Oil Firm Denies Putin Has Any Stake In Its Ownership by Luke Harding.

intermediary companies by its current CEO Vladimir Bogdanov.

Another version, however, has currency: that back in 2002-2003

Bogdanov sold his shares on to persons unknown, representing the

highest echelons of Russian power, that these included Timchenko

and possibly also Putin. This still remains to be verified. Other

private oil companies (Lukoil, Yukos, TNK-BP) disclosed the names

of their true owners a few years ago, but the true structure of

Surgutneftegaz’s ownership is still opaque13.

Catching Putin and his accomplices red-handed is difficult. They

cover their tracks of their dirty business too professionally.

Evidently they have learnt from dictator Saddam Hussein,

documentary proof of whose corrupt activities the Americans were

never able to find even though Saddam and his sons bathed in

luxury and had to deny themselves nothing.

On the hand, the Russian authorities can sometimes be caught

with their hand in the till. In may 2006, the Zurich Arbitration

Court rued that the owners of the Bermudan IPOC Fund, which

owns a controlling share of cellphone operator Megafon,

plundered money in the interests of the fund’s real beneficiary, the

unnamed “Witness #7”. The description of witness #7 fully

matches that of Leonid Reiman, Minister of Communications,

Petersburger, and long-time comrade of president Putin14. The

nominal owner of IPOC is Danish lawyer Geoffrey Galmond, who

also owns TelekomInvest, Interregion Tranzittelekom, and 50% of

cellphone operator Sky Link. In November 2007, the British Virgin

Islands authorities asked the US counterparts help investigate

Reiman’s involvement in illegal activities15.

But Minister Reiman continues in the nest of health and remains at

his post.

There remain too many other unpleasant questions to be asked of

Putin and his entourage. Who is the real co-owner of

Surgutneftegaz, Megafon, Sky Link, Roman Abramovich's

Millhouse, and the powerful oil trader Gunvor? Can it really be

that some Danish, Swedish, Finnish, and Chukotsk businessmen

have come to own a good half of Russia without sharing with

Putin? Where do the colossal sums earned from arms sales by

Rosoboronexport’s (headed by Putin’s friend Sergei Chemezov) go?

Is it true, as reported in the media, that there is a ‘black safe” in the

Kremlin16, a system for secretly moving cash from unknown

sources which is then used to finance pre-election campaigns or

other purposes?

It is hardly surprising that experts and political scientists compete

in their attempts to estimate Putin’s personal fortune, putting it at

$20, $30 billion. Some say even more.

The authoritarian-criminal régime that has taken shape during the

years of Putin’s rule threatens our country’s very future. The

Page 9

13 Source: Vedomosti, 3 August 2007 – Bogdanov Trusts His People: Surgutneftegaz’s Clerks Manage $Ѕ Trillion Worth of Shares

14 Source: Vedomosti, 23 May 2006 – Witness Nº 7

15 Source: Vedomosti, 15 November 2007 – What Are The Suspicions Against Leonid Reiman? The BVI authorities found “incontrovertible evidence” that the Minister for

Information Technologies and Communications had links to the IPOC fund.

16 Source: The New Times, Issue 44, 10 December 2007 – The Kremlin’s Black Safe

authorities have everything to lose. If free media ever arise again in

Russia together with competition in politics, the black dealings of

today’s rulers in Russia will come to the surface. If that happens,

they will at best lose their posts and along with that the way to

earn billions on the side. In the worst case, they will lose their

freedom. The diversion of state assets, firstly of course those of

Gazprom, the use of foreign middlemen to purchase Russian oil at

artificially lowered prices (which Mikhail Khodorkovsky is accused

of and imprisoned for) has become a widespread and much largerscale

practice amongst the many “friends of Putin”.

We need to put a stop to all this. We need to turn over this

shameful page in our history. We need people with clean hands to

come to power, people without corruption scandals and unsavoury

connections in their pasts. We need to radically reduce the powers

of civil servants over the country, to limit their authority, in order to

pull the rug out from under the feet of corrupt agents and thieves

in positions of power. The state should be shorn of powers that it is

unfit to hold over enterprises and and their cash flows. We need to

see a rebirth of the practice of open and honest privatisation which

began to take place in 1997-2002.

There should be limits on how long senior civil servants can stay in

their posts – at all levels: federal, regional, and local. This is

needed in oder to prevent people from growing into alliances with

entrepreneurs and their successors should have the right to openly

investigate their predecessors if needs be. There should be a

universal principle: serve 8 years and no ‘extensions’, no sleights

of hand to maintain your position (like moving on to become

prime minister).

We need laws on lobbying, conflicts of interest, on forbidding civil

servants and any connected with them to engage in business. We

need to disqualify civil servants found to have engaged in corrupt

practices so that they can never again in their lives occupy a civil

service post.

We need to reinvigorate our law enforcement system and in

particular the part of it investigating corrupt practices. Russia needs

an independent Federal Investigation Service in which there is no

place for any one affiliated with potential corrupt activities or

found to be covering for those accused of serious crimes – for

example, during the investigation of the suspects in the smuggling

operation run by the Tri Kita furniture company, employees of the

Procurator's office and of the Investigation Committee persecuted

the investigators in this case.

We need strict public control of the activities of the authorities, a

rebirth of freedom of speech, the abolition of censorship on federal

television channels, and the establishment of fair conditions for

political opposition. There should be open public discussion of

such issues as corruption in the government and corrupt civil

servants should be found criminally responsible. Journalists should

be able to freely investigate corruption scandals.

Independent courts are a vital precondition for the battle against

corruption. While the courts remain to all intents and purposes

under the control of the executive, there is no way that corruption

cases will be looked into objectively or that the guilty will be

punished.

The only things that will stop the total looting of Russia are the

democratisation of the country, the entry into power of responsible

and honest politicians to replace the kleptocracy, the

abandonment by Russia of life by the thieves’ code, and a return to

the creation of a law-abiding state.

Page 10

2. The Army That Got Forgot

Putin really needed to use the country’s oil windfall to help meet

the modernisation needs of the Russian Armed Forces.

This was the time to arm the army adequately. However actual

arms deliveries and even plans for re-equipment have been

scandalously low. According to data from the Council for National

Strategy published in November 2007 published in a report

entitled Results under Vladimir Putin: Crisis and Decay of the

Russian Army, between 2000 and 2006, the Armed Forces received

deliveries of only 27 ICBMs (27 warheads) while 294 (1779

warheads) were written off. In the penniless years 1992-1999, the

army received 92 ICBMs (92 warheads). Since the year 2000, only

3 new aircraft have been delivered: one Tu-160 and two Su-34s.

Around 100 aircraft were delivered during the 1990s. Since the

year 2000, a little over 60 T90 tanks have been purchased while

the total for the 1990s was 120. During the same decade, the Navy

and seaborne frontier forces took delivery of over 50 surface and

subsurface vessels. The figure for the current decade is less than

ten17. The state armaments programme for 2007-2015 plans to

deliver a mere 60 aircraft to the armed forces in that time. This

means that it will take … 80 years …. to renew our existing air

fleet.

But the main blow has been against the most important element

of Russia’s military potential, the support of the country’s

sovereignty – the strategic nuclear forces. During the Putin years,

Russia’s strategic nuclear forces have decayed at a frightening rate.

More data from the Council for National Strategy’s report quoted

above shows that between 2000 and 2007 the strategic nuclear

forces wrote off 405 delivery units and 2498 warheads (as against

505 warheads only in the 1990s, during which time 60 new

delivery units were bought while the army also took delivery of

1960 Tu-95 and Tu-160 strategic bombers). Under Putin, only 27

rockets have been produced – three times fewer than in the 1990s.

So while Russia was overall able during the 1990s to maintain its

nuclear potential at the level of that which it had inherited from

the USSR, under Putin its reduction has become a serious threat to

national security.

Furthermore, while the numbers of relatively invulnerable silobased

and RT-2318 rail-mobile ICBMs (these latter look like

standard refrigerated rail cars, which make them difficult to keep

track of) were reduced, the armed forces continued to be given

mobile Topol19 units that are highly vulnerable (these are 100-ton,

22-metre-long road-mobile units which can easily be found by

optical, radar and infrared intelligence).

One hardly need say how important a country’s strategic nuclear

force is to its sovereignty. One might even say that no SNF = no

sovereignty. The rest of today’s armed forces are most unlikely to

be able to resist large-scale attack by a strong aggressor. If Russia’s

Page 11

17 Source: Institute for National Strategy, Results under Vladimir Putin: Crisis and Decay of the Russian Army, November 2007; Nezavisimya Gazeta, 21 September

2007 – New Premier – Old Problems, by А. Khramchikhin, Head of Dept. of Analysis, Institute of Political & Military Analysis.

18 TN: SS-24 Scalpel in NATO parlance

19 TN: SS-25 Sickle on NATO parlance

nuclear arsenal continues to be shrunk at current rates, by the

middle of the next decade Russia’s SNF will have at its disposal no

more that 300 ICBMs and 600 warheads. In that case, it is

questionable if it will be able to perform its nuclear deterrence

function: it becomes possible for an aggressor to make a disarming

non-nuclear strike with high accuracy weapons to annihilate

practically all of Russia’s nuclear strike power and take out the few

rockets that the country does manage to launch with its antimissile

defence capability. China’s strategic nuclear force will

equal that of Russia in the next 10 years or maybe even exceed it.

There’s no sensible response to the endless jabber about

“sovereignty” as the main aim of Putin’s policies if in reality the

main factor in that sovereignty – the strategic nuclear deterrent –

has been undermined under Putin.

And while the army receives scandalously small amounts of

armaments, most of what is produced goes for export. In the

1990s, Russian arms exports amount to an average of just over $1

billion a year. In 2007, income from arms exports amounted to $7

billion. We arm foreign armies, including those of potential

opponents – China first and foremost. These foreign armies are

supplied with many times more Russian armaments than our own.

The arms export monopoly is run by Rosoboronexport, headed by

yet another Peterburger and friend-of-Putin Sergei Chemizov. How

the income from arms exports, which should be deliberately used

to finance the modernisation of our Armed Forces, is actually used

is kept totally opaque.

The efficiency of our military-industrial complex remains low and

deployments of modern weapons to the armed forces are

constantly delayed. Although the government promised that it

would soon test a 5th generation fighter aircraft, no engine has yet

been developed for it. The first samples of a new anti-aircraft/antimissile

weapon system designated the S-40020 was finally

deployed only in 2007 although they had initially been promised

for 2000. Deployment of the Iskander21 theater quasi-ballistic

missile, first promised for 2003, has still not taken place: trials

have not yet been completed. Test of the naval Bulava22 missile

should so far be considered unsuccessful. Three unfinished

strategic submarines await it at the Severodvinsk shipyard; no one

knows what will happen to them and who will be responsible for

the money wasted on their production if the Bulava is never

deployed.

The military-industrial complex’s technology lag behind other

countries is increasing. The Su-34 fighter and the T-90 tank are

both mere modifications of earlier series. No clear R&D

programme for future weapons and equipment has been

developed. Furthermore, in the absence of a clear military

doctrine, it is impossible to define a proper strategy for supplying

the armed forces with weapons and equipment: we do not

properly understand who are our friends and who our potential

enemies, our generals still go on preparing for a large-scale war

with the USA while Russia remains unprepared and without

defence against real threats, in particular from China (of which

more below).

Page 12

20 TN: NATO reporting name SA-21 Growler

21 TN: NATO reporting name SS-26 Stone

22 TN: NATO reporting name SS-NX-30

In the absence of effective public oversight of military defence

expenditure, corruption flourishes and the cost of government

orders are grossly inflated. “The amount by which we fail to meet

government defence orders increases yearly and the percentage by

which we fail to meet the demand increases in direct proportion to

the increased budget allocated to the defence orders,” said Federal

Minister and Deputy Head of the Military-Industrial Commission V.

Putilin in Yekaterinburg on 19 April 2007. In 2006 the price of a

T-90 tank made by the Uralvagonzavod works was 42 million

rubles. By early 2007 the price was 58 million. In the 11 years it

took to make the strategic nuclear submarine Yuri Dolgoruky, its

development costs rose by a factor of seven.

Dubious initiatives by Putin to create industrial defence “holdings”

run by his Petersburg friends have not helped matters. The

monopolisation of armaments R&D and production is a dead-end

route. Even in Soviet times competition between R&D bureaus

and military-industrial plants was maintained in order to ensure

competitivity. It is now being proposed to create monopolies not

only in R&D and arms production but also to have a monopoly

supplier to the armed forces (a sole purchasing agency called

Rossiiskie Tekhnologii) to be headed yet again by presidential

friend Chemizov. The state corporations are multiplying, Putin’s

friends are getting richer, and the army remains without the arms

and equipment it needs.

There are still over 157 thousand families of servicemen without

housing. Of these over 70 thousand do not have permanent

accommodation23. In 1997, one of the authors of this document,

when in the government, first managed to get something serious

done about this problem: a Presidential Ukaz #1062 of 30

September 1997 “On Improving Housing Availability for Service

Personnel and Certain Other Categories” was promulgated. Back

then, the country’s income from exports was tiny but somehow or

other we still managed to house about one hundred thousand

servicemen’s families under the programme.

A lot could have been done while oil prices were high but the

number of homeless servicemen has not dropped. In 2006, Putin

announced the start of the new “presidential” 15+15 programme

for the provision of housing to servicemen yet that year only 6500

new flats were made ready. Another 12000 were planned for

2007. Something is being done but why delay for so long?

All attempts to reform the manning of the Armed Forces have

failed. The transition to a call-up of only one year was not properly

thought through and has only made matters worse. By 2009, the

Ministry of Defence will come up against an inevitable army

manpower crisis: due to a call-up of only one year, the army will

need to enroll 700,000 young men each year but by 2009 only

843,000 such people will be reaching the age of eighteen. The

authorities will have to cancel all deferments and this will put the

whole existing education system into disarray.

In addition, the quality of the contingent which is called up does

not meet the needs of armies formed in this way. In January 2008,

the Deputy Chief of the General Staff, General Smirnov told

journalists that 30% of the total number of young men called up in

the autumn round were found to be unsuitable for military service

and over 50% had health problems preventing their deployment to

Page 13

23 Source: Nezavisimaya Gazeta, 2 November 2007 – Homes from the President

specialised forces24. In other words, this means that we simply do

not have the population with which to maintain a called-up army

and any talk about its being unacceptable to do away with military

service is just cheap demagoguery.

Instead of developing a system for the reserve mobilisation of

citizens in case of potential emergencies, the Ministry of Defence

is continuing with its policy of filling barracks with called-up

youths. Meanwhile, the dedovshchina problem25 is not going

away. It is important to understand that dedovshchina is not just

“something that happens” in some units, but a deliberately

cultivated and condoned system providing a criminal way of

managing the troops by allowing seniors to abuse juniors. A stop

must be put to this criminal practice and the Russian Army must

complement itself by becoming a contract force.

Abolishing the general call-up will not be easy but is absolutely

necessary. It is nowadays fashionable to talk of the development of

Russia’s “human potential” as one of the main aims of government

policy. However, it is difficult to imagine a greater blow to the

Russian nation’s human potential than calling up its young in the

flower of youth to forced slavery.

Putin’s way of turning the army into a professional force looks like

either nonsense or sabotage: professional recruits are paid a

pittance – in 2007, salaries in Russia averaged 12,000 rubles while

the average pay of contract soldiers does not exceed 6-8,000

rubles.26

Forgotten, poorly equipped, badly paid, homeless, recruits unfit to

fight, dedovshchina – that is what Armed Forces look like if one

looks behind the curtain of Putin’s management. Russia needs a

massive reform of its military.

The point of this reform shoul not be just a change in recruitment

policy. A contract army is not a synonym for a professional one.

The point is that Russia needs to be clear on its long-term plans for

the military and needs to develop a radically new, modern and

effective force.

Such an army will need a régime of greater openness. Greater

public oversight over the financing and pricing of new equipment

will also be required. The old opaque and corrupt arms purchasing

system must be abolished – no more monopolies. The military

budget must be open for all to see except for such things as the

development of new weaponry and other secret design work. The

army’s purchasing budget should be published on the Internet (as

the American military do) and competition rules established.

We need to go over to a contract army as soon as possible, first in

the high-tech units and later in the rest. This change of recruitment

principle should be used as much as possible for the formation of

new units placed parallel to existing ones in order to keep the new

units clean of the burden of the old negative traditions of

corruption and poor treatment of men. The pay of contract soldiers

should be sharply increased to a level corresponding to their skills.

Army pay should be approximately 20% higher than average pay

in Russia as this will make the army competitive on the labour

Page 14

24 Source: RIA Novosti, 22 January 2008.

25 TN: sadistic hazing of new recruits by seniors condoned and ubiquitously practised in the Russian army.

26 Source: Nezavisimaya Gazeta, 14 December 2007, The Professional Army Meets the Racketeers, by I. Plugatarev

market. Contract soldiers should be able to get mortgages for their

housing and after 10 years service be allocated housing free.

We must without delay begin a full-scale reform of the military in

order to make it transparent, to ensure public oversight, to re-equip

it, and to turn it into a professional army. The state’s present

financial position means that it is possible to do this. Putin already

had one chance of doing this but essentially forgot about the

military in this highly favourable period of our history. We need

new politicians in power if we want to be reliably defended.

3. Oh Dear, the Roads

Bad roads are an eternal issue in Russia. Recently, however, with

oil money rolling in, the country has at last had an opportunity to

modernise its road system. But the opportunity has been missed.

Under Putin’s rule, the road system has degraded at a fantastic rate.

During his presidency, the overall length of hard roads has fallen

by about 50,000 kilometres, from 750,000 to 700,000 kilometres.

This has happened in the main as a result of wear and tear to roads

that were officially counted as hard-surfaced – for example

graveled – but which are subject to quick wear. More than a third

of Russia’s roads are of this kind; if they are not regularly

maintained, the only thing left of their hard surface is the

designation.

That the length of hard-surfaced roads has fallen should be a

matter of shame to a country with pretensions of being a “great

power”; even some African countries have better roads than ours.

Russia’s backwardness in the matter of roads is quite shocking. The

total length of surfaced roads in Russia is 60% of France’s, half that

of Japan, and a tenth of USA’s. Only about 35,000 kms of highway

meet the standard for high-quality road (width greater than 7

metres and able to accommodate speeds of over 100 kph, i.e roads

of no less than 2 lanes with a normal road surface). Finland has

more surfaced roads of normal width than the whole of Russia

does!

Only 40% of federal highways meet the standard for surface

quality, width, and other parameters. Many of the federal highways

have a capacity of not more than 40-50,000 vehicles per day,

while real traffic amounts to 100,000+ vehicles per day. The drive

from Moscow to the country’s main port – Novorossiisk – takes

almost 48 hours; it would take only about 15 hours on a normal

European motorway.

The road network provides poor links between cities and regions

and many highways suddenly come to an end on reaching the

frontier of the RF’s regions.

This is a problem which absolutely must be solved: without an

effective road network, Russia remains broken up by region and its

territorial unity is thus more phrase than fact. The poorly integrated

transport system makes it difficult to balance the economies of the

regions and makes them more depressed than they need be.

The Russian road network is in urgent need of modernisation yet

the system for financing road repairs and building has to all intents

and purposes collapsed under Putin. New roads opened have

fallen from 6,600 kms in 2000 to a mere 2,400 kms in 2006. The

proportion of worn-out roads in the network has risen from 26% in

2000 to 46% in 2005 – this while funding of the road system has

actually increased: the 2000 consolidated budget for the road

system was 60 billion rubles in 2000; in 2006 it was more that 220

billion. It is easy to work out from this that the cost of opening one

Page 15

kilometre of new road has risen tenfold (or fivefold if one corrects

for inflation). The scale of embezzlement in the road industry can

thus be see to have increased fivefold.

Government money, of which there is much more thanks to oil

exports, is being swallowed up by corruption. The much advertised

Investfond, which the government hyped as the future main mover

in the development of the country’s infrastructure, has been spent

in the strangest of ways: of the $7 billion it released for use in

2007, $4 billion were paid out as contribution to commercial

projects undertaken by large financial/industrial groups in Eastern

Siberia and the construction of a petrochemical plant in Tatarstan.

These are surely commercial projects that have no need of state

financing. Furthermore, they can in no way be said to have

anything to do with infrastructure developments of national

importance. As far as road projects are concerned, practically all

the money directed towards such matters –$2.5 billion – will go to

projects connected with St. Petersburg: the Western High-Speed

Link and the Orlov tunnel as well as a motorway linking

Petersburg and Moscow.

St. Petersburg does of course need to modernise its infrastructure.

But so too does the rest of the country. Investfond money could

have been used to build decent highways linking the main towns

of Central Russia – Moscow, Samara, Nizhny Novgorod, Perm, and

Voronezh. But the money went to oligarchs and Petersburg

regional projects instead.

It is much more efficient to attract private capital to road financing.

However, under Putin, private business involved in infrastructure

works has been decimated and long-term contracts with investors

have been ‘reviewed’. One recalls in this connection the story of

Domodedovo airport. This was modernised by Ist Lain, making it

Russia’s first up-to-date and spacious airport. Following this

modernisation, Putin’s civil servants managed to have the terms of

the contract with Ist Lain reviewed in the government’s favour. This

case (not to mention that of Yukos and other occasions when the

government has revised its obligations to, and taken back assets

from, investors) has seriously affected the mood of private

investors. They now worry that the government will break its longterm

contracts as soon as projects are completed and start to bring

in income. One should therefore not hope too seriously for private

investment in the road sector. This sector is financed solely from

budget monies which are then for the most part embezzled.

We need to revive and develop our road system. The Soviet road

network cannot meet the needs of a modern economy. We need a

modern transport system that provides passengers and freight with

high mobility, integrates Russia as an genuine economic whole,

and put puts an end to the conditions leading to regional

inequality. To do this, we need to improvem the quality of

government development planning for the country’s transport

system, put a stop to corruption in the allocation of funds to

finance the road system, and be more active in attracting private

investment in the transportation infrastructure. This will require of

the government iron-disciplined observance of the law and

contractual obligations. This cannot be achieved without a

genuinely independent judiciary.

Russia will have to go living with bad roads while Putin’s team

remains in power.

4. Russia is Dying Out

We are told that – as a result of “efforts” by the government – the

birth rate is rising in Russia. In fact, Russia is continuing to die out

Page 16

under Putin: for example, about one and half million Russians

were born in 2006 but 2,166,000 died. The Russian birth rate in

2006 was 10.4 per 1000 but the death rate was 15.2/1000! The

population of Russia is falling nearly twice as fast as in the 1990s.

Between 1992 and 2000, the total population fell by 2 million.

Between 2000 and 2006 – by 3.5 million.

The key reason for this is a catastrophic mortality rate and Putin

has not even tried to do anything about it.

The mortality rate in Russia began to rise in the 1970s and

continued to do so up to the mid-1990s. Russia’s ranks 22nd in the

world in mortality, ahead of Equatorial Guinea, Rwanda, and

Burkina Faso, and 157th in life expectancy. Average life

expectancy in Russia is a smidgen over 65 years, on a level with

the world’s least developed countries (average life expectancy in

the developed Western countries is 78+ and 74-76 in Eastern

Europe). Most striking is the average life expectancy for males:

while Russian women can expect to live to the age of 72, men can

expect less than 59 years of life! This is on a par with life

expectancy in underdeveloped African countries.

Reasons for this high mortality include the high illness rates to be

found in the population, brought about by alcohol abuse, smoking

and unhealthy living. Meanwhile, under Putin people are drinking

and smoking still more. In 2000, alcohol sales amounted to 8 litres

of spirits equivalent per person per year. Now, at the end of his

rule, the figure is nearly 10 litres. This is more than in the 1990s.

According to Rospotrebnadzor, the real figure is closer to 15 litres

per year. For the record, the World Health Organisation considers

alcohol consumption of over 8 litres per person per year to be

critical as mortality begins to increase sharply when that amount is

exceeded. Over forty thousand people die of alcohol poisoning

every year and Rospotrebnazor estimates the number of alcoholics

in the country at 2.5 million.

Cigarette sales to the population have risen in both absolute terms

(400 billion compared to 355 billion in 2000) and consumption

terms (2700 per per person per year as against 2400 in 2000). This

is considerably more than in the 1990s when average consumption

was 1500 cigarettes per person per year (for a total of over 200

billion). Smoking is Russia’s most common harmful habit:

according to Rospotrebnadzor 65% of men and 30% of women

smoke; of these 80% and 50% correspondingly began smoking in

their teens. Smoking is the cause of 27% of male deaths from

cardiovascular diseases, 90% of deaths from lung cancer, 75% of

deaths from respiratory diseases, and 25% of deaths from heart

disease. About 25% of smokers die prematurely: smoking reduces

life span by 10-15 years.

The most frequent cause of death in Russia – in nearly 60% of

cases – is circulatory disease. About 1,3 million people die of

circulatory disease every year – 200 thousand more per year than

in the 1990s.

What has Putin done to reverse this trend or to engage in a real

fight and smoking and alcoholism? Nothing. Russians continue to

die from unhealthy lifestyles.

The mad attempts to combat alcoholism by prohibition under

Gorbachev or in Tsarist Russia are not a method and all failed. This

is because alcohol consumption is, on the one hand, a social

thing, and on the other a way of life. Research has shown that

there exists a U-shaped dependency between quantity of alcohol

consumed and income: both the poor drink more (drowning

sorrows) and the wealthy (living the high life). Moderate use of

alcohol and a healthy lifestyle in general is the way of the middle

Page 17

class. We therefore believe that, besides spreading the word about

the need for a healthy lifestyle, we should also stimulate and

support the middle class. This means changing the nature of the

country’s economic policies (see Chapter 10 – Deepening

Inequality Chapter 11 – The Economic Bubble). Regarding smoking

and combating it, there’s no need for originality: we simply need

to borrow from the many years of experience of the USA and

Western Europe.

Another important reason for our high mortality is the low quality

of health services (already mentioned in the chapter on national

projects) and the high number of people who die of illnesses.

Circulatory problems are not all that Russians suffer from: under

Putin mortality has not gone down for infectious diseases and

cancer (330,000 deaths per year) and there has been a sharp rise

in deaths from disease of the digestive tract (up from 65 thousand

to 100 thousand deaths p.a.). The only drop in the death rate has

been for respiratory problems – from over 100 thousand in 2000 to

just over 80 thousand in 2006. This is a direct result of the move to

natural gas for electric heat and power generation since this results

in a reduction of harmful emissions (although the authorities, at

Gazprom’s urging, are looking at reversing this positive move and

force the energy generation industry to go back to ecologically

dirty coal).

It is not just of diseases that people die in Russia. We hold one of

the leading places worldwide for deaths by external causes. Over

300 thousand people die annually from external causes, a rate of

200 per 100 thousand of population. This is twice as high as in

China or Brazil and 4-5 times higher than in Western countries.

Russia is far from being a physically safe place in which to reside.

We are among the world’s leaders in murders at 20 per 100

thousand population per year. This has moved us since the 1980s

into the top 10 of the world for murder, joining a list that includes

Columbia, Jamaica, Honduras, South Africa, and Brazil. In

developed democratic countries, the murder rate is in the range of

2 to 4 per hundred thousand population per year.

Crime rates in general, which had been going down in the second

half of the 1990s, are on the rise again. There are about 30

thousand murders every year, as many as in the the worst years

(1994-95) of the decade. The murder rate went down in 1996-98.

We have already mentioned the sharp rise in spending on security

and law enforcement under Putin. This has risen from $4 billion in

2000 to a planned $39 billion in 2008. This, however, has had the

opposite to the intended effect since serious crime numbers have

constantly risen under Putin. The rise in crimes against the person

has been especially striking: in 2006, according to Rosstat, these

rose by 170% from a year 2000 base, with cases of GBH up by

50%, and robbery by 30%. Not a very pretty picture for the ‘happy

2000s’.

Many people die in road accidents: 285 thousand people were

injured or killed in traffic accidents in 2006 (a 60% rise against

2000). On average, 33 thousand people were killed each year on

the roads in the year 2000-2006. Recently, Putin’s “successor”

Dmitri Medvedev said of the scale of the death and trauma rates

on the roads that it bore comparison to military attrition.

Something could have been done to combat this but the atrocious

quality of the roads as a result of the embezzlement of funds for

their maintenance, the flourishing corruption in road policing,

poor and slow emergency services, and low standards of

maintenance of vehicles are all leading only to a worsening of the

situation.

The problem is not just one of high mortality but also of low

replacement rates. The modest rise in the birth rate in recent years

is mostly to do with the post-war demographic curve and it is

Page 18

evident that steps taken by the authorities will not actually

influence the birth rate to any great extent: this is a problem of

traditions, customs, and the effects of urbanisation. Television

drives to encourage people to have more children are just a con:

on average, the birth rate under Putin has remained the same as in

the 1990s at about 1.4 million live births per year. The authorities

boast of “measures” taken in this field although they are of

doubtful use. Who is going to be encouraged to have a child

because of a “maternal grant” of 250 thousand rubles? Obviously,

only the very poor, “lumpenised” members of society. How far

does such a sum – about $10 thousand – go? That is the price of

2.5 square metres of housing in Moscow, five in the provinces.

Russia does not need to increase the numbers of its lumpenproletarians.

It needs to stimulate births in the active sections of

society, in the middle class, and it needs to do this by somewhat

cleverer means – for example, by writing down mortgage debt at

government expense when children are born: 15% for a 1st child,

30% for a second. 50% for a third. This would simultaneously help

resolve housing problems for those wishing to have children and

stimulate the birth rate mainly amongst the well-to-do, since they,

unlike lumpen-proletarians, are the ones who are able to get

mortgages in the first place.

People are physically undefended in Russia and this lack of

protection has only got worse under President Putin. We lack

protection from illness, we are seriously at risk during and after

road accidents, we are victims of crime. Hand-outs from the

authorities stimulate births among the lumpen-proletariat while no

one is doing anything to increase the birth rate in the country as a

whole. So Russia goes on dying out.

5. Pensions Crisis

One of the most depressing results of Putin’s presidency is the

collapse of the pensions system. A modern pensions system able to

cope with the less than simple demographic situation in the

country really needed to be created when external events were

favourable.

But the pensions reform was a total failure. The government these

days only remembers pensioners just before elections by indexing

pensions a little. Before the State Duma elections of 2007, Putin as

usual gave the government a ticking off and ordered that the

princely sum of 300 rubles [$12] be added to pensions before end

2007.

What else the authorities can offer, besides a little indexation, is

unclear. The pensions system is going deeper and deeper into

deficit. The population is aging and the proportion of workers to

pensioners is only going to get worse. As a result, the pension fund

is going into ever deeper deficit: the subsidy to cover the Russian

Pension Fund’s deficit in 2007 was 88.2 billion rubles. This will

rise to 251.4 billion in 2009 (over $10 billion). According to Mr.

Batanov,who heads the RPF, up to 1 trillion rubles will be needed

by 2015!

Meanwhile, pensions are laughably small, amounting on average

today across Russia to less than 4000 rubles [$162] per month.

Over the period the Putin-Zurabov pension scheme has been in

operation, the ratio between average pension and average salary

has decreased from 33% in 2000 to 24% today. By 2018, the

average pension will amount to just 20% of the average salary, and

by 2027 this will go down to 15-18%. In European countries,

pensions amount to 40% and more of average salary.

Page 19

In a distributory pensions system such as the one we have in

Russia, the employed pay contributions to the Pension Fund which

then go to pensioners. Such a system can only provide a decent

level of pensions if the ratio of employed to pensioners stands at

approximately 3:1. Today, this ratio in Russia stands at 1.7:1 and

by 2020-2030 demographers believe that it may drop as low as

1:1. Ratios such as these mean that the only way to provide

pensioners with a reasonable pension is to have an investmentbased

pension system. If we continue with the distributive system,

pensions will be miserably small.

But the creation of an investment-based pensions system has

failed. Payments from it will start no earlier than 2022. At the same

time it is likely that a considerable proportion of the invested fund

will be lost: the profitability of the invested funds has so far been to

all intents and purposes negative. In 2006, the pension fund

managed by Vneshekonombank achieved a return of 5.7% while

inflation ran at 9% during the same period. Private fund

management companies have been achieving returns of 20% per

annum but 97% of people did not express a choice and

specifically ask for their money to be managed privately and so

remain in the default scheme managed by Vneshekonombank.

People simply do not have the information needed to decide how

best to have their money managed, do not know anything about

how the various management companies work, and cannot make

a sensible choice for themselves. Furthermore, it is not always

easy, even if one wants to, to transfer one’s money to a private

management company. Those who try do so generally have to face

opposition in their local Pension Fund office.

If an effective investment-based pension system were to be set up,

it would solve other problems as well: capital assets would exist

which could be used to invest in projects for the long-term

modernisation of the country such as the electricity and power

infrastructure and upgrading housing. Competition for investment

from the pension fund would lead to more attractive investment

offers.

But the reforms went only half way: Vneshekonombank and the

Pension Fund were given a monopoly and the civil servants in

charge are barely making an effort (by mistake or perhaps

deliberately). As a result, the move to an investment-based

pensions systems has not been successful.

In February 2007, former minister Zurabov proposed in a letter to

the government that the pension reform be cancelled, that the

savings-based system be liquidated and the individual savings of

citizens be (compulsorily) used to finance the pension fund deficit.

As a matter of interest, after his retirement in October 2007,

Zurabov was secretly appointed an adviser to president Putin and

now has an office on Old Square and receives a salary from the

Presidential Administration. Putin must have been afraid to let the

public know that he had found a sinecure for the unpopular exminister:

the ukase appointing Zurabov was not posted on the

presidential website.

Russia has thus missed its chance to modernise the pension system

during good times and it is steadily moving towards total collapse.

The pension fund deficit is growing larger at a time when there is a

serious possibility that world oil prices will fall. The investmentbased

system is out of commission.

There are ways out. It would be possible, as Yegor Gaidar

proposes, to follow Norway’s example and create a unitary

pensionfund of about a trillion dollars by paying into it the

windfall income from a tax on oil exports, from the income on the

Page 20

shares of state-owned companies, and income from large-scale

privatisation of state assets. (What the government actually did was

mainly to spend billions of dollars buying back assets from

Abramovich and other oligarchs.) The Pension Fund should not

have to be continually topped up with injections from central

funds. Instead a system should be created which actually brings in

income itself. If this fund was of, say, a trillion dollars, it would be

possible to double the size of pensions even in the fund’s returns

were quite moderate.

We need to take more decisive steps towards an investment-based

pension system. The Russian pension system cannot be allowed to

limp forward to its collapse in 2015-2020. Putin will have gone by

that time and it is all of us who will have to rue the consequences.

6. Basman Courts

The Putin era has led people to lose all faith in justice and legal

protection and to the collapse of the idea of the supremacy of the

law. “We insist on just one dictatorship – the dictatorship of the

law,” said Putin in his first speech to the Federal Assembly in 2000.

“Dictatorship of lawlessness” are the words for the situation at the

end of his presidency. Russia has become the world champion in

selective application of the law to serve the interests of the

authorities. Judges are totally subordinated to the executive and

wholesale infraction of civil rights is the order of the day in any

court case. Russia has earned the dubious rank of first place in the

number of applications by its citizens to the European Court of

Human Rights in Strasbourg. Over one fifth all applications to this

court emanate from Russia and in over 90% of such cases, the

state has lost. Unfortunately, Strasbourg cannot oblige our judges

to review their decisions; it can only oblige the state to pay

compensation to citizens. Our legal authorities therefore feel quite

secure in their positions.

The Yukos affair crowned the victory of lawlessness in Russia: the

courts were used as a tool for the removal of private property in

favour of Putin’s inner circle. During this affair, Russia developed a

type of judicial procedure that has come to be called Basman

justice “in honour” of the Basman District Court which heard the

case, working wonders of lawlessness and displaying total servility

to the executive in rendering its decision against Yukos, Mikhail

Khodorkovsky, and Platon Lebedev.

As soon as Yukos’ assets had changed owners, the judges

immediately reviewed their previous rulings that Yukos owed taxes

which it had to pay. After Yukos' main asset – Yuganskneftegaz –

passed into the control of Rosneft, the tax claims against it

evaporated and the judges “miraculously” began to drop tax

claims against the company. In February 2005, the Federal

Arbitration Court of the Moscow Assize annulled its previous

ruling that over 9 billion rubles of back taxes from 1999 were

owed by Yuganskneftegaz. Prior to this, while it was still a Yukos

subsidiary, Yuganskneftegaz had lost its case twice. In October

2005, the Moscow Arbitration Court ruled that the Federal Tax

Service’s claim for extra tax for the period 1999-20001 amounting

to 5.6 billion rubles was unlawful.

The Yukos affair untied hands for the start of the “tax terror” –

massive arbitrary tax claims against enterprises at the whim of the

tax inspectorate. Enterprises were forced to pay to the government

not how much they owed in law but how much the authorities

thought right. In most cases, the courts sided with the tax

authorities. The presumption that the taxpayer has correctly

calculated his taxes, which is enshrined in the Tax Law Code, was

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to all intents and purposes replaced by a presumption of guilt. It

became practically impossible to carry on business in Russia

without making unlawful payments of tax. Tax terrorism is used

ubiquitously as a stick for the removal of property from “outsiders”

for redistribution to “insiders”. This happens at all levels – federal,

regional, and local.

This system holds back the development of enterprise in the

country, its worst effects being felt by small and medium-scale

business which cannot afford to pay bribes to civil servants and

judges. This is leading the country to the total triumph of

monopolism, a monopolistic alliance between criminal business

and corrupt civil servants. How the “state racket” operates to

snatch property from entrepreneurs and gift it to organisation

linked to the civil service was described in an interview with

Kommersant in November 2007 by Oleg Shvartzman, an

entrepreneur who had himself taken part in some of the Kremlin’s

business projects. Putin’s system was actually devised by

Shvartzman. Not just Yukos’ assets are feeling the pressure of the

state racket system via the administration, the courts. Others

include: Sakhalin-2, Russneft, Nortgaz, Tambeineftegaz, the

Kovykta gasfield, United Machine-Tool Factories, Domodedovo

airport. The list could be continued.

Legal reform supposed to underpin the Constitutional guarantee of

the independence of the judiciary has had the very opposite effect.

Independence has turned into dependance. Putin re-appointed the

majority of Russian judges and in 2000 successfully maneuvered

to have presidential appointees included in the Qualification

Colleges which are supposed to be organs of oversight and control

and have the right to dismiss judges from their posts. The wording

of the laws On the Status of Judges in the Russian Federation and

On the Organs of Judicial Organisation in the Russian Federation

do not provide clear criteria for what “disciplinary offenses” of

judges warrant removal from their posts. On the other hand,

however, this lack of clarity makes it easy to get rid of judges who

make difficulties and to blackmail the remaining ones. One former

judge on the Novosibirsk District Court was removed from her post

by the Qualification College, for quote “repeated requests to the

authorities in defence of her rights and interests”.

It will come as no surprise that judges strive to make rulings that

suit the authorities.

The dependence of the courts on the authorities is yet another

reason for the lack of protection of Russia’s citizens. Corporate

solidarity with the government – of investigators and prosecutors –

inclines the courts towards guilty verdicts and in fact, in many

cases, judges simply rubber stamp the indictment documents. In

one area, however, the inclination towards guilty verdicts is not to

be found – in cases to do with the civil servants involved in the

redistribution of assets, and others who by dubious means have

amassed billions thanks to their links with Putin. People such as

these are in a privileged position.

At the other end of the scale, an ordinary Russian can land himself

in prison for stealing a piece of sausage. The world was quite

shocked in early 2008 by a case which reached the ECHR: Olga

Gavrilova of Nizhny Novgorod, a registered invalid and at the time

also seriously ill, was kept for several months in pre-trial detention,

accused of such a theft.

The legal system needs to be radically changed in order for

Russians to get the guaranteed right to judicial protection and to a

fair and just examination of their cases. The country needs to

implement the principle of the independence of the judiciary

enshrined in the Constitution. This will take not just political will

on the part of the executive: to achieve this we will also need an

Page 22

independent parliament, public oversight of the authorities, and, as

we have several times said already, freedom of the press and of

political activities.

In addition to guaranteed independence of the judiciary, we also

need clearer legal definitions of the misdemeanours for which the

Qualification Colleges have the right to discipline judges and in

the case of the most serious offences – above all corruption and

indulging the interests of the executive – a legal basis from

removing such judges from their posts. When appointing new

judges, it will be important to keep in mind the need to form a

new judicial generation that has not experienced collaboration

with the law enforcement authorities and which is not bound by

corporate solidarity with the authorities. This is the only way in

which we will be able to get rid of the judiciary's patently open

inclination to convict.

Until these conditions are met, there is not much hope of getting

unprejudiced justice in Russia.

7. Flouting the Constitution

By refraining from putting himself up for a third term as president,

Putin is pretending that he is keen to observe the Russian

Constitution. In reality, however, its main provisions were all

trampled into the dust long ago. The Russian Constitution has to all

intents and purposes ceased to mean anything.

First and foremost, Russia is no longer either a democratic, or a

federative, or a law-governed state as per Article 1 of the

document.

Russia is no longer a democracy. Putin has deprived Russians of

freedom of speech and free access to information. We are talking

here of the imposition of censorship on practically all politically

significant media – federal television channels, wide circulation

newspapers, and the most visited internet sites. Article 29 of the

Constitution guarantees every citizen freedom of thought and

speech, the right freely to seek, get, transfer, produce and

disseminate information by any lawful means. However, the state

has seized control of the influential mass media, closed down the

independent television channels, introduced shameful blacklists of

people who are not deemed suitable and thus not allowed to

appear on television, and made it impossible for citizens to get

hold of truthful information about what is happening in the

country and in the world. People are engulfed from morning until

night by a wave of lying propaganda and panegyrics to the

authorities that has already caused a gross warping of public

opinion. Many seriously believe that without “our dear master

Putin” the country will come to an end, even though just nine

years ago no one had ever heard of the man. People support

“Putin’s plan” although they have no idea what it consists of.

Confrontational thinking and hatred of heterodoxy and of

“enemies” are being promoted.

Throughout all this, no one is telling the people that their real

enemies are those who, during what could have been prosperous

years for the country, have made social and economic reforms fail

and not used the shower of gold deriving from oil to create a

workable army and build roads, have spoilt relations with the rest

of the world, and handed over Russian territory to China.

Censorship thrives in all the main media although Article 29 of the

Constitution totally unambiguously states that censorship shall be

prohibited.

Page 23

Most frightening of all is that the murder of journalists in Russia

( and not one of these crimes has been resolved), first and foremost

that of Anna Politkovskaya, has led to self-censorship among

journalists as they fear to write about serious problems or to

criticise the authorities. It could get them killed. Notwithstanding

the upsurge in spending on security and law enforcement between

2000 and 2007 not a single major murder case, of which there

were no fewer than in the 1990s, has been resolved.

These are all things that the opposition would have talked about.

Putin, however, has put it under a tight political lid. Although

Article 13 of the Constitution guaranties ideological and political

plurality and a multi-party system and Article 30 promises freedom

of to form and participate in opposition unions, such unions are to

all intents and purposes forbidden. It is made impossible for

independent parties that do not agree with the Kremlin’s policies to

register themselves and take part in elections. Anyone who

criticises the government can, thanks to a new police law on

extremism, be declared an extremist and find himself behind bars.

Article 30 of the Constitution guarantees citizens the right to hold

gatherings, meetings, and demonstrations and to march and picket.

However, this right is practically impossible to implement in

practice. Opposition meetings are banned and violently dispersed

by the OMON armed riot police. It has become the norm for

people at peaceful demonstrations to be beaten and arrested.

The abolition of the election of governors and also to the State

Duma from single-mandate districts struck a decisive blow against

the right of Russians to elect and be elected. Previously, Russian

could directly elect civil servants at all levels of government –

governors, State Duma representatives, and regional Legislatures.

Now, practically the only election left is the presidential election.

The lists for State Duma representatives and regional parliaments

are drawn up in the Kremlin and there is a new fashion for the

“locomotives” – well-known people who are put at the top of the

party lists – to decline to take up their mandates, allowing others,

people who were not known to or voted for by the electorate, to

become representatives.

The people, who according to Chapter 1 of the Constitution are

the vehicle of sovereignty and the only source of power in the

Russian Federation, have been shoved aside and stopped from

electing their government by direct vote.

Russia is no longer a federation. The exclusion of governors from

the Federation Council, the abolition of elections for governors so

that they are appointed instead from amongst candidates proposed

by the president, the redistribution of budget income in favour of

the centre – these are all innovations introduced during Putin’s rule

in order by design to destroy the foundations of federalism in the

country. As a result, the regions have been left lacking adequate

financial resources for resolving their pressing development

problems.

The abolition of the election of governors is a direct flouting of the

Constitution. By a decree of 16 January 1996 regarding the organs

of power in the Altai Republic, Russia’s Constitutional Court

recognised that governors must be elected by direct popular vote.

This decree has force of law. Putin, however, has broken this

principle, basely using the opportunity afforded by the Russian

public’s state of depression following the Beslan tragedy. But what,

you may ask, is the link between Chechen terrorists and the

election of leaders in Yakutia or Penza District?

By a decision dated 21 December 2005, the Constitutional Court

ruled that Putin’s actions, with reference to the “developing sociohistorical

context”, were lawful. Can it be that “context” is of

Page 24

greater import than legal norms and that the Constitution in Russia

is to be interpreted each time anew, depending on the “context”?

That the Constitutional Court should bend over for the executive

comes as no surprise. During Putin’s rule, the central principle of

the Constitution, that of the separation of powers, has been totally

done away with. The principle of independence from each other of

the legislature, the executive, and the judiciary enshrined in Article

10 of the Constitution is there because it is vital that no one

branch of government should be able to usurp power in the

country.

But this principle has been trampled upon. Parliament has been

turned into the “legislative department of the Presidential

Administration”; its members are appointed by the Kremlin and

vote according to the Kremlin’s wishes. The courts are totally

dependent on the executive even though Article 120 states that

judges shall be independent and shall obey only the Constitution

of the Russian Federation and the federal law. Basman justice is

dispensed throughout the land. Russia is no longer a law-governed

state.

Although point 4 of the Constitution's third article states that no

one may arrogate to himself power in the Russian Federation,

Putin’s inner circle has to all intents and purposes seized it. Putin

has twice broken his presidential oath to obey the Russian

Constitution. The Constitution is still formally in place but in fact

its main points have been broken. It is precisely because the

Constitution has been turned into a worthless scrap of paper that

Putin has kept his word that he would not make changes to it.

We need to restore the power of the Constitution in Russia. Restore

freedom of speech, of the press, of assembly, of political parties

and of an opposition to operate. Restore the right of the people to

elect their government, to elect governors, and to elect

representatives to the State Duma in single-mandate districts.

Restore the independence of justice.

8. The Collapse of the “National Projects”

“National Projects” were invented by the government to

counterbalance the failure of their reforms in the social sphere.

Compulsory health insurance, social security, and education

reforms were all discussed back in 2000. They failed to materialise

and it was decided to camouflage this failure with noise about

“national projects”.

In and of themselves, these national projects are quite sensible. It’s

good that the government should allocate at least some money to

developing medicine, education, housing, and agriculture. But if

one looks at what could really have been done by the government,

the pittance allocated is mere crumbs off the table. In 2006, just

$6 billion were made available. This rose to $10 billion in 2007

with $12 billion planned for 2008. Sibneft was bought from

Abramovich for more than the yearly allocation to all the “national

projects”.

Despite all the noise made about the “national projects”, the

proportion of the budget going to health, education, and the social

services has actually been falling in recent years. In 2007,

expenditure planned for public health and education amounted to

9% of the federal budget. For 2008, the three-year budget for

2008-2010 is allocating 8% of the federal budget and this will go

down to just 7.5% in 2009.

Page 25

On the other hand, the government is planning to direct 16% of

the federal budget to state management and security. Under Putin,

we have seen an explosive growth in the money spent on the

bureaucracy and the special services: in 2000, these cost the

country $4 billion but $39 billion will go to them in 2008 – 3

times more than will be spent on all the “national projects”!

The special services and Abramovich are Putin’s real “national

projects”.

In essence the “national projects” represent the replacement of

systematic reform by random, one-off, modest injections of cash

which do not really solve anything. For example, only a quarter of

the funds allocated to the “Health” national project will be used to

purchase diagnostic equipment for municipal polyclinics and the

building of new high-tech medical centres (of which only 15 are

planned for the whole country); the rest is to be spent on general

expenses. It is good that doctors should get salary increases and

that new equipment be bought for medical institutions. But it was

only the salaries of general practitioners and junior medical

personnel that were raised, not those of the specialists who

actually do the most when it comes to curing people. The

purchasing of medical equipment is being carried out in a random

and selective manner. Instead of creating a working medical

insurance system and defining the compulsory minimum levels of

medical care that citizens can expect, the government wants to fob

the people off with quick little cash injections.

It will come as no surprise that the “national projects” have

disappointed.

The “Health” national project.

Despite the fact that the lion’s share of the money allocated to all

the “national projects’ has been to this one ($5 billion of the $10

billion total for 2007), the quality of health care in Russia has not

improved. Data collected by the Levada-Centre shows that only

14% of Russians are satisfied with the health care they receive

while 72% think that the quality of health care in Russia has either

remained static or deteriorated. There are figures to confirm this:

according to data from Rosstat, sickness rates per 1000 of

population have been on the increase since the year 2000. This

predicates the persisting high death rate (see the chapter on Russia

dying out). The system for financing cheap prescriptions is

bankrupt and medicine prices continue to rise. Medical care in

Russia is a choice between atrociously low quality or extremely

expensive.

The “Affordable Housing” national project.

Housing has become less and less affordable during the runtime of

this project. Back in summer 2005, the cost of a standard 54m2

flat equivalated to 4.3 years’ average income of a family of three .

Now it’s 5.3 years. The project should be renamed the

“unaffordable housing project”. According to Rosstat data, the

average price of a square metre of housing on the resale market

has more than doubled during the existence of this national

project, from 21 thousand to 45 thousand rubles from summer of

2005 to today!

The reason for rising house prices is not because the government

has allocated too little money to construction or that the president

did not give the civil servants a needed shove at the right time. It is

simply that the government has not been able to implement an

effective strategy to combat the Dutch disease of money flowing

into the country. The avalanche of petrodollars has led to a bubble

in the real estate and share markets Flats are being bought by

investors and prices are being driven up. The monopoly of the civil

service mafia in the construction and land markets prevent new

investors from entering it, slows construction, and artificially drives

Page 26

prices in an upward spiral. The lack of clear rules for the allocation

of building plots and the fact that this area is dominated by

municipal mafia clans acts as an important restraining factor in the

house-building industry. Even though the rate of new housing

construction has, according to Rosstat data, reached 10-14% per

year, this is in fact a very modest result: were the housing market

more open, decriminalised, and competitive, the rate of new

housing construction could have reached 25-30%.

Another area in which monopolies dominate is that of building

materials production, in particular of cement. The monopolisation

of the building materials market has led to a price explosion:

Rosstat figures show that the price of cement rose by 35% a year

between 2003 and 2007 and in 2007 alone by 67%. This situation

is yet another result of the government’s lack of any competition

policies.

The situation in public housing is particularly bad. The reform of

public housing management failed: competition was to have been

introduced but instead became another civil service mafia

monopoly. As a result, utilities and services prices continue to rise

and no improvements have been made to tired and worn-out

buildings, not to mention services. Between 2000 and 2007,

utilities and services prices were raised by a total of 850%, over

33% per year. The proportion of their income spent by those who

live in public housing has risen from 4.6% in 2000 to nearly 9%

(Rosstat’s figures).

The “Education” national project.

Education reform has consisted of a series of failures. The

introduction of the Single State Exam needed to eradicate

corruption in the form of “supplementary private tuition” when

applying to enter prestigious institutions of higher education has

been to all intents and purposes a failure. Corruption in higher

education is flourishing: the average bribe to get into into a

Moscow college is now anywhere between $5 and $10 thousand.

UNESCO has estimated that the total amount paid in bribes for

entry into Russian higher education exceeds $500 million per year.

Our colleges and universities have still not managed to find an

effective system for producing the specialists needed by the labour

market to replace the old Soviet system whereby one was assigned

to a job on graduation. Graduates are now frequently unable to

find employment.

Education policy has all these years devoted too much attention to

the problems of higher education while the troubles of pre-school,

primary, and secondary education have been all but forgotten. Our

kindergartens are nothing to boast about either: there is a shortage

of about 1 million kindergarten places. This leads to corruption:

the bribe for a place in a municipal kindergarten in, say, Moscow,

can reach several thousand dollars! The quality of school

education has dropped sharply. Recent specialist studies have

concluded that the real average mark of school leavers in such

subjects as Russian language, maths, and history should not be

more than a mere “Pass” and certainly not “Good” or “Excellent”.

Secondary polytechnic education is in a state of near total

prostration.

The “Agro-Industrial” national project.

Not much was allocated to the development of the agro-industrial

complex, just $1 billion per year, and most of this has been

frittered away in subsidising credit interest for agricultural

producers.

This particular measure was a good one, but only needed the

once. It would have been far better for the government to devote

its efforts to improving the infrastructure in the countryside,

building roads and improving energy supplies (and not at

Page 27

Gazprom’s usurious prices – rural consumers are forced to pay

100-200 thousand rubles to have gas pipes run to them – but for

an affordable price). Monopolism needs to be combated and a

competitive market for agricultural produce created. There should

be support for developing exports. Our agrarian sector, including

processing, should be made attractive to foreign investors. Access

to finance should be made easier for agricultural producers by

means of a special infrastructure for farm credits. Help should be

available for leasing equipment and for going over to more modern

means of agricultural production.

The vital task of creating a competitive environment for the sale of

agricultural produce has not even been broached. As a result

small-scale producers and farmers cannot influence prices paid to

them and do not have proper information on the market situation:

big traders and agroproduce processors have a buyers’ monopoly

and are able to trade unfairly.

Because the agro-industrial complex has been accorded no

systematic attention, the growth rates for Russia’s agriculture are

the lowest in the CIS at just 2%. Forty-five percent of Russia’s food

is imported although even as recently as 2004 the volume of

imports stood at 20%. The situation is still worse in larger cities

where up to 70% of foodstuff is imported.

Putin’s “national projects” have resulted in no miracles.

A sad fate awaits the “national projects” once the oil money has all

gone. What Russia really needed instead of “national projects” was

to concentrate on real social reforms, to start spending money on

public health, education, the army, and the infrastructure – instead

of on the special services and Abramovich. And instead of

producing some weird “successor” out of a hat – to elect as

leaders responsible politicians unsullied by corruption, ready to

take action against the monopolies, and prepared to carry out

properly thought out policies instead of indulging in slapdash

monetary handouts.

9. Surrounded by Enemies (but not China)

Under Putin, Russia has managed to quarrel or get on bad terms

for no good reason with most of the countries around it. It has no

friends or allies left. We are moving at an ever faster pace towards

being one of those countries that is excluded from the taking of

international decisions.

Russia’s relations with all the Western countries have deteriorated

for no good reason at all. The West is our natural partner and is

open to the idea of cooperation with Russia. No matter how hard

the opponents of integration with the West try to turn us into an

Asian country, Russia remains an organic part of European

civilisation. The Western path of open democratic society and

market economy is the only good way for us to develop along as it

ensures a high standard of living for the people (the oil-rich Arab

kingdoms with the tiny populations do not count). The Western

democracies are what threaten Russia the least. Those countries

have never attacked any other democratic country. The government

believes that our main opponent is the USA although that country

has never attacked Russia and has been our ally in every one of

our wars. The governments of the West are playing the lead part in

the establishment of the new world order which has been taking

shape since the end of World War II. The Marshall Plan’s

restoration of war-ruined Western Europe, which turned it into

flourishing example for the rest of the world, was the fruit of the

transatlantic alliance between Europe and the USA. Russia’s

strategic plan should be to be to join this alliance.

Page 28

Not everything is as simple in our relations with the West. There is

much to complain about in their actions – for example, how in the

1990s they forced a starving Russia to take upon itself the Soviet

debt of over $90 billion, and how in recent times we have seen the

War in Iraq and the deployment of American anti-missile missiles

in Europe.

President Putin, however, has completely forgotten how to use the

instruments of civilised dialogue and gone over to pure

confrontationism and provocations. For example, the USA

announced back in 2001 that it would withdraw from the Anti

Ballistic Missile Treaty but from that time on no move has been

made to enter into negotiations and sign a new one. Ever stubborn

old Soviet leaders like Brezhnev and Gromyko would have done

that. Putin just allowed things to slide. Now the hands of the USA

are untied and it us who have to deal with the consequences of the

deployment of American anti-missile missiles in Europe, the

opportunity to have reached and agreement with the American in

2002-2005 having been missed.

Putin has tried to cover up his diplomatic failures by making use of

provocations: energy blackmail, provocative bomber flights up to

NATO’s frontiers (as if it would have been impossible to carry out

training flights over international waters), hysterical anti-Western

propaganda. Around the world, it is becoming normal to fear

Russia, to look for ways to protect against ‘the Russian threat”.

Why do we need this confrontation? No one in the West is looking

to go to war with Russia and we cannot afford one anyway. An

arms race will ruin Russia, a country accounting for 2% of world

GDP, when the USA’s GDP accounts for 27% (America’s economy

is over 10 times the size of Russia’s). A new state of confrontation

can only be maintained at the cost of reduced pensions, smaller

salaries for teachers and doctors, and the introduction of ruinous

taxes on businesses.

Cooling relations and Russia’s slow slide into isolation reduces

opportunities for Russians to travel freely abroad. It is harder for

our citizens than those of any other European country to obtain,

for example, a Schengen visa. Meanwhile, the citizens of

democratic countries travel to and from each others’ countries

without any visas at all. Incidentally, our leaders’ anti-Western

rhetoric does not stop their families from living and studying in the

“enemy” states. For example, the daughter of Minister of Foreign

Affairs Lavrov, who has distinguished himself in the field of

aggressive anti-Western declarations and been a major contributor

to the worsening of relations with the United Kingdom, does not

study in Russia but at the London School of Economics.

The current confrontation with the West is the sorry result of nonprofessionals

with Soviet instincts who do not know how to start a

reasonable dialogue coming to power in the country, of the

degradation of our diplomacy. Putin quite fails to understand the

nature of the world’s current feelings about Russia. Official

propaganda spreads the idea that Russia is no longer respected

these days. That is not so. We have ceased to be respected and are

feared instead, as people fear the psychologically unbalanced. We

have stopped being considered thoughtful, reasonable and sober

partners. Who knows what tricks Putin will get up to next –

another energy embargo, more bomber flights? This is not

authority, this is just fear. Russia does not need this kind of

“popularity”.

Russia has quarreled with all its CIS neighbours. Putin has to all

intents and purposes destroyed the Commonwealth. Gross

interference in the Ukrainian elections, the embargoes against

Georgia and Moldavia, energy blackmail in Ukraine, Belarus, and

Page 29

the Baltic countries, blocking Central Asian oil and gas from access

to international markets. We have been in one conflict or other

with all the post-Soviet countries. Russian influence in the post-

Soviet sphere has fallen sharply. Given our colonial attitudes, it is

not surprising that many of our former socialist-camp neighbours

have looked to the West for aid and support.

Putin’s “integration projects” have not been successful: nothing has

come of the Single Economic Area or of the Customs’ Union. One

after the other, the post-Soviet countries have overtaken us and

joined the WTO. Russia’s best friend, Kazakhstan’s President

Nazarbayev travels to Washington, Brussels, Peking, with promises

of cooperation. Azerbaidzhan has declined to buy Russian gas and

to use our pipelines to transport its oil. It is also preparing to join

NATO. Relations have cooled even with Armenia, for whom we

raised gas prices and which cannot but suffer too from Putin’s

transport blockade of Georgia.

Yet an alternative strategy for Russia exists. We need to become the

guarantor of the spread of freedom and democracy in the post-

Soviet arena, to be setting the standards for democracy for other

post-Soviet countries to follow, to refrain from colonial policies, to

build our relationships with our partners principled equality and

not by trying to engulf the whole territory of the former USSR in a

Gazprom monopoly. Only in this way can Russia become not only

the greatest authority in the CIS but an effective defender of the

rights of of the Russian-speaking minorities in those countries.

For now, however, our neighbours are busy building barriers

against us.

Back in 2000, Russia was on reasonable terms with nearly all the

world’s countries. Today we are ringed by enemies. The only

exception to this is China.

Putin’s policies towards China should rightly be called

“capitulatory”. Under Putin, Russia’s military-industrial complex

has mostly worked to arm the Chinese. Russia has become the top

supplier to China’s armed forces as they rapidly grow in might. We

have sold minesweepers, aircraft, submarines, air-to-air and

ground-to-air missiles to China. Putin has even allowed Chinese

military units into Russia to carry out military exercises: 1600

Chinese servicemen entered Chelyabinsk district in 2007 for this

purpose. With Putin’s connivance, China has hastened to extend its

influence in Central Asia, leaving Russia sidelined. The Central

Asia countries are building new oil and gas pipelines to China,

developing transport links, and getting massive financial assistance

from the Chinese government. As for Russia, “higher” geopolitical

considerations prompt us to sign loss-leading contracts for the sale

of oil and gas to China at prices several times lower than world

prices.

Putin has made major territorial concessions to China. Russian

territory has been ceded to another country for the first time since

Nikita Khrushchev. By a 2004 treaty, China was given two large

Russian islands on our borders, Bolshoi Ussuriisky Island and

Tarabarova Island. The area ceded is nearly 340 square kilometres.

A massive building project for a town of 2Ѕ million inhabitants is

today underway on Bolshoi Ussuriisky Island. Khabarovsk can

clearly be seen from the island, which is now set to become an

outpost of the Chinese economy and cultural expansion in the Far

East.

China represents a real threat to our country. Unlike the countries

of the West, China does lay open and unconcealed claims to

Russian territory. At the very time when former US Secretary of

State Madeleine Albright was being falsely reported as having said

that “Russia doe not rightly own Siberia” (a Russian general

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admitted in an interview with Rossiiskaya Gazeta in 2006 that the

quote had been invented), Chinese politicians were openly

commenting that Eastern Siberia and the Russian Far East had been

“unfairly seized” by Tsarist Russia. Chinese history and geography

schoolbooks teach children to think in this way. Maps with our

Eastern territories coloured in the same colour as China are on free

sale in the country.

Putin and other representatives of the pro-Chinese lobby try to

sweet-talk us with statements that “China does not present a

danger” to Russia. These assertions are without substance. On the

contrary, any analysis of the real situation can only conclude that

while the Communists remain in power in China, that country will

be a direct threat to our security. We have a real armed conflict

behind us already – in 1969, one resulted from Chinese claims to

the Daman Island. China’s armed forces are already outnumber

ours and they out-arm us in all forms of weaponry except strategic.

China today has about 700 tactical rockets with a range of

300-600kms which can easily be transported to our border and

used to strike Khabarovsk, Komsomolsk-on-Amur, Vladivostok,

Chita… And we cannot begin to compete with China in numbers

of men we can mobilise in the event of a military conflict.

In 2006, the Chinese army carried out large-scale exercises in the

Peking and Shenyang military districts to try out a strategic

advance operation in which troops were to advance over 1000

kilometres overland in large numbers. Against whom could China

be considering such an operation? Clearly not against Taiwan,

Japan or the USA: maritime landings would be needed for such

operations. Military specialists could only see in such an exercise

preparation for a land operation on Russian territory.

Putin has signed an agreement creating a 200-kilometre troop-free

zone along the frontier that is only to China’s advantage: in Eastern

Siberia and the Far East all our infrastructure and communications

are located along the border with China and this leaves them

undefended. Our armed forces are not prepared for an armed

conflict with China. The Ministry of Defence’s main scenario for

the Far East theatre, which our army does train for, is one in which

a maritime descent force (from the US or Japan) is repulsed. We

are simply not prepared to handle a large-scale land operation by

Chinese forces using air and rocket support.

Russia’s armed forces are as unready to repulse possible aggression

from the Southeast as it was unready to deal with aggression from

the West in 1941.

One would like to hope that there will not be any confrontation

between Russia and China at any time in the future. But who

knows what the Chinese Communists have in their minds.

“Conceal your true intentions”, Deng Xiaoping used to teach. We

need to be reliably defended from a potential Chinese threat.

Under Putin, however, all we have seen are some very one-sided

concessions to China that a very much not to our advantage.

In a recent interview he gave to American journalists, Putin

accused the Russian opposition of playing into the hands of foreign

powers. However, his own actions and the fact that he has

permitted the abandonment of Russian interests unprecedented in

the last 50 years or so make him look like he is a Chinese agent of

influence in Russia.

We gained nothing from our unilateral concessions to China. Our

government’s aggressive and unconstructive behaviour is leading

to Russia’s exclusion from the processes whereby vital decisions

are reached by a wide circle of countries worldwide. We have

quarreled with the West but we are not welcome in the East.

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This is the consequence of stupid and unprofessional foreign

policies. While defending its interests, Russia should not forget that

one still needs to cooperate, to support good-neighbourly relations

with other countries, and to work jointly with others to resolve

global problems. The confrontation with the West that has been

forced upon us, neocolonialism, and capricious foreign policy

lines must be abandoned in favour of a wise and balanced

approach to foreign affairs, of a sober evaluation of the real threats

facing Russia, and a review of the policy of backing down to

China. It is only if we act in this way that Russia will truly be

respected.

10. Worsening Inequality

Russia is a country of the most massive inequality. This can be seen

everywhere and in many different things. And this inequality –

between the regions and between people – is only getting worse.

The average nominal monthly wage in Moscow is 20 thousand

rubles. In places rich in natural resources, for example the Khanti-

Mansiisk, Yamal-Nenets, Chukotsk regions and the Nenets

autonomous district, it is 25-30 thousand. Real incomes in

Moscow are of course considerably greater than that. At the same

time, the average wage in Dagestan is 4500 rubles and a bit more

– 6-8 thousand rubles – in the Central Black Earth region. In fewer

than a third of the Russian regions is the average over or equal to

the average wage for the whole of Russia (11 thousand rubles per

month); in all the rest of the country it is lower.

At the same time as in 4-5 regions of Russia people are now living

no worse than in developed Western countries, in the rest of the

country they are living on a par with Mexico. One of the reasons

for this differentiation is Putin’s policy of budgetary colonialism.

Back in 2000, government expenditure was divided 50/50

between the centre and the regions. Now it is 65/35. Another

reason is state monopoly capitalism, the model whereby the

country’s natural resources are exploited, that has taken shape in

Russia. Smaller businesses and those not involved in raw materials

in areas without such resources are unable to develop – because of

the high barriers to market entry maintained by officialdom and

the monopolies they have links with, because of the government’s

tax terror policies, because of the risk of losing what they own, and

because of the poorly developed infrastructure.

To overcome this differentiation, it is vital that support be given to

economic activities by the people, to developing small businesses,

to involving as wide a circle of people as possible in

entrepreneurial activities. This is the only way to make a

meaningful number of Russians if not rich, then at least well-off.

During Putin’s presidency, however, the number of small

enterprises has practically not risen in Russia. There are about one

million of these today. That is less than 7 companies per 1000

population. This should be compared to the EC average of 45 per

thousand, 50 per thousand in Japan, and 75 per thousand in the

USA! In Western countries, about 50% of the working population

is to be found in such enterprises and in Japan nearly 80%. Only 9

million Russians – 12% of the working population – work in small

businesses. And these small businesses make a proportionate

contribution to our GDP. This may be compared again to the USA,

where the contribution by small businesses to the GDP is 50% and

to the Eurozone where it is 60%. It should come as no surprise that

people live more richly and in those countries and that they have a

large middle class, which is not the case in Russia.

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As a result, the people who get rich in Russia are those who are

close to where the earnings from natural resources are to be found.

Some crumbs do fall off the table. And while plain people’s

incomes have risen, they have not risen in anything like the way

the wealth of the oligarchs has. The average wage in Russia has

risen from $80 per month in 2000 to over $400 today. Over the

same period, however, Putin’s Russia has beaten all records in

growing numbers of billionaires. In 1999-200, Forbes List carried

not a single Russian. By 2007 there were 53 and their total wealth

amount to $282 billion.

First place went by rights to Roman Abramovich with $18.7

billion. We now rank third in the world for number of billionaires

after the USA and Germany.

There’s “Combat the Oligarchs” for you! Under Putin, they have

only become richer. And those who were able to build a tight

relationship with Putin, to successfully sell Sibneft to him, have

become richest of all. Bear in mind also that the wealth of top

officials and those close to them – secret owners of property, of

Swiss oil and gas trading companies, beneficiaries of a myriad

offshore trusts, of ties with Putin & Co. – are beyond the scope of

Forbes List and remain invisible.

This is not a call to arms against the billionaires. Russia needs

billionaires. It is a sign that a market economy has taken shape and

that large national companies have been created. However, the

explosion in their numbers and their wealth in comparison to the

modest enrichment of the rest of the country is more a sign that all

is very much not well with Putin’s Russia and that the widely

advertised battle against the oligarchs is just a propaganda slogan

to cover up the government’s support for certain oligarchs.

We also think that a very different set of economic policies could

create far more opportunities for many more Russians to get richer.

A climate favourable to enterprise, open and free competition,

reasonable conditions for business development, especially small

and medium enterprises, independent courts of law, guarantees for

property rights – these are the things which would help enterprises

to develop in a big way and, just as importantly, help the middle

class to develop. In Russia too many assets are concentrated in the

hands of big business and a wider range of the population is

unable to start up because of the high barriers to market entry

– fruit of the alliance between the monopolies and corrupt

officialdom.

The recipes for solving these problems exist. However, in order to

be successful in this, the criminal-monopolistic economic system

that has taken shape under Putin must be dismantled.

11. Economic Bubble

We are all supposed to be over the moon at the success of the

economy under Putin. In reality, however, it is not doing that well.

Given today’s oil prices, our GDP growth has actually been

remarkably modest. With the windfall from oil that our economy

has been enjoying, we should have been seeing growth rates of

10-15% percent like our oil-exporting neighbours Kazakhstan or

Azerbaidzhan. Even oil-importing countries such as China and

India, who pay today’s sky-high world prices for their fuel, have

been growing at 8-10% a year. Our 6-7% looks modest against this

background. Oil-rich Russia’s GDP growth rate is one of the lowest

in the CIS. Back in 2000, our GDP growth rate was the second

fastest in the CIS. By 2007, we ranked eighth.

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Putin has not brought about even this GDP growth. Russia’s

economy began to grow in 1997 and continued to do so after the

crisis of 1998. In 1999, the growth rate was 6.4%, the same as the

average growth rate under Putin. It would be weird indeed if we

were unable to make our economy grow at such a rate at a time

when oil prices are so high. It is notable that it is mainly the

private sector of the economy which has seen any growth; the state

companies have shown very modest results indeed.

For the economy to have developed faster would have needed

structural reforms, the establishment of a climate favourable to

investments in new projects, and a modernisation of the economy.

We have furthermore failed to convert what we have achieved into

a real economic modernisation of the country and revival of

production capability. Instead of modernising, the Putin régime has

devoted its attention to dividing the spoils, thus missing this

favourable reform opportunity. We may not get another such

chance again. We will evidently be forced to make painful social

transformations (for example the pension reform we have already

mentioned) when oil prices have fallen again.

Investment in production has slowed down as a result of the tough

way private business is dealt with. Instead of creating new assets,

companies have preferred to invest in real estate. A two-room flat

built in Soviet times on the outskirts of Moscow now chnages

hands for $200 thousand – a price inflation caused by investors

buying up properties as capital investments. Gazprom’s

capitalisation rose from less than $10 billion in 2001 to $350

billion today, despite the fact that its gas production has not

increased while its costs and debt have risen threefold as it prefers

to buy assets rather to to bring new deposits on line. What is this if

not a bubble, a bubble that may burst with a very big bang?

Debt accumulated by corporations for the purchase of assets

instead of investing in production now exceeds $400 billion and is

nearly equal to the state’s financial reserves. The major borrowers

are Gazprom, Rosneft, and the state banks. Should any of these

corporations default, it is going to be the Russian public which will

have to pay the cost as state reserves will be rapidly frittered away

on keeping the inefficient state companies afloat.

Government expenditure, first and foremost for the benefit of the

growing state apparatus and special services, has of course risen

faster than GDP growth. Planned government spending on its own

management, national security, and law enforcement for 2008

stands at $39 billion (compared to $4 billion in 2000). This is three

times as much as has been allocated to the “national projects”.

There are now over 600,000 civil servants. Government efficiency

has nonetheless not improved; crime rates remain high and are in

fact higher than in the 1990s.

The government policy favouring the mass creation of state

enterprises has only increased the appetites of the recipients of

government money. These corporations cannot compete on the

open market without state aid. Pouring government money into the

economy has already resulted in a burst of inflation which has hurt

plain people (inflation is no abstract economic phenomenon).

Consumer inflation of up to 15% and more means that prices are

rising painfully fast. The monopolisation of the economy under

Putin – the inevitable result of civil servants protecting “their”

companies and hindering competition – has only poured oil on the

flames. World Bank experts have tried to estimate how

concentrated ownership has become in Russia and concluded that

state companies and the 22 largest private financial and industrial

groups control nearly two-thirds of industrial turnover. Over half

the banking system’s assets are controlled by banks affiliated with

the state or powerful officials. Of these, about 45% are controlled

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by just 4 banks: Sberbank, Gazprombank, VTB, and the Bank of

Moscow.

And this is what they call the Putin “economic miracle”?

We need another kind of economy. We need a competitive

economy with low barriers to investment, low levels of

government involvement in corporate management and spending.

We need alongside that a strong and effective state regulatory

system, above all to control monopolies, aimed not at sheltering

friendly businesses and dividing the spoils but at ensuring all the

players in the market abide by civilised rules and compete fairly.

It is vitally important that small businesses develop in Russia. This

was covered in greater detail in the chapter on worsening

inequality. But small businesses are prevented from developing in

Russia by administrative barriers, corruption, and the monopolism

of commercial organisations with protection from officialdom. The

barriers hindering the development of small businesses should be

dismantled. Of the many things that could be done to help them,

the most important is to combat corruption at all levels of the

government and to de-monopolise the economy.

Government money should be used not to help state corporations

and to inflate expenditure on the government apparatus and

special services but on public health, education and the army.

There should be the strictest of oversights over government

spending. We need to sharply reduce state involvement in the

economy and go back to arranging honest privatisations in the way

we began to practise in 1997-2000. Businesses need guaranteed

property rights, working laws, and independent courts of law.

It is entirely within our power to build such an economy. But to do

so, we must refrain from making use of the services of Putin and

his circle.

12. Conclusion. The Alternative

The picture we have painted of developments in Russia today is a

fairly gloomy one. Sadly, it presents the truth. This can be seen by

anyone who does not allow “hip-hip-hurrah” patriotic incantations

about “reborn” Russia “rising from its knees” and “gaining

strength” to taint a sober analysis of current events.

The potent anesthetic of 100-dollar oil will wear off and the

serious illnesses from which our country continues to suffer will

make themselves felt again. We will then come to understand that

the corrupt state-monopoly capitalism à la Latin America built up

by Putin has enabled only the oligarchs close to Putin to flourish

and driven the rest of us into the third world. Being intoxicated,

Russian society does not comprehend. But once the rush has

passed, only this banal truth will be left.

Might we not try to avoid the pains of going cold turkey and make

a start now at building a free and democratic Russia in which

citizens will feel secure and have real freedom to live and build

their lives? A Russia standing on foundations of law and order and

not of Putinite “quiet agreements” and corruption? A modern and

efficient economy instead of a bubble full of petrodollars?

Maybe it’s time to wake up and get on with things?

Of course there is an alternative to Putin’s winter sleep. First and

foremost, we need to understand what sort of Russia we need and

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want. We deserve to have a very different country – modern, with

a stable economy, well-developed infrastructure, and well-off

entrepreneurial citizens engaged for the most part in small and

midsize businesses. We need to have rich folk in Russia but not

just billionaires with ties to the seats of power. We need as many

people as possible to be well off. We would like all those who

want to work and make money to be able to do so with let or

hindrance.

We need a healthy Russia whose citizens have the right to a

healthy lifestyle and quality medical care. We need an educated

Russia whose children have the right to a decent education and to

apply for places in any college without paying bribes and without

being dunned for sub-rosa fees in the form of “private tuition”. We

need a safe Russia where we do not live in fear, where the odds

are low that we we die at the hands of a killer or in a car crash.

We need decent roads. We need a decent government which

doesn’t rule the people but serves them. These things have already

been achieved in dozens of countries that have chosen the liberal

democratic path – Europe, for example. Russia needs at last to

become what it has the right to be: a successful European country

in which its people have decent lives.

How one goes about building a society of this kind is perfectly

clear. First and foremost, the police state has to be dismantled and

human dignity returned to the people. We need to bring back into

our lives the rule of law, freedom of speech, and the genuine right

to elect and be elected. Russia needs an independent judiciary in

order to provide the law’s protection to all, both ordinary members

of the public and entrepreneurs. We need to restore federalism by

returning to the regions political power in the form of governors

elected by direct suffrage and allowing them the funds they need

to implement social programmes and to improve their

infrastructures. Doing this will change the atmosphere in the

country, take away the apathy and the fear, and lead the people to

take civic and business initiatives.

We to to breathe new life into the reforms started in 1997, some of

which continued until 2000. These – macro-economic

stabilisation, resolution of the debt problem, tax reduction,

revitalisation of the law – were the reforms which would have

normalised life in the country. But catastrophically little was done

and the small amount which was positive was discredited by the

crushing of democracy, of the law, of the independence of the

judiciary following after which further damage was done when the

reforms were halted, when the “state rackets” took hold on a large

scale, and when entrepreneurs were deprived of their property.

These reforms need to be taken to the end. We need to do this fast,

while we have the money to do so. The prospect that there will be

a world recession means that we have very little time in which to

carry out reforms during a favourable period. Most importantly,

we must spend more – while the state’s financial situation is still

healthy – not on the government apparatus, the special services,

and payments to Abramovich, as Putin has been doing, but on

public health, education, the army, and the roads. We can reduce

spending on officialdom and commercial projects to double the

funding for public health and education. The whole structure of

state spending needs to be reviewed and reorganised.

One must, however, spend sensibly: we do not want the systematic

embezzlement of state funding to continue. Furthermore, we

should spend not so much on current needs but rather on the longterm

infrastructure for the future and on profound transformations.

We need to reform the military and the public health system

(above all by the creation of an efficient compulsory medical

health insurance system to provide the people with a basic

standard of quality health care).

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Reforming the pension system is also urgent and vital. This will

mean cleaning out stables of Aegean proportions left to us by

Putin. First and foremost, we need to set up a universal pension

fund and allocate to it the state’s shareholdings in major

companies and the surplus income from oil exports and the

privatisation of state property. Investment income from these funds

will then be used to pay pensions. The next stage will be to go over

decisively to a competitive pensions savings schemes. These

measures will enable Russia to create an effective pensions system

which will provide people with a decent pension of around 40%

of their average wage.

Russia needs a modern, compact, action-ready, and well-equipped

army. We have already listed what needs to be done if that is to

come about – dismantle the corrupt and opaque arms and

equipment purchasing system and replace it with a new, efficient,

competitive one. We need to buy arms and equipment for our own

army first, not sell to other countries. Russia’s military-industrial

complex must be made to pull itself together. We need to man our

army with contract soldiers. They should be paid a decent wage

and officers with families should be provided with housing.

Russia needs a modern economy built, on the one hand, by private

enterprise and private investment, and on the other by efficient

government involvement in the provision of government

regulation, particularly with regard to controlling monopolies and

preventing them from cornering markets. In short, we need

capitalism and capitalist competition. As yet, the Russian people

have not had the opportunity to experience for themselves one of

the main benefits that capitalism has to offer – competition. There

have been a few examples: for instance, in the early 2000s, we

were all able to reap the benefits of the vicious competition

between the various cellphone operators when prices fell rapidly

and service quality rose.

The same could be happening in all sorts of others areas. However,

competition levels in the Russian economy remain unacceptably

low because large monopolistic companies (with, as a rule, links

to the government and/or particular officials) dominate

everywhere. The state should get out of business and leave it to the

private sector. The latter has already proved that it knows how to

invest and make the economy grow: between 1999 and 2007 over

90% of economic growth derived from private companies.

The state should provide business with reasonable conditions in

which to operate by protecting property rights and reducing

bureaucratic and monopolistic barriers to market entry. Business

should be provided with a set of operable and predictable laws

that can be fairly defended in independent courts of law.

We need to create the conditions needed for small and midsize

businesses to grow and create more jobs, making as many people

as possible active. The right of each and every person to work to

enrich himself and his near ones must be made real. We do not

need a poor and unequal Russia but a rich one so that we can at

last have a middle class, a large swathe of the population earning a

decent living.

The non-market sector of the economy that is still left over from

the post-Soviet years and continues to be a burden on the

economy should be brought into order on market principles. This

refers in the first instance to such infrastructural monopolies as

energy supply, gas, and the railways which all get billions in

subsidies from the state. Public housing is another sector. Together,

they are acting as the main brake to a faster-growing economy. It is

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time the unholy alliance between these monopolies and corrupt

officialdom was terminated.

Privatisation must be made honest and transparent.

The income from privatisation should in the main be allocated to

the universal pension fund. Assets recently embezzled from the

state (Gazprombank, Gazprom-Media, Sogaz, Gazprom shares)

should be recovered through the courts and returned to state

ownership.

We do not want to speculate about “resource dependency”, an

issue that began to be raised as far back as when there still was a

CPSU. Too much talk on this issue has created the false impression

that natural resources are a curse when in fact their careful

exploitation can lead to a flourishing economy – as may be seen

from the examples of Australia, Canada and Norway.

The problem is not that the natural resources sector is too

developed in Russia. It’s all to the good that it is there and that it

works. The problem is that other sectors of the economy are not

developing enough. We are not referring so much here to the

processing industries (we need to change our outlook and think

about a post-industrial economy) but rather to technological and

other white-collar industries. Russia needs to put a stop to its brain

drain if these sectors are to develop. Pouring money into

nanotechnologies is not the answer. We need talented people to

stay in Russia, not go off to become nerdy billionaires somewhere

in the West. And for that to happen, it must become safe to live it

Russia. In a country where one can buy databases of personal

incomes from vendors on street corners and where these databases

can and do get into the hands of criminals, capable people will of

course prefer to leave the country.

We need to keep good brains in the country if we want to build a

white-collar economy in Russia. To stop the brain drain, the

government must turn to the people and become nicer.

Russia needs a reform of its bureaucracy. And not just another

ministerial reshuffle but a real qualitative transformation: the

motivation of civil servants must change (the standard must be

results), and a massive change of staff – new people without links

to business and not infected with the virus of the previous

bureaucratic mentality must take over. We need to conquer

corruption once and for all (and have described above how to set

about this). It is vital that the deals done under Putin should be

fully investigated and that those guilty of this unprecedented

looting of the state should be punished.

We need to resume normal relations with the rest of the world. A

return to policies of cooperation instead of confrontation and

aggression will be massively to our country’s advantage. Fields in

which Russia will be able to exert its influence will increase

greatly. Barriers will cease to be erected against us. Russians will

be able to travel freely around the world.

The world needs to see another Russia: not an aggressive and

underdeveloped country but the clever and modern one it has

every right to be. And we can do this. The government could have

done a lot of what was needed for this between 2000 and 2007. It

is precisely for having missed these favourable opportunities that

we condemn the Putin régime.

The situation can be put right. But the government we have in

Russia today – irresponsible, unprofessional, dishonest – is not the

one to do it. The current state of affairs in Russia will change under

only one condition – if Russians take the fate of their country into

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their own hands. If, as in Viktor Tsoi’s lyrics, “we do it ourselves

from now”.

About the Authors

Boris Nemtsov is one of Russia’s best-known democratic

politicians. Fame, however, is not the point: Boris is rightly

considered one of the most sincere and concerned politicians in

our country and someone who is not afraid to opine openly about

what is happening in Russia.

Before taking up politics, Boris, who graduated from the radiophysics

faculty of the Lobachevsky State University in Gorky,

worked in the field of theoretical physics and astrophysics,

studying the physics of plasma and investigating acoustics and

hydrodynamics. He began his active political career in the 1980s

when he campaigned against the plan to build a nuclear power

station in Nizhny Novgorod. He was elected to the Supreme Soviet

of the RSFSR in 1990.

Boris Nemtsov has a unique grounding in government and public

politics. In the 1990s he was an effective governor with proven

public support; he was re-elected four times by a considerable

majority of votes. In 1997-98, he was made deputy prime-minister

and minister of fuel and energy. It was then that he began his

important systemic reforms of the economy, in particular of the

infrastructural monopolies and of public housing management. He

was the author of important legislation regarding state purchasing

and programmes on housing for service personnel and

management training in foreign countries. He proposed many

reforms to transform Russia into a modern democratic state with an

efficient economy. These were later, in 2000, to form the basis of

the country’ssocioeconomic reform programme, the

implementation of which was later derailed by president Putin.

In 1997 Nemtsov defended Gazprom from incursions by Vyakhirev

and Berezovsky and prevented it from being privatised for a

pittance. His other achievements also include: drawing up (jointly

with Irina Khakamada) a simplified tax code for small business and

the establishment of rules for equal access to Gazprom’s pipelines

by independent gas producers.

In 2000 - 2003, Nemtsov headed the Union of Right Forces

democratic party and fraction of the same name in the State

Duma. He left politics in 2004, after not having become a member

of the Duma, but made a noisy return in 2007 as one of the

leaders of the pre-electoral lists of the Union of Right Forces. The

true things that he was able to say on state television’s long-stifled

channels about the current situation in Putin’s Russia came as a

breath of fresh air for many of the more concerned citizens of our

country.

Vladimir Milov is a representative of the new generation of Russian

liberal politicians. At just 35 years of age, he has already had

serious experience of government. Between 1997-2002, he

worked in the federal executive starting as a senior specialist in the

Federal Commission for Energy although he was rapidly promoted

to Deputy Minister of Energy. V. Milov was one of the main authors

of the Russian energy reforms aimed at increasing efficiency in that

field.

In 2002, V. Milov authored the conception for the reform of

Gazprom, the aim of which was to overcome the growing gas

deficit and put a stop to spiraling prices for Russian consumers.

This conception was rejected out of hand by president Putin with

the result that these shortages are getting rapidly worse and prices

Page 39

are rocketing ever closer to European levels. Milov was also lead

author of the 2003 parcel of legislation on Russian electric energy

which for the first time created a legal basis for the development

and reform Russia electricity industry.

After he left government voluntarily in late 2002, he became one

of Russia’s leading independent experts in the energetics fields and

is widely known abroad. More recently, V. Milov has become

known as a political author. His sharply critical articles in such

Russian publications as Vedomosti, Gazeta.ru, and The New Times

have earned him the reputation of a brave, honest, and wellqualified

politician.

The authors’ paths have frequently intersected in the course of

their work. Both came to work in the federal government in 1997

when the new stage of Russia’s reforms – the move away from

chaotic change to systematic ones – was beginning. Both have

been professionally involved in the energy field, a key one for a

resources-rich country: in 1997 B. Nemtsov was minister of fuel

and energy; in 2002 V. Milov was promoted to the rank of deputy

minister. Both are responsible politicians with no links to

corruption. Both actively fought against it during the time in

government service.

Internet:

www.nemtsov.ru

www.milov.info

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