#2
The Russia Journal
January 18-24, 2002
Is authoritarian liberalism possible?
By OTTO LATSIS

Two years have gone by since former President Boris Yeltsin retired. This is two years that President Vladimir Putin has led the country and, counting his months as acting president, this is half the presidential term – a good time to look at the results so far.

In economic terms, these two years have been the best over the last 30 years of Russian history. Russia’s GDP grew by more than 8 percent in 2000 and at least 5 percent in 2001 – unprecedented rates not only for the Yeltsin years, but also for the last 20 years of the Soviet period. The last time the country saw such good rates was during the "Kosygin reforms" of the 1960s, but those reforms were broken off halfway through.

The good harvest in 2001 was another piece of optimistic news after years of agricultural decline. For the first time in years, the country is talking not of importing grain, but of exporting it. Added to this is a rise in average real incomes of at least 15 percent over the last two years and an unprecedented balance of payments surplus ($100 billion over two years) that has enabled Russia to meet its foreign-debt commitments without resorting to new borrowing. After growing for two decades, foreign debt has begun to drop, while gold reserves have reached record volumes.

But these brilliant statistics look somewhat different if we remember that, since the 1998 financial crisis, average real incomes still haven’t come back to even their 1997 levels. Add to this the fact that real incomes fell considerably in the late 1980s and early 1990s and grew only slowly throughout the 1970s. The result today is that 40 million people in Russia do not earn even the official living minimum salary.

Russia today would need 15 years of growth as rapid as that it has had over the last two years just to catch up with the per capita production level of Portugal. Foreign debt may have dropped, but it still represents at least $130 billion and will continue to be a burden on the country’s finances until the end of the decade.

But the main problem is that it’s not even clear yet to what extent the growth of the last two years is due to temporary chance factors rather than a sustainable foundation. These chance factors include the 1998 ruble devaluation, which gave a boost to Russian manufacturers, and high oil export prices. Finally, the artificially low domestic prices for goods and services – electricity, gas and rail transport – provided by natural monopolies cannot be a sustainable factor.

The only deliberate step the authorities have taken to support business was to introduce a flat personal income tax rate of 13 percent. This rate is one of the lowest in Europe, but other tax rates remain among the highest in Europe, and businesses still consider the investment climate negative and send their money abroad.

The political results of Putin’s first two years in power are even more contradictory. Over most of these two years, Russia saw its authority decline on the world scene. It became commonplace among U.S. commentators to criticize the U.S. policy of support for Yeltsin. Russia continued its agonizing search for its new place in the world community.

But Putin’s swift and decisive reaction to the Sept. 11 tragedy changed this situation radically. Russia now has its place as a state that has joined the ranks of the civilized world to fight international terrorism. This clear pro-Western choice has even greater significance for Russia’s domestic policy than for its foreign policy.

But this is where the problems start. Putin’s turn to the United States and Europe, even though not backed up by any formal legal act, has far greater repercussions for opinion in Russia than would any formal political alliance. Is the Russian political elite, raised on decades of hostility and mistrust toward the West, ready for this change? And is Putin himself ready to accept the inevitable consequences of his own choice?

On Dec. 29, 2001, the Moscow arbitration court passed a ruling that would allow independent TV company TV6 to keep working. The liberal choice looked to have prevailed and it seemed there wouldn’t be a repeat of what happened to independent TV company NTV, which was taken over by Gazprom, acting on state orders. But on Jan. 11 this year, the higher arbitration court overturned the ruling in an amazing display of disregard for the law and blatant absurdity. All this throws any optimistic forecasts into doubt.

Hopes for progress in the judicial system grew when a court refused to hand down a guilty sentence in the shameful and absurd case of scientist Igor Sutyagin, accused of spying. But these hopes soon faded when a guilty sentence was passed in the equally absurd case of journalist Grigory Pasko, also accused of spying.

Democratically minded public opinion watched the authorities with particular attention after Putin hinted at the possibility of contacts with the rebels in Chechnya with the aim of ending the war. But the intensification of military operations over the New Year and lack of news about any negotiations soon caused new disappointment.

It’s clear that Russia’s strategic liberal choice in its international relations will not work so long as the same liberal choice isn’t becoming a reality on the home front. But a liberal choice at home can’t be implemented merely by presidential decree – it would require a concerted daily effort by the authorities. In any case, there isn’t even a decree yet.