Deepak Lal: The Putin enigma

Unlike Catherine and Peter, Putin is likely to be able to fulfil their imperial dream.

As an increasingly authoritarian President Putin hosts the G-8 summit of industrial democracies, a question I raised in an earlier column ("Whither Russia?" 28 April, 2004) is becoming more urgent. Is Putin another Pinochet or a modern-day Peter the Great or Catherine the Great? I had argued that he was a modern version of his great Russian predecessors. Does this still hold, or is Russia descending into an authoritarian kleptocracy typical of so many other countries rich in natural resources?

To answer this, first consider the economy. On Putin's watch, the economy has more than recovered from the near meltdown in the late 1990s, largely because of the soaring prices of its primary commodity exports. Whereas the privatisations of the Yeltsin era had led to much of these rents accruing to the oligarchs, Putin has succeeded in diverting a larger proportion to state coffers through both taxation and the covert nationalisation of previously privatised assets as in the notorious case of Yukos. Its assets, which were essentially stolen and put into a shell state company, Rosneft, run by the Kremlin, are now being put on international markets through an IPO in London and Russia. The other natural resource behemoth Gazprom is also run by one of Putin's close associates. The remaining oligarchs have learnt the lesson of the Yukos affair and are unwilling to challenge the Kremlin. Despite the non-transparent nature of the companies traded on the stock exchange, Russian stocks are booming. But the economy is still largely dependent on natural resource rents.

To avoid the natural resource curse, which has bedevilled so many other countries, particularly in Latin America and Africa, Russia wisely took the advice of Putin's former economic advisor Andrei Illarionov and set up a stabilisation fund to place these rents, to mitigate the so-called Dutch disease effects of the resource windfall, and because of its transparency to make it less likely they will be stolen. These growing revenues have allowed Russia to pay off all its foreign debt, accumulate large foreign exchange reserves, and announce that it will soon be able to float the rouble. The public finances are in rude health, with a large budget surplus. The erosion of property rights and the de facto nationalisation of much of its natural resources, however, do not bode well for the badly needed diversification of its economy, which depends upon vigorous private entrepreneurs finding new economic opportunities in a well-functioning market economy. The private oligarchs, for all the doubts about the process of privatisation, had succeeded in introducing productivity-enhancing efficiency into the state behemoths, not least Mikhail Khodorkovsky, now cooling his heels in a Siberian labour camp. So even though the recent performance of the Russian economy has been spectacular, it is doubtful if it can be sustained.

These doubts are strengthened by the grim demographic prospects. There has been an alarming and inexplicable fall in male life expectancy. The UN projects that the Russian population will decline from 146 million in 2000 to 102 million in 2050. With these likely adverse trends in the two sources of growth""productivity and labour supply""the prospects of continuing robust growth of the Russian economy are not bright.

Meanwhile, the rise in commodity prices, particularly of oil, has provided the Russians the material means to once again assert a role as a Great Power. As Putin's recent lament (that the collapse of the Soviet Union was one of the great tragedies of the last decades of the last century) shows, he still hankers after a Russian empire. It is worth remembering that it was the waxing and waning of the oil price which largely determined the Soviet Union's foreign policy. When oil prices rose in the early 1970s, the Soviet Union flexed its muscles all around the globe""not least in India""as we know from the Mitrokhin archives. When they collapsed in the 1980s, and Reagan upped the ante with his Star Wars initiative, this was no longer possible and the Soviet empire was doomed. Now with another turn in the wheel of commodity prices, the Russians can once again dream of imperial glory. But will they succeed?

I think it unlikely as the economy for the above reasons remains fundamentally weak, and the demographics do not augur well for the manpower needed to project military might. But, it will remain in Russia's interest that the oil price remains high. This means it has an interest in keeping the pot boiling in the Middle East. Hence its courting of Hamas and reluctance to deal with the Iranian nuclear threat. But there is less likelihood of a Russia-China axis. For, the vast empty spaces of Russia's eastern domain""containing most of its natural resources""are increasingly being encroached upon by Chinese migrants. Given the Chinese hunger for primary commodities and its large, as compared with Russia's shrinking, population, conflict rather than comity is more likely in the future. It is even conceivable that with Putin's desire to follow Peter and Catherine in turning westwards, Russia might decide that like past Tsars, it may be best to sell its indefensible eastern domains to the Chinese, as was done with the sale of Alaska to the US.

Finally, it also appears that the initial Western hopes that with the collapse of the Soviet Union Russia would become a normal Western democracy are unlikely to be fulfilled. The growing fetters placed on the instruments of an incipient civil society""the press and NGOs""and the resurrection of central power""not least in the re-emergence of many of the practices of the KGB in its successor, the FSB""are signs of a Russia reverting to a gentler form of its past autocracy. But, to the extent that a democracy is supposed to represent the will of the people, despite liberal wailing, Putin's growing autocracy is widely popular amongst his people, not least because the chaotic Yeltsin period has led ordinary Russians to associate Western style democracy with disorder. Therefore, I would still view Putin as a modernising Tsar in the mould of his St Petersburg predecessors Catherine and Peter. But unlike them he is likely to be able to fulfil their imperial dream.