Enigma variations A special report on Russia November 29th 2008 RRussiaCOV.inddussiaCOV.indd 1 118/11/088/11/08 115:48:445:48:44 The Economist November 29th 2008 A special report on Russia 1 Enigma variations Also in this section The long arm of the state The nancial crisis may lead to renational• isation by stealth. Page 3 Grease my palm Bribery and corruption have become endemic. Page 6 A matter of judgment Russia’s legal system is deeply awed. Page 7 The incredible shrinking people Russians are dying out, with dire consequences. Page 8 The wild south Russia’s treatment of its republics in the Caucasus has turned them into tinderboxes. Page 10 Handle with care A cornered Russia could pose greater risks. Russia is not the Soviet Union, but what is it? A recovering world Page 13 poweror a corrupt oligopoly with a market economy of sorts? Arkady Ostrovsky explains why it is both N DECEMBER 25th 1991 the Soviet ag lapse, crossed an internationally recog• Oabove the Kremlin was lowered for nised border and fought a short, victorious the last time and the last president of the war: with Georgia. Russia’s leaders said Soviet Union, Mikhail Gorbachev, made they were defending two breakaway terri• his resignation speech. The totalitarian tories, Abkhazia and South Ossetia, from Acknowledgments system has been eliminatedðfree elec• Georgia’s aggression. But at home they The author would like to thank all those quoted in this report, and also the many others who gave generously of tionsðfree press, freedom of worship, rep• also hinted that this was a proxy war with their time and knowledge; in particular, Natalia resentative legislatures and a multi•party America which had tried to muscle its way Abbakumova; Peter Aven of Alfa Bank; Magomed Bakarov; system have all become reality. into what Russia calls the region of privi• Milly Bell; Zeljko Bogetic of the World Bank; Larisa Burakova; Larisa Dorogova; Mikhail Fridman of the Alfa A few hours later, America’s then presi• leged interest. It was a dening moment Group; Murray Feshbach of the Woodrow Wilson Center; dent, George Bush senior, declared victory for Vladimir Putin, Russia’s president until Yevsey Gurvich of the Economic Expert Group; Rebecca in the cold war. For over 40 years the Un• the election in March this year of Dmitry Hewitt; Valery Khatazhukov; Mark Kirsh of Linklaters; John Lloyd of the Reuters Institute of Journalism; Rory ited States led the West in the struggle Medvedev and still the man who, from his MacFarquhar of Goldman Sachs; Michael McFaul of against communism and the threat it new job as prime minister, holds the reins Stanford University; Natalia Orlova of Alfa Bank; Inna posed to our most precious valuesðThat of power. Solovyova of the Moscow Art Theatre School; Angela Stent of Georgetown University; Alexei Venediktov of Ekho confrontation is now over. The United To many, the conict brought back Moskvy; Chris Weafer of Uralsib; Yevgeny Yasin of the States recognises and welcomes the emer• memories of the cold war and portrayed Higher School of Economics; Tatyana Yembulgayeva of the gence of a free, independent and demo• Russia as a Soviet Union mark two, trying EBRD; Nazim Efendiev of Uralmash; Yahia Yevloyev; Pavel Zolotarev of the Institute of the USA and Canada; and cratic Russia. to regain its former territories. All the signs Andrei Zorin of Oxford University. The collapse of the Soviet empire was appear to be in place: Russia is ruled by for• inevitable, rapid and largely bloodless. In mer KGB men like Mr Putin who see ene• A list of sources is at its aftermath the world watched, with a mies everywhere; its political opposition is www.economist.com/specialreports mixture of hope and despair, the emer• crushed; independent journalists occa• gence of a new country that turned out a sionally get killed; and the state media An audio interview with the author is at lot less free and democratic than adver• pump out anti•American propaganda. www.economist.com/audiovideo tised. Confrontation with America did not Once again military parades are being held disappear but took on a new meaning. in Red Square. And in his belligerent state• A country brieng on Russia is at In early August this year the Russian of•the•nation address on November 5th www.economist.com/russia army, for the rst time since the Soviet col• Mr Medvedev threatened to station short• 1 2 A special report on Russia The Economist November 29th 2008 2 range missiles in the Kaliningrad region, aiming them at Europe, unless America backed o from its plan to put a missile•de• fence system into eastern Europe. But the parallels with the cold war are misleading. Russia is not the Soviet Union. It does not have a communist (or any oth• er) ideology, nor does it have much faith in central planning. It has private businesses, a free market of sorts and a great taste for consumption. Russian rms are listed on foreign stock exchanges. Their managers y business class to factories in the Urals, read nancial newspapers and labour over spreadsheets on their laptops. Members of the country’s elite have many personal ties with the West: they own property in London, send their chil• dren to British and American universities and hold foreign bank accounts. But none of this stops the Kremlin from being anti• Mr Putin has positioned himself as the ly, like a rock. American and autocratic. symbol of a resurgent nation recovering Similarly, in reaction to the current eco• So far the state has not interfered in peo• from years of humiliation and weakness. nomic turmoil, Mr Putin declared the Rus• ple’s personal lives. It gives them freedom In fact, few Russians in the 1990s brooded sian economy to be a safe haven for for• to make money, consume, travel abroad, on such feelings; most were too busy get• eign capital. On the other hand, the trust drive foreign cars and listen to any music ting on with their lives. But there was one in America as the leader of the free world they like. They are even free to criticise the group that had good reason to be ag• and free economy is blown for ever. Kremlin on radio, in print and on the inter• grieved: members of the former KGB. net, though not on television. And al• When Mr Putin came to power in 2000, A love­hate relationship though Russia’s elections are stage•man• they projected their views onto the whole The paradox of Russia’s nationalism is that aged, the support for Mr Putin is genuine. country. America’s hawkishness towards its patriotic zeal closely follows the Ameri• During the war in Georgia it hit almost 90% Russia made their job easier. can model. One of the biggest pop hits in in opinion polls. The biased television cov• Mr Putin also accurately sensed and Russia a few years ago was a song called I erage plays its part, but unlike Soviet pro• cleverly exploited nostalgia for Soviet cul• Was Made in the USSR, rst performed in pagandists, who told people what to think, tural symbols. One of the rst decrees of 2005 in the Kremlin, in front of Mr Putin. Russian propagandists tell people what his presidency in 2000 was to restore the Ukraine and Crimea, Belarus and Moldo• they want to hear, says Georgy Satarov, Soviet national anthem. Soviet icons were vait is my countryðKazakhstan and the who used to be an aide to a former presi• revived not because of their connection Caucasus as well as the Balticsit is my dent, Boris Yeltsin, and now runs INDEM, a with communism but as symbols of stabil• countryðI was born in the Soviet Union; think•tank. What people want to hear, es• ity, continuity and power. A TV show, The made in the USSR, its lyrics go. As the au• pecially as they are getting richer, is that Name of Russia, based on a British pro• dience rose to applaud, it was perhaps un• their country is rising from its knees, gramme, 100 Great Britons, lists Joseph aware that the tune was the same as Bruce sticking its ag in the Arctic Circle, winning Stalin as one of the country’s ve all•time Springsteen’s Born in the USA. football games and chasing the Americans greats. Most Russians associate him not Konstantin Ernst, the boss of Russia’s out of Georgia. with repression and terror but with the main TV channel, which churns out na• power and respect which their country tionalistic, anti•American propaganda, once commanded. worshipped Francis Ford Coppola, an Pride before the fall 1 Our foreign policy is clear. It is a policy American lm•maker. These days he pro• Russia’s GDP, % change on year earlier of preserving peace and strengthening duces American•style blockbusters on a trade relations with all countriesðThose Russian theme and sells distribution rights 12 who want peace and seek a business rela• in Hollywood. 10 tionship with us will always nd our sup• The loudest anti•Americans in Russia 8 port. And those who try to attack our coun• are not the unreformed communists but 6 try will be dealt a deadly blow, to deter the well•dressed, English•speaking speech• 4 them from sticking their snouts into our writers from the perestroika era. The Krem• 2 + Soviet backyard. Stalin made this speech lin’s confrontation with the West is based 0 – in 1934, reecting on a recent world eco• not on di erences of ideology or economic 2 nomic crisis which, as he explained, systems but on the conviction that Russia 4 spread to credits and liquidity, turning up• is no di erent from America and that the 6 side down nancial and credit relation• West’s values are no stronger or better than 1997 99 2001 03 05 07 08* ships between countriesðAmidst this Russia’s.