ISSUE 4-2002
Александр Куранов Томаш Урбанец Зденка Вагнерова  & Александр Куранов
Vaclav Pravda Ярослав Шимов
Евгений Сергеев Jan Barta Игорь Некрасов
Димитрий Белошевский
Елена Серапионова
Zdenka Vagnerova

Disclaimer: The views and opinions expressed in the articles and/or discussions are those of the respective authors and do not necessarily reflect the official views or positions of the publisher.

By Vaclav Pravda | Economist, the Czech Republic | Issue 4, 2002

A Fraction of Reality

Method of a slight shock could be useful to get accustomed to the Russian environment, for one shall not take the Tverskyi boulevard in Moscow with its Versace, Gucci and Benetton shops for the real Russia. Let’s have a look at several articles from the Kommersant Daily (10/27/2001, 10/29/2001, 11/12/2001).
     “The city of Komsomolsk on Amur has been a witness to a burial ceremony of ?vor v zakone?1 Jevgenij Vasin, nicknamed Jam or Daddy, who was the actual ruler over the tremendous territory reaching from Yakutsk to Sakhalin in the past twenty years. He was a “strange” person. On one hand he was the founder of the biggest group of organized crime in the country called “Obscak”, on the other hand he was a fierce fighter against wild gangsterdom, police despotism, simply a wise and all-powerful Daddy. A whole epoch closed down with his death at the Far East.
     There were wreaths coming to the House of Culture named 30th Anniversary of the October (re: Great October Revolution, 1917) on the Soviet Street the whole day; the wreaths barely fitted into five trucks. There were at least three hundred of them, mainly presented by other groups of organized crime - groups from Moscow, Novosibirsk, Krasnodar, Sakhalin, Tumen, Yakutsk, Ussuriysk, Krasnoyarsk and Blagoveshchensk. Their bosses arrived by charter flights from the whole Russia, and they reserved all hotels in the city. The highest authorities among representatives of crime presented personalized wreaths with inscriptions: from Chasan, from Jura Krab (crab), from Stas of Magadan, from Trof and Shtaket, from Glot, from Juri the Fireman, from Misha the Silver… The wreaths completely filled the walls and even the stairs of the House of Culture. Portrait of the late one was drowning in flowers. A convoy of limousines and jeeps arrived to the entrance exactly at 11 a.m. Between 11 and 14, there was a never ending stream of people who came to say farewell to their Daddy; maybe the whole population of 300,000 citizens of Komsomolsk appeared. There was not a single police member around. Obscak members did not only take care of the funeral organization, they also looked after the traffic control on the Soviet Street, and provided necessary healthcare services. They carried Jem's body to a Chevrolet at 2 p.m., and drove him to a cemetery with a very strange name Start. Here he was buried by boys younger than 15 years - by the youngest Obscak members - and later an almost sky reaching Russian Orthodox Church cross was raised. (During the ceremony a following dialogue took place between the author of this article and one of the "vors". It perfectly describes the world of Russian crime, a world of its own. "What newspaper do you own," a "vor" called Banana asks the journalist. "I do not own any newspaper", answers the journalist, "I work for the Kommersant Daily." "And whom does it belong?" "It belongs to Boris Berezovski.”2 "That is a name or a nickname?" "That is a name," replies the journalist. "Well, I don't know any such ?vor?," says Banana after a bit of thinking.)
     Death of the Daddy also brought a question of his successor. "Vory v zakone" from Tyumen, Vladivostok and Moscow aspired to this post. After a session of Obscak members, Eduard Sachnov (Sachno) was appointed, since his candidacy was supported in a press interview by a commander of the regional Ministry of Justice, notes the author of the mentioned articles.

History and Morale
     As first Czechoslovak president, T.G. Masaryk, wrote, "countries are established and last upon ideas on which they were originated." Let's have a look at the origination of Russia. The principality of Moscow (accurately the principality of Vladimir and Suzdal) was the elementary pillar, to which further regions were affiliated later. These regions gradually associated into Russia were principalities of Novgorod, Tver, Pskov, Ryazan, later on joined Kazan, Astrakhan, Siberia, left shore of Ukraine, Kuban, Crimea, Poland, Finland, Caucasus, Baltic countries… . Historians analyzed that Russia grew by 90 km2 a day.
     While the Western world of Christianity, influenced by Greek individualism and Roman explanation of law, later also through Protestantism, was heading towards general acceptation and respect towards moral principles favorable to the development of economy (honoring obligations, observation of law, individual responsibility), the Orthodox Church had no such inner strength in Russian environment. The reasons were both internal (considering itself the only real Christian church and leveling itself to the divine status) and external (loss of independence from the Czar's rule).
     Those were the reasons that made the Orthodox Church a loyal servant of czardom, a servant inert to the problems of the country. A saying of that time that "a priest will never be able to teach anything else than to bow to a power"3 is a perfect description of the situation.
     “It was the period of the 16th century Moscow state, often viewed as the golden era of the “Holy Russia”, that was described by foreign travelers as the most disgusting and rotten place on the globe, as a tyrannical bureaucratic regime, and as an Eden for drunkards, adulterers and sodomites, not excluding the elite itself, meaning the priesthood.”4
     The Orthodox Church recommended sacrifice and abasement as a solution to problems of morality - "… the mentioned ways of solving spiritual and morality problems, e.g. it is necessary to suffer and one should not philosophize too much, together with honoring the icon of a "holy sinner", lead to the same thing. They lead to a total erasure of consciousness about jurisdiction, justice and responsibility for acts of an individual, values that formed Europe since the ancient Rome." /4/ Orthodox churches are a mirror reflection of the Church itself - it is just as dark and foul smelling.
     Petr Aven5 notes that "Orthodox Church in Russia never became conscience of the society and its moral mentor. It was Russian intelligentsia that took this position, but it did not succeed in clarification of absolute priority of moral values over external forms of the social life organization."
     The results of the assembly of the Holy Synod (03/07/2000) prove that the Orthodox Church did not change much. The Holy Synod issued a statement accusing the Ministry of Taxation of the Russian Federation of using infernal symbolic. According to Synod, forms issued by the Ministry include depiction of the number 666, which stands for the Antichrist's number. At the same session, Synod expressed its gratitude and respect to the Russian Army for its activities in the Chechnya campaign.6
     Morality and social conscience has been formed hostile against economics and entrepreneurial spirit. Long before 1917 only those "who joined the Army, judicial sphere or the ranks of government officials" /3/ enjoyed all due respect. We have to add those who in one way or another worked for the government. A look into Russian classical literature shows how were the people of economy evaluated: a disgusting personality of a businessman (Adam Smith, defendant of theories) in Crime and Punishment; Alena Ivanovna from the same book, with her activities in financial services, whose life "is not worth more in the society than the life of a lice, cockroach, maybe it is not even worth that much." The same fate accompanied businessmen in Chekhov's novels (Lopakhin), or tradesmen in Gogol's pieces (merchants in The Inspector General). But we have to say that hatred towards and contempt of the world of economy is not a Russian specific, it is rather an attribute of intellectuals. It was the Bible that laid foundations in this direction.

     Besides the Orthodox Church, it was also the characteristic of the autocratic and later totalitarian state that had enormous influence on the creation of morale and relationship towards laws. "Russian Orthodoxy - Autocracy - Patriotism" was the slogan of Russia. While patriotism was reduced to loyalty and obedience to autocracy /3/ and Orthodox Church was a loyal servant of czardom, then the whole ideology could have been reduced to one symbol only, to autocracy. But that is not the end of it, because the whole system was represented by one individual person, by czar. For Russian czar to say "I am the state" would be more fitting than in the often-cited French example. "Czar and bureaucratic apparatus (similarly the communist party and its leader later on) were the superpower in Russia. They concentrated all the legislation, executive and judicial powers in their hands. Czar completely ruled over the intelligence office, the supreme government bodies - Council of the Empire, Senate and the Holy Synod, and even over the Ministerial Council." The penal code from the 19th century quite logically includes "lack of respect towards the state authority, its weakening, undermining of the state and even raising doubts about intentions of the state" as an act of crime. /3, pg. 261 and pg. 277/
     "It is difficult to prove comments of those who said that out of 100 rubles collected in taxes only 30 rubles made it to the government treasury. But according to the number of investigated cases one could think that such comments were not overestimating. Accepting bribes and making living while serving the czar was only a peak of an iceberg. It is all perfectly described by an alleged meeting of Czar Peter the Great with General-Prosecutor Pavel Yaguzhinski. The czar ordered Yaguzhinski to issue the following statute: "Those who steal what is worth a sum sufficient for buying a rope, will be hanged." "Your Excellence," answered allegedly Yaguzhinski, "do you really want to be an Emperor without servants and retainers? We all steal. There is just the difference that some steal more and in a more professional way than others." /3, pg. 112/
     From the moral point of view it is obvious that absence of morality norms described above and the characteristics of functioning of an autocratic (totalitarian) state lead to a general disrespect towards laws. The power of bureaucracy based on these principles must then automatically borne widespread corruption and bribery. One then easily understands complaints of Czar Alexander I. (1801 - 1825): "They would steal even my battleships, if they knew where to hide them; they would even steal my teeth, if they knew how to pull them out of my mouth without waking me up." /3, pg. 226/ The same principles apply in these days, when illegal tax evasions are considered normal. Corruption and bribery concerns all levels of state apparatus, starting from traffic police. But it does not mean only government employees - allegedly Duma deputies and whole deputy fractions have their price lists.7 "Our society," to cite P. Aven again, "is fully loyal towards bribes. A bribe, to remind of Berdajev, is a pillar of Russian life, its elementary cell."
     “One can write about possibility to connect principles of European civilization with “advantages” of autocracy,” author comments /3/ the Great Instruction to the Legislative Commission of 1767 of Catherine the Great, which was an attempt to legalize elementary civic and human rights within autocracy. “But it is completely false expectation to believe in application of individual rights and freedom in a system that is based on suppression of these.” That applies both to czardom and bolshevism as well. It was Mikhail Gorbachev to have the last experience of incompatibility of totalitarianism and civil rights – improvement in the area of human rights led to a final collapse of party-autocratic system.
     The following note shall serve as a perfect example of redundancy of government apparatus to an almost absurd level that burdens the whole economy with its system of constant redistribution. Russian police forces employ approximately 1.6 million persons throughout the Russian territory; that is more than 2% of economically active population. To compare, Japan with its 115 million population has approximately 220 thousand policemen, which is eight times less than Russia. Moscow itself has police force of 150 thousand, which is an enormous number compared to the numbers employed in other capital cities of the world. Magazine Novaya Gazeta states 26.812 policemen for London, 36.673 for Tokyo and 40.000 for New York. Such a concept of state and its power has its moral and economic consequences.

     Activities of the state in the sphere of economy were a strong influence during the first years of capitalism, the state “owned petroleum fields, gold and coal mines, two thirds of the railway network, thousands of factories, millions of hectares of land … . Private industry was to a great level dependent on the state, on its support, loans and grants. Such a situation was of course a strong stimulus for corruption and bribery, for bribe can exist only where the state and its officials are. No redistribution, no state and its officials – no bribes.
     Foundation INDEM8 carried out a research on the “corruption market”, and its results were labeled by Transparency International Russia as the first valuable research on corruption structure”.

The research brought the following conclusions:

There is no white or black economy in Russia. The whole economy is a shadow economy. It is not possible to change the situation within the next 10 to 15 years. The extent of shadow economy does not decrease, quite on the contrary, it keeps growing.

Corruption services market
State bodies Average amount of bribe (thousands of USD) Percentage of the corruption market
Non-financial institutions, supervisory bodies 2.532 34.6
Fiscal and tax institutions 5.830 22.0
License institutions 4.686 34.2
Customs 4.024 4.9
Police, judiciary 0.811 4.0
Other 0.525 0.3

     Supervisory institutions of a non-financial character represent the highest level of corruption. It is mainly the fire protection, sanitary, epidemiological and construction supervision that occupy 34.6 % of the corruption market, followed by fiscal, tax and license institutions. According to experts, such picture is typical for SME. In the segment of large enterprises a higher amount of bribes for police, special services and judiciary is typical; less money in bribes goes to non-financial institutions.
     The corruption market in the sphere of community services amounts to USD 2.79 billion. USD 603 million in bribes goes to “free-of-charge” healthcare; entrance exam committees at universities and colleges receive USD 449.4 million, traffic police USD 368.4 million and courts USD 274.5 million.
     Businessmen spend on bribes even more, USD 33.5 billion. Structure of the bribes is following: 55.4% of bribes goes to executive bodies, 17.2 to police, 13.2 to courts, 14.2 to legislators. 80% of those offering bribes admit that they initiate the bribe offer. It is easy to understand, when the effectiveness of such bribe is 98%.
     The results of this research cohere to findings of Transparency International Russia, whose numbers show that Russia takes the first place in bribery and corruption among 21 countries included in such examination. In total around USD 37 billion is redistributed in bribes, which makes almost 12% of Russian GDP.
     The absence of morality imperatives could be, as it seems, substituted by codified law. Quite on the contrary – Goldman9 gives an example of Soviet legislation concerning the environment protection. This legislation was probably one of the strictest in the world, but it had no influence over the general disrespect towards nature and environmental devastation that can hardly be compared to anything similar in the world. A similar example is the level of legislation on foreign investment and its results - the amount of investment per capita reaches 1/20 of the amount reached in Hungary or 1/16 of the Czech Republic. The legislation in Hungary is definitely not twenty times better the Russian legislation, it might not be even twice better. In reality are we touching the topic of morality rules absence again. "Bureaucratic traditions, formed by decades of corruption which became a norm of entrepreneur's life, are a strong obstruction to income of foreign investment."10 The truth is probably somewhere with P. Aven who notes that "only development of legislation framework and provision for fulfillment of obligatory duties will not solve the situation. The laws work only in case when they codify norms generally accepted in society. It is premature to rely on legislation if the judge himself is not sure whether the debtor is obliged to pay the debts back."


Demographic Development
     Results of economic and political reforms can be closer described by development of demography situation that reflects political and economic situation and living standards together with subjective expectation of future development. Official statistics for the years 1992 – 1998 show that the number of Russian Federation citizens decreased by almost 2 million, number of legal and illegal emigrants reached approximately 8 to 10 million, and number of children unborn because of the existing crisis situation is estimated at 5.5 million. Total direct and indirect “losses” of citizens reach at least 15.5 million during the reform years. This trend continued in the following years – number of citizens dropped by 680 thousand in 2000 and by further 780 thousand in 2001. Continuation of the stagnation or crisis would, according to estimates, lead to further decrease by 40 million citizens off the current total of 144 million within the next twenty years. But again, this is only estimate, since the statistical headcount was not concluded yet.

     Slump of economic activities in the years 1987 to 1998 resulted in lower air pollution. Nevertheless 72% of cities (population of 60.6 million) with environment monitoring stations report one or more substances in the air that exceed the Maximum permitted volume. High level of polluted air is registered in cities that have in total 30 million inhabitants – harmful substances in the air exceed the maximum permitted volume more than ten times.
     Losses of potable water in the whole country reach 3.3 km3, more than 14% of water is lost in the distribution system. Such leakage results in high ground humidity in the cities. In Moscow, around 40% of the underground are damp, in other cities the level is between 70 to 80%. The volume of disposal water refined in accordance with specific norms reached 2.5 km3, which is only 10% of disposal waters that should go through the refinery process. Quality of water from most of the water resources does not improve, it rather worsens in spite of decrease in industrial production. Water in the principal Russian rivers – Volga, Don, Kuban, Yenisey, Ob, Lena, Petshora – is defined as “polluted”. Their major tributaries – Oka, Kama, Tom, Irtysh, Tobol, Miassa, Iseta and Tura – are labeled as “very polluted”. River Ural joins the category of very polluted, river North Dvina belongs to both categories. Situation in the Sea of Azov partially improved, but still the volume of Maximum permitted volume in metals (iron, cadmium, nickel) is exceeded 15 to 30 times, with other substances it is 4 to 11 times. The fundamental source of pollution in Caspian Sea are the incoming rivers and waste disposal of industrial companies. Pollution level of Baltic Sea remains on the level from previous years, higher volume of oil substances (4.8 times higher the limit), phenols and heavy metals is registered in Barents Sea. Arctic seas are polluted at river estuaries. Seas of the Far East (Okhotsk sea, Japan sea, area around Sakhalin) are also polluted; only levels in the White Sea (Beloye More) do not exceed the Maximum permitted volume.

     Official statistics for 1998 states decrease of agricultural land by 31% (207.3 million hectares). Deformed economic relationships in agriculture lead to adverse anthropogenic impact on the quality of soil that result in continuing sprout development, erosion and other unfavorable phenomena.
     As a result of industrial depression, mining of minerals significantly dropped in comparison with the beginning of 90’s, starting by 17% in iron ore to 88% in wolfram. This trend, positive from the environmental point of view, is unfortunately accompanied by decrease in volume of reconnaissance geological activities. The condition of mineral processing plants, that were mainly built 40 to 50 years ago, is also alarming. To add, nobody wants to take responsibility for the situation in abandoned coal mines. 1.1 billion tones of toxic substances is deposited at various waste disposals and other places. Annual volume of toxic wastes is 80 million tones, and only 45% of this volume is “neutralized”.
     Technical grade of pipelines does not change. In 1998, there were 71 breakdowns at the long distance pipelines, and sixty thousand such breakdowns occurred at local pipelines. It is often noted that major part of the income from export of minerals actually represents postponed expenses needed for liquidation of environmental damages at present and in the future.
     Degradation processes continue in the flora sphere as well. Flora is damaged by industrial and construction wastes, by household wastes; large areas are polluted around railway network, parking places and cargo rest stops. Accelerated pace of anthropogenic transformation of natural ecosystems lead to decrease of vegetal resources, to disappearance of many kinds of plants, to limitation of biological diversity. The Caspian Sea region faces real degradation of its flora. Moors grow larger in the regions of Kalmyk, Stavropol and Rostov. The number of plants requiring protection is now 193.
     Fundamental source of radioactive pollution are radioactive products from nuclear tests and from nuclear breakdowns in individual regions (especially the Chernobyl one in 1986). Soil radioactively contaminated by Chernobyl can be detected for example in five territories of Bryansk region. 2.5 million hectares of forest in Altai were affected by open air nuclear tests. Aral Sea, Kola Peninsula and all coal basins and forests in Ukraine are considered as totally devastated.
     Prognosis of further development is a matter for environmental specialists, but from the economic point of view it can be estimated that preservation or even gradual improvement of environment would require investments worth billions of dollars. Current investments are steered into projects with rapid and strong profit chances. Investments into environment are presented by extended investment horizon with dispersed and complicated detection of asset for the society and an individual.
     To create demand for environmental investments, the following conditions shall be fulfilled:

1. reaching certain level of elementary citizen’s needs saturation
2. saturation of these needs shall be followed by social demand of better environment conditions presented by pressure of individuals and the state towards those who create pollution
3. long-term stability of social environment
Russia does not meet any of these requirements right now, and thus one can hardly expect any investments into this area. Supposedly the development will be following:
4. improvement of the environment will be reached only in local cases
5. quality of the environment as a complex will only stagnate in the better case
6. quality of the environment can reach catastrophic levels in regional cases and within a limited time framework

Institutions and Organizations11
     Legislative framework went during the reform years through many fundamental changes that improved the situation significantly; the framework introduced majority of principal elements necessary for development of market economy and pluralist society. At the same time, legislation remains on the primitive reform level in many spheres. That concerns series of budget chapters, sphere of fiscal federalism with its chaotic redistribution processes; in a wider context it concerns economic relationship between the center, federation entities and its regions.
     Informal economic institutions do not find suitable environment for their cultivation, ethical behavior often does not pay back, and behavioral patterns originated in the Soviet past are nonconformist from the market point of view. Quite on the contrary, pre-capitalist economic relationships characterized as a monetary free economy is doing well in the environment of legislative impotency.
     Formal economic institutions – stock exchanges, Central Bank (CB), The Federal Commission for the Securities Market (FCSM) have sufficient legislation support, Central Bank even enjoys reasonable level of independence. But these institutions are affected by negative economic events they cannot influence (stock exchange), or they experience politico-ideologically motivated attacks on their independence (CB, FCSM). Banking system is weak and inefficient, but after the 1998 crisis it has been at least brought to a level of ordinary functioning, even thought it is constantly modified by local informal institutions. In general, it does not present the major problem of Russian economy.

The State
     State is defined as an institution that provides public services, e.g. national defense, internal security, environment protection and also services, whose character is not fully public, but are traditionally provided (in Russia a major portion of these) by the state, e.g. educational system and healthcare services.
     Military forces in the USSR were both a reality and a myth at the same time, and the same probably applies to current Russian military. One simple comparison makes the situation clear: defense budget in Russia is USD 9.01 billion, which is 2.37% of the same budget in the U.S.12
     The situation in the military can also be described by other evidence, for example effectiveness of its operations during the first and second phases of Chechnya war, or by mass desertions (lately it was desertion of 53 conscripts who escaped from their unit to seek protection of a military prosecutor; Izvestija, Oct. 11, 2002). It seems that physical and psychological abuse of soldiers became a commonplace. Sale of weaponry, originally approved by President Yeltsin’s decree as a sale of “military weaponry surpluses”, is heavily misused by officers, but also by non-commissioned officers, warrant officers and other servicemen.
     Situation in internal security can also be presented by giving several numbers.13 There are 31 – 32 persons murdered in Russia per 100.000 inhabitants. The same index in the U.S. is 5.9, in England 0.9, in Japan 0.7. There are 1 million prisoners in Russian jails. 1 million children are on the streets – those children are a natural base for future crime development. In the year 2001, 1.4 million minors were brought to police stations for violation of law, which is twice the number what it was ten years ago. Total of 1.8 million crimes were committed in 1990, in 2001 it was already 3 million crimes; out of this number 55,700 were murders or murder attempts. To compare, Italy had 2,400 such crimes in the same year.
     Research institute of the Ministry of Interior states that 60% of victims of serious crimes do not report to police, so the real numbers can be a lot higher. Trust in police is minimal – for example only 3 to 4% citizens have confidence in police in the “crime capital”, in St. Petersburg. Situation in traffic accidents is just as alarming. On every 100 persons involved in traffic accidents, there are 2 casualties in the U.S., 1 in Great Britain, and 14 in Russia.
     The so-called free-of-charge healthcare system suffers from lack of funds, low salaries and old equipment. On the other hand, there are a few top class facilities.
     Level of valetudinarianism increased within the past ten years by 15%, the average life longitude is 59.8 years for men and 72 years for women. The number of disabled persons increased three times. Epidemiological situation also worsened in the past few years. Significant changes were registered in the overall health status of citizens, especially children, in North, North-Western, Ural, West-Siberian and East-Siberian regions. Chronic forms of environmentally dependent pathology in children are a cause of various illnesses. Polluted atmosphere is from 24 to 56% (according to regions) responsible for respiratory problems and allergies with children. The health situation of young generation from newborns to draftees is very bad. Only one out of three newborns is completely healthy, with conscripts it is 13% (in this case the reality is artificially exaggerated for well-known reasons).
     Prisons witness expansion of tuberculosis epidemic. Society also faces strong drug addiction (3 million addicts); thousand of people disappear annually without a trace. The following statistical term sounds definitely quaint, since it probably does not have an equivalent expression anywhere in the world. It is called “poisoned by spirits”, and according to official statistics 34,300 persons died on this cause in the period of January to November 2001. (Source – Social and economic situation in Russia, Goskomstat, 2001)
     There were 35.4 suicidal attempts per 100.000 inhabitants registered in Russia in 1998, the world average is 16 attempts per 100.000.14 Since 1996, the percentage of registered neurosis problems increased by 26%, psychosis by 17.9% and psychosomatic problems by 91%. Total of 5 million psychically or neurally disordered. The head psychotherapist of the Ministry of Health even states astounding number of 40 million Russian citizens that suffer from psychical or neural disorders. (Kommersant, Oct. 14, 2002)
     Tertiary education is just as free-of-charge as is the healthcare. Nationwide press published “price lists” with amounts necessary for admission to various colleges and universities. The price varies according to subject field and prestige of an individual institution; also its location, whether it is in Moscow or in regions, plays its role. The highest “fees” are for admission to the law faculty of Moscow University, which ironically is a place that should educate specialists oriented at persecution of crime and corruption.
     Another typical fragment of mosaic of post-Soviet thinking is the fact that almost all Russian students are convinced that they should be paid by the government for their studies. That meaning that all students should automatically receive a scholarship. There are even occasional student demonstrations objecting to low scholarships.

     Russian liberal intellectuals are of the opinion, which we consider to be realistic, that Vladimir Putin’s appointment to the presidential post started to create a completely new political situation. His presidential term can be separated into two parts. The first stage was presented by consolidation of Kremlin’s power, which started by creation of federal circuits and reformation of the Federation Council (Upper House of the Parliament), followed by limitation of autonomy of several key political institutes and by creation of comfortable majority in both Parliament houses. The government became a purely technical body, Parliament lost its influence, the courts and prosecutor offices became fully loyal towards the Kremlin. Many laws and government solutions can be considered positive, and the state bodies are easier to govern, but these bodies are not able to work in an automatic regime.

     Spring 2001 became a starting point of another stage – series of institutional changes in economy, legislation and social sphere. To be concrete, it concerns reforms of tax system, budget, judiciary, retirement system, labor legislation, accommodation, natural monopoly etc. It is also obvious that the Kremlin is willing to cooperate with loyal businessmen and corporate civic associations. Since autumn 2001 there are attempts to create new relationships with the West. Such orientation is not viewed unambiguously, especially among the military forces. What is visible is the attempt to rule over the strategic economic structures by appointment of loyal people. These structures include for example Gazprom, Ministry of Railway Transport, producer of diamonds ALROSA, Ministry for Atomic Energy, customs and others.
     Putin could be compared to authoritarian reformer Peter I. It is good to praise Putin for economic reforms and for the orientation towards West, but it is the “technology” of his modernization that causes doubts. Europe is presented not only by efficiency of its economy, but also by advanced parliamentarian system, by political plurality, by observance of human rights and civic control of power. Russian president lacks such comprehension of Europe. Unfortunately the strongest parallel between Putin and Peter I. is the peculiar personnel policy. Selection of people on the basis of their personal loyalty and creation of loyal corporations is definitely not a European approach.
     Putin is a reformer in a traditional Russian way. There are three elementary pillars of his reforms: they come from the top down, they rely on Western sources, and they preserve power in the hands of an individual. Reforms are a chance and a threat at the same time. The chance lies in revived economic reforms and in orientation towards the West. The threat is in president’s attempt to transform the country without participation of the society. Such transformation requires liberalization of an individual, partnership of power and society. Reforms in their current shape suit bureaucrats and oligarchs, they preserve stagnation and parasite structures.
     Inclination towards the West is evoked by mutual interests, but these interests are unstable and have their own limits. In reality, Russia could be integrated into the Western system only on the basis of common values, and that would require a change of domestic life rules. In the meantime, Russian elite gouges the West and issues an invoice for every forthcoming step the West makes. That implies that Russian ruling class is not ready to view cooperation with the West as something fitting Russian national interests.
     Putin is viewed as evolutionist, but that is visible more on the international scene; at home his acts are characterized by uncertainty and suspicion. That is why he prefers to have only well known people around himself. He does not like policy of conflicts. He is forming his own instinct of power, and power builds harshness. The position of an arbiter who tries not to break balanced situation has a disadvantage, because such person sooner or later becomes a hostage of a certain clans or of shadow relationships. The only way how to avoid this is to look for support not at groups, but at institutions, and in necessary cases to use support of the whole society. The whole paradox is in the fact that Russian society is more willing and ready for deep transformation than its ruling class.
     Out of six nationwide TV channels, five are more or less controlled by Kremlin. There are tendencies to create a corporate state. Various social groups are transformed into loyal corporations on the basis of “upper sphere initiative”. The following groups were originated in accordance with the above mentioned approach: Mediasojuz for journalists, state committee for regional leaders, association of businessmen and industrialists for oligarchs, OPORA for SME, and so called Civic Forum was an attempt to unite noncommercial social associations into controllable corporation. Political party system is constructed with the same logic. This is series of steps aimed directly against democracy. To add, the power was taken away from regions, including their control over budgetary income and expenses. Such tendencies towards autocracy and centralization are not aroused by desire of personal power, but rather by mistrust in efficiency of democracy and federalism. The president is worried by chaos elicited in Jeltsin’s times, and assumes that only concentration of power in individual hands can get his country out of crisis. Putin is a technologist, a manager reacting to general issues, and he is not a bad manager in this view. But he does not have a long term strategy for development of the country. That is also reason why he has to use projects of one group here, projects of another group there, and in this way he becomes dependent on economy liberals in one sphere and on representatives of force structures in another sphere.
     Gleb Pavlovsky came already in the year 2000 with a parallel term to the term shadow economy – Russian shadow policy. Such policy is based on specific political market created by informal political trade that does not face any sanctions by the Constitution or legislation in general. Directional center of Soviet kind was destroyed by democratic changes, but the infrastructure of regional administration remained untouched. Regional administrative centers became independent subjects, and entered a stage of “constant trade with the Center on one side and with other regional centers on the other side”. As Gleb Pavlovsky notes, “such processes resulted in transition of the whole country into one giant market, where political solutions are in fact for sale and purchase”. That is one aspect of shadow political market. Another result is that the judicial power ceased to exist because of the weakness of central powers, or to be more specific, it has been “privatized” by two groups of owners – by regional powers and by shadow political groups. These shadow political groups (it is difficult to guess why are they in Russia called political oligarchs) are capable of influencing decisions of the center. “We have witnessed over the past ten years in Russia a systematic aggression of large business entities (or rather of large clans – note of the author) not at their own markets, not at markets expecting competition on the level of products and services, but aggression on political markets.”
     Another specific phenomenon is the inability of the center “to at least inform about decisions made in other ways than through the means of mass communication”. Common means of political communication are missing, and are substituted by means of mass communication. The so-called means of independent mass information are part of the problem. Very seldom do they offer news or analyses, “in reality they only publish news releases of one or another group of political interests (let’s add again the word clans; author).” Existence of political market also calls for protection of political interest centers. Each one of them has actually built its own army, organized as a security service, that serves as a protection from the market and from the influence and control of the Constitution.15
     At present it seems that common democratic procedures like elections completely failed on the regional level. It is constantly more clear that it is not a question of elections, but rather a question of fight between clans. Usually the struggle goes between the Kremlin group and a regional prominent personality that is often accompanied by or even presented by a regional criminal figure. Electoral votes are bought, just as are bought electoral committees and courts. There are many examples of this kind from the year 2002. Krasnoyarsk region, twice the size of France, has a prominent political personality in a criminal Bykov. In industrial Nizhni Novgorod at least 20% of the population would give their votes to “vor v zakone” Klementyev. In the region of Nizhni Novgorod, 30% of electors vote “against everybody”, meaning they do not choose any candidate from the ballot and vote against all of them; in Krasnoyarsk region the elections were simply annulled by local electoral committee because of inconvenient results.

Public Opinion
     Position of the president is excellent from the public opinion point of view. In August 2002 he enjoyed 72% confidence, while there is almost no confidence in the government, Parliament, political parties and labor unions (they show themselves only during the 1st of May parades). The same applies to mass media, they reach only 6% support by citizens; paradoxically, majority of mass media is pro-presidentially oriented. Only Orthodox Church with its 66% support from respondents can compete the president. As we tried to explain, both these institutions have historically and ideologically many things in common. To put it differently, Russian citizens do not trust democratic institutions, they trust one person – supported by Orthodox Church. It is difficult to imagine an environment more suitable for a dictatorship.

     Besides, Russian public opinion does not play any role in politics, neither does it in economy. First Russian president Yeltsin ruled without any problems, and he was even reelected, even though he entered his last presidential elections with 6% support of citizens. Later his “popularity” dropped to a mere 2%, but these facts had no impact on his power.
     What is important is the “public opinion” of a relatively numerous but from national point of view a narrow class of middle and senior representatives of military and police, important ministries, regional elite and similar structures. To simplify, president can appoint new defense minister three times a week, but he cannot replace the whole military commanding structure. It is because of these structures why the president pretends to act in a decisive and strict way, especially if it concerns foreign policy. Dependency of the president on the mentioned structures can be described by results of a control carried out by Office of the President that was aimed at fulfillment of presidential decrees. It noted that the decrees were not carried out “on time and in a correct way” at many ministries. President and his loyal ministers can issue orders, but it is up to the anonymous apparatus to take charge of things.
     It is strange that even the “public opinion” of business elite is actually unconcerned. Representatives of business are once or twice a year admitted to the president, and they play a role of supplicants at these meetings. This example shows again that Russian environment will not automatically accept effective standardized policy or economic rules.
     That applies to party policy as well. With the exception of communists and maybe also of Union of rightist forces, there are actually no political parties that would represent economic and political interests of certain classes of the population. It is typical that existing “parties” have no political platform, or their program is very brief and vague. The consequence and result are in a logical context: while these parties actually do not represent anybody, they cannot have a concrete political platform. In such environment the public opinion is not important. So called political parties are in reality clans, and so there is a struggle between these clans, it is not a competition of political powers. But there are no specific, let alone democratic rules for such a struggle.

To conclude:

7. Vladimir Putin acts as a liberal in the sphere of economy, he developed and accelerated reforms. In this process he is assisted by easy passage of laws through the Parliament. Large business entities are loyal towards him, but as a payoff they require protection from the bureaucratic despotism – e.g. from the state that Putin represents.
8. Putin does not face any real political opposition, but he does not rely on democratic institutions, but on loyal allies. He does not consider the ruling structures to be democratic, but at the same time he does no do anything to create them, or maybe he does not even believe in democracy. This he shows by appointment of loyal people to various positions. Russian president does not have an Office of the President around him, he rather has a Court with all its necessary features. The power of individuals is not derived from their formally appointed status, but from their membership in clans. The power of clans is deduced from their affinity with the president. The second most powerful person in the country is the Head of presidential administration, even though Russian Constitution does not mention any such official. Generally speaking, most of the key senior officials are members of a wide presidential Court. Who does not belong to this court, cannot rely almost on anything.
9. In general, Putin’s rule could be assessed, with eyes half closed16, as a rule of enlightened, relatively liberal pretender for autocracy. There is less political freedom during Putin’s rule in Russia, but the country’s economy is more liberal.

     This short conclusion should serve as an attempt to describe the fundamental problem of “autocratic liberalism” system; a system that is not capable of adequate reaction to economic (and also political) turbulence. If such turbulence does not occur, the system can present itself as an ideal example of development. But it is the presence of democratic institutions that enable survival and regeneration of development forces. When these institutions are missing, the autocratic power looks for those responsible for such disruptions, finds the reason in excessive liberalism of its own rule, and as a result suppresses civil liberties. Nothing, no democratic institution can prevent it to happen. The mentioned process does not solve any problems, it rather gets the country into cycles of similar situations. Autocratic liberalism gives birth to autocratic autocracy.
     For Vladimir Putin to be able to push liberal reforms through from top down, he must prefer use of power to liberalism. Which is the basis of paradox of such act – it almost necessarily leads to autocracy without liberalism.


     According to Russian statistical office, Russia reaches with the purchase power parity 5.41 rubles/USD its GPD of USD 6,067 per capita, which is 18% of the U.S. level, and gives Russia rank no. 40 in the world. Let us only remark that these official numbers are exaggerated slightly, in the view of the Economist, or rather a lot, in our opinion. According to the Economist, the purchase power parity is around 7 rubles/USD, but the Big Mac Index17, published in the same magazine, mentions at least 15.8 rubles/USD. That would of course give Russia a totally different rank. Russian nominal GPD was estimated in 2001 at approximately USD 310 billion, which is USD 2,137 per capita – that makes it about 6% of the U.S. level.

Recent Development
     Development of Russian economy after the 1998 crisis could be divided into three stages. The first period was accompanied by low rate of ruble, artificially lowered tariffs for services of so called natural monopolies (oil and gas mining, railway transport), and by rapid decrease of value of earnings. This all lead to low costs, and it supported the growth of profitability and investments. Second period was characterized by growing dynamics of global costs of Russian export commodities, and by stabilization of social and political situation as a consequence of smooth presidential exchange and succession. Economy was influenced by growing demand as a result of growing gross salary. In the third period, stronger ruble had its impact on growing import, which showed insufficient competitiveness of Russian products. Low demand for domestic products worsened financial situation of national companies, it lowered the amount of investments, and the growing gross income of citizens increased the costs. Towards the end of the year 2000 the period of direct use of advantages of post-crisis economy was over. The structure of growth is still unfavorable, the sphere of investments keeps non-proportionally high share of investment into fuels, energy and transport (49% of the total in 2001). Investments into the complex of fuel and energy industry increased for example by 23%, in oil mining industry itself by 64.5%, while the industry in general witnessed growth only by 13%. Exceptional GDP growth in 2000 (8.6%) was from 35% created by favorable situation on external markets. GDP had even stronger influence as an impulse for further growth.

Russian Economy, Its Peculiarities and Specifics
     Frequent analyses of Russian economy are trying to find fundamental reasons of its slow-footedness in transformation into more standard market conditions. Analysts often list series of problems, starting with the existence of barter to the evasion of capital, and often one of these is labeled as the main reason. The real core of this issue must be found in the analysis of what can be described as “economy of mutual mistrust”. That brings us to the question why did it appear, why does such economy of mutual mistrust exist. A citizen does not trust another citizen; citizen has no confidence in state and vice versa; and the same applies for relationship between businessmen, state and other entities. Such mistrust in Russia shows even at a commonplace act of buying petrol at petrol stations. A customer must pay first at a counter of the station’s office, and only then it is possible to fill in the fuel. Typical example was recent census. The whole event collapsed because of generally existing mistrust – many citizens simply did not let the census officers into their apartments. Such mistrust is not raised only by fears of misuse of this event by criminal structures, but also by suspicion that the state might misuse provided data. Absence of more than 5% of population makes the census more or less worthless.18

Economy of Mutual Mistrust
     This kind of economy is ineffective, which in economy speech could be described that high transaction costs shift the whole economy performance deep below the optimum level. Or that the mistrust is costly, and such economy is inefficient. Nature of effective economies is, on the contrary, based on cooperation.
     Total production costs per one output unit are extremely high in Russia in comparison to other countries. Analysis of Russian companies’ production shows that their competitiveness is at a level “below average”; only the chemical and petrochemical industries reach the average. Out of five fundamental economic complexes – raw materials, materials, machinery, consumer and military-industrial – the consumer complex is the most vulnerable. Quality of products is a lot worse compared to foreign products in the following areas: electronics, machinery in the light industry, food processing and agriculture industry production, in computer industry, and in long term consumption products.
     Even though there is no market generation of prices for several elementary products, Russian economy was acknowledged by the EU and the U.S. as a market economy. That does not change anything on the economic basis of the whole thing. The prices of oil, gas, energy, metals, corn and sugar are set in administrative way, which in result deforms the whole economy.
     Continuing centralization of political power, strengthening of the state’s role, and centralization of regional administration is accompanied by continuing economic centralization. While the first features are pursued deliberately then the economic centralization is rather a consequence of unintended impact, it is more or less spontaneous. While political concentration of power can result in generally beneficial outcome, then economic concentration can be beneficial only if it realizes through natural way. Relatively fresh tendency towards concentration and monopolization is, in our opinion, one of the fundamental factors that form specifics of Russian economy.
     One of the first specifics we want to mention is the higher level of risk factor in the national economic environment. The already described socio-psychological, historical and political factors created what we call “economy of general mistrust” that leads to reduction of set of profitable investment opportunities to a smaller subset of projects, where the risk is compensated by prospective profit. Naturally there is only limited number of these opportunities in each economy, and this fact leads to redirection of otherwise natural investment channels and to creation of different economy structure; such structure is not what it would be if it were formed by investments influenced by common level of risk.
     Another factor that does not need any comment is current objective and institutional imperfection of economic reforms. This imperfection is partially based on matter of fact reasons.
     Third, relatively new phenomenon is the tendency leading to concentration and centralization of economy. Concentration tendencies can arise in an administrative way (socialistic way), in an Asian way (in fact Korean way), or in a market liberal way. Administrative, socialistic way is characterized by state regulation and redistribution of monetary and investment flows through budgetary means; in Asian, or Korean way, the monetary and investment flow goes only to several sectors, and from here they expand to other sectors, mainly in a horizontal direction. The third option is process of common investment procedures by means of investment loans and capital market.
     Russian economy is a witness to remains, and even development of socialistic tendencies. Relatively new (after 1998) is the expansion of Korean way that can lead into division of the whole economy to 15 - 20 holdings controlling the whole economy. Structure of this kind leads in reality to liquidation of competitors, deformation of development, and to concentration of economic power with all its unavoidable political consequences.
     Political centralization and limitation of power of regions corresponds with stronger role of the state in economy. Typical example is the expansion of state companies in petrochemical industry. Another form of nationalization is creation of joint ventures of state owned and partially private companies (for example Gazprom and Rosneft). The role of the state in banking sphere is also intense: the state owns 51% shares in Sberbanka, which is actually a banking monopoly of its kind, in further 22 banks the state owns over 50% of shares, and it is also present in various forms in further 83 banks.
     To add, there are several very specific “companies”, like the mysterious organization called Executive unit of Russian Federation presidential administration (Kremlin’s economy administration), which is a non-transparent giant with over 100,000 employees and a property value estimated at several billion dollars. Similar entrepreneurial giant is the Moscow City Hall’s company officially called the Government of Moscow. Equivalent “entrepreneurial subjects” could probably be found at governors’ offices in all regions of Russia. Altogether these constitute a very special and extensive branch, where in fact the state property serves to central or local clans, and where completely different rules apply for their business activities.
     Concentration and strengthening of the state’s role goes hand in hand with monopolization of economy. Comparison with the U.S economy shows that the level of control of its own branch, common for one Russian producer, is not reached in most of the cases even by four major American producers together. There are many cases of total branch monopoly. Monopolistic companies have, as always and everywhere, very high production costs and they have monopolistic high prices.
     Russian natural monopolies in reality are state or partially state owned companies; some of them are even called ministries (Ministry of Railway Transport), and they are a natural monopoly only in one segment of its activities.19
     Price deformation presented by administratively defined market prices concerns, as was mentioned, oil, gas, energy, metals, grain, sugar and railway transportation tariffs. Such deformation is reflected in the whole economy. While 1.000 m3 of gas is sold to foreign markets for USD 100, then the domestic market price is USD 14; the situation is very similar with the price of energy. Industries with high power consumption are strongly subsidized in this way, and they can sell on foreign markets for global prices. Nonferrous metallurgy can easily compete on global markets, and exports 85% of its production.
     State and joint-state monopolies create enormous out-of-market zone, and it is up to the state to solve problems appearing between individual subjects in this zone. That again makes the environment fitting for gratuitousness and corruption, but not for economic effectiveness.
     It is typical for the Asian way of development to spend years without investing to crucial activities of the company, and to invest rather to branches that have nothing, or almost nothing in common with the crucial sphere. That leads to cumulating of various assets, for example news media, transportation companies, hotels, sanatoriums, banks, security services, agricultural and food processing companies, car companies and other facilities.20
     There is continuing and growing distance between export and non-export branches that can be traced by investment flows in economy. While non-export companies barely keep alive, the exporting ones have financial surplus. Oil company Surgutneftegaz currently has “spare” USD 4 billion. These petrodollars then freely expand in the mentioned Asian way into various branches and regions.

We can briefly sum up.

10. Russian so-called natural monopolies are not natural monopolies from economic point of view.
11. A distinctly monopolistic structure prevails in the economy. Approximately only 20% of the environment is based on market relationships.
12. The economy is further deformed by regulatory prices of elementary commodities.
13. Monopolization and tariff price regulations deform investment flows. Economy sector is occupied by several dozens holding groups whose core activity is in heavy industry. These holdings top up assets of all kinds; if problems occur, they get rid of them immediately.
14. Economic system is of quasi-market kind; it exists and develops without financial and stock markets, and without investment banking services.
15. The base of economy is oversensitive to external development, but also to interior political-administrative decisions. That generates corruption environment and mutual dependence of small groups of economic and political arbiters.
16. In spite of positive macroeconomic data, Russian economy still does not have a healthy and stable base, and even the tendencies originated in the economy are, as it seems, of a different orientation.
17. Macroeconomic successes of the recent past are rather misleading, and they contribute to obscurity of the situation.

Limits of Growth and Presumptive Development
     Government prognoses of development take into consideration so-called transitional period that will be characterized by slower development pace until the impact of new factors starts to function. Among the elementary limitations are the following ones:

18. necessity to take care of external and internal debts,
19. significant moral and physical wear and tear of production capacities (especially in power industry, gas industry, oil industry and in infrastructure),
20. disproportionate dependence on boom of local economy,
21. demography situation that is very close to catastrophic reduction of population numbers.

All of these unfavorable tendencies shall culminate in 2003.

Official prognosis

I – optimistic variant

II – neutral variant

Prognosis GDP Industry Investments Foreign invest.(billions USD) Inflation (Dec. – Dec.) Year
I 4,3 4,5 8,0 6,5 9 - 12 2002
II 3,5 4,0 6,0 6,5 12 - 14
I 4,0 4,2 7,0 7,0 9 - 12 2003
II 2,6 3,2 4,5 7,0 10 - 13
I 4,7 4,7 8,0 7,5 7 - 9 2004
II 4,0 4,0 7,5 8,0 8 - 10

Entries in % present comparison to previous year.

Source: The Ministry of Economic Development and Trade of Russian Federation, internal document, Moscow 2001

     While the current growth is rather a result of coincidence of external favorable circumstances, then the presumptive future is based on the classical model built on investments. Such fundamental change requires seemingly natural functioning of macroeconomic relationships. The chain of results and consequences should in spite of inflation rate drop lead to increase of real wages, which should be reflected in bigger savings; these savings would then provoke growth of investments, followed by GDP growth and higher living standards. Apart from the objection that growth of salaries can under certain circumstances lead to growing consumption rather than to savings, there is a motive for a more serious objection. Russian economy had a free access to sources for a long time already, but contrary to economic theories and logic these sources do not turn into investments (existing investments are mainly financed by companies’ own sources). If only this single phenomenon would last, then the whole construction of expected qualitative change in Russian economy growth would collapse in spite of possible presence of other beneficial conditions.
     Russian economy does not have a standard character, because the social-economic relationships are not of a standard character. In the meantime there was not even the qualitative change that is fundamental base for other changes – Russian economy did not turn from the “economy of general mistrust” into standard economy of cooperative kind that at least respects in most of the cases rules of the game. As a consequence there are high transaction costs, excessive risks extremely narrow scale of profitable investments; it means that “investment opportunities demand” is oriented only towards investments offering revenues corresponding with the high risk. That altogether slows down the development pace, and deforms structural character of economy. Even with an optimistic development Russia will not be able to reach growth speed necessary to catch up with democratic world, and to overcome the expanding gap.

Economy and Politics
     Recent years could be, when compared to the Yeltsin era, praised for new pace of reforms especially in the sphere of taxes (there is for example very liberal tax of mere 13% for physical entities income), for adoption of Tax Code, approval of law aimed against dirty money laundering and of real estate law, and for certain liberalization of foreign exchange market.
     Yet the economy liberalization goes hand in hand with strengthening of power of the president and his administration. Even though this process is still being realized, one can observe already now that most of the economic powers is concentrated with presidential office. The Parliament is forthcoming in passing relevant laws, the government more or less becomes only a transmission executive power, the power in regions is undermined, old oligarchic structures are broken up, and nobody has to care about public opinion, as was shown. Russian economic liberalization is characterized by “liberty ordered from the top”.

Unavoidable Clash: Informal Institutions vs. Reforms

     The already mentioned informal economic institutions are a chapter on their own; these include traditions, customs, mental habits, general stereotypes of behavior that are considered to be normal or acceptable. We can only repeat that positive elements do not have a very suitable environment for their own cultivation, and ethical conduct in business often does not pay back.
     Another institution is the conviction of a wide class of citizens, rooted deep in their socially economic consciousness, about almost unlimited obligation of the state that can be traced far back into the history. Patterns of deep-seated social end economic behavior and of citizens’ attitude towards the state are a serious political and social obstruction for continuation of economic reforms. Fully efficient functioning of market including independent price creation is with such a social consciousness viewed not as a progress in economic reforms, but as a failure of state in this sphere – it is the state’s exclusive role to ensure low prices. That creates space for conflict difficult to solve – in better case the result is a deeply below optimum pace of reforms. Exactly such process was happening in the past decade.
     Establishment of a real market environment and cultivation of informal economic institutions, and transformation of non-ethical patterns into ethical ones is an issue that could probably be realized only with generation exchange. The coming generations could achieve this only if they realize that non-cooperative behavior never leads to success. Or that it does not lead to success in most of the cases and most of the time. The question is how much time Russia has left.

Expansion, defense, retreat
     Main motto on which Russian state was established is clear – it is the idea of expansive imperialism. That was obvious to all, whether it was tyrants like Ivan the Terrible or Stalin, or reformers Peter I. and Catherine II. Even Witte, the most distinguished Russian policy maker from the turn of 19th and 20th century, openly noted that “Russia is not strong for its laws or civilization, but for its military.” /3, pg. 253/ But while Stalin dreamt about attack against Western Europe, current Russia only desperately defends its positions. Vladimir Putin understands well the fundaments of Russia idea, and it is clear to him that he cannot betray it, because that is the only reason that could cost him his position. That is why there are presently two absurd wars for worthless and unruly little country in Southern Caucasus; that is why he will not give up the smallest part of Kuril Peninsula, even if Russia could gain Japanese investments worth billions and save part of its own country.
     The idea of Russian imperialism exhausted its economic, and in a wider sense, its social sources. Russia grows weaker from demographic and health affairs point of view, it collapses because of criminality, and the state is divided and privatized into ownership of holdings, criminal structures and regional monarchs. Attraction of the center disappears, because center has nothing to offer, maybe only some kind of military protection, even though there is no institutionalized enemy. Russia is not threatened, besides drug mafia, by any other internal enemy, including Islamic terrorism. Islamic terrorism is Russia’s own “product” (e.g. Chechnya). Far East and northern regions become depopulated, and there are 110 million Chinese waiting behind Chinese border. Actually not all of them are waiting, some already got though the borders as businessmen and traffickers. Inhabitants of Kamchatka, Sakhalin and Chukotskyi Peninsula dream about affiliation with Japan; the whole society looks with anger at the 5% class of people who became extremely rich without any merit of their own.
     There will be of course also tendencies in the opposite direction. At least with the Russian speaking citizens it will be common language, history and culture. But if President Masaryk was right, then the above mentioned tendencies mean that we are witnesses to a reversible process, which might have actually started with the sale of Alaska in 1867, or by separation of East European satellites and collapse of the Soviet Union. The actual date of reversal is insignificant. All of these events probably have the same meaning – once the center loses its attraction and its power then it loses its right to be a center. It is very likely that the – maybe unintentionally – prepared interim period of dictatorship can slow down these processes, but it cannot reverse them. The result of visible political and so far invisible economic events is establishment of situation suitable for granting final decisive rights to narrow elite or even to an individual. Such setting is unfortunately always disadvantageous, even if the sole person in charge was originally of a liberal character. Besides, the history proved that commanders, even when they ordered liberties, ended up almost without exception as pure commanders, and the only difference between them was the level of harshness of their intolerance.
     If fundamental changes do not realize within the next few years, we would probably witness the so far not very evident collapse of Russian Empire. This collapse could happen, if the conditions remain the same, within a horizon of one or two generations.
     As was already mentioned, such collapse could be prevented, if a fundamental change happens. But this kind of fundamental reversal we have in mind is usually called a miracle.

1Expression "vor v zakone" is specific Russian term for a person that comes from the world of crime and is widely respected among its members; at the same time this person usually enjoys certain degree of respect outside the criminal structures as well.
2In Russia, Boris Berezovski is a notoriously known person, often negatively mentioned in a context (maybe undeservedly) of launch of economic reforms and privatization. Perhaps only Russian Santa Claus is better known, and that only among children.
3Svankmajer, M., Veber V., Sladek Z. and Moulis,V.: Dejiny Ruska, nakladatelstvi Lidove noviny, Praha 1995 (History of Russia, Lidove noviny Press, Prague 1995)
4Putna, Martin C.: Maly kurs rusofobie, Lidove noviny, 29/6/1996 (Concise Course of Russiaphobia, supplement of daily Lidove noviny, July 29, 1996)
5Aven, P.: Ekonomiceskij rost i obscestvennaje moral (Economy Growth and Morale of the Society), Kommersant Daily, 34/2000 (Author is former Russian minister of foreign economic affairs)
6Izvestija, March 10, 2000 and Radio Liberty - Russian broadcasting, March 11, 2000
7Zheglov, A.: Uslugi lobbista nagradili devjati godami (The services of a lobbyist "earned" him nine years.), Segodnya, March 16, 2000
838 mld. $ na lapu (USD 38 Billion for Bribery), Vyedomosti, May 23, 2002 and, May 24, 2002
9Goldman, Marshall A.: Cto mesajet stanovlenii civilizovannogo rynka v Rossii (What Prevents Creation of a Civilized Market in Russia, Problems of Theoretical and Practical Management)
10Gavrilenkov, E. (Committee for Economic Analysis): Investicii ne razlivajut v butilky (Investments shall not be poured into bottles.), Segodnya - Economics, March 16, 2000
11The term institution from institutional economy point of view is understood as rules of the game in a society, e.g. as regulations of human interaction. By organizations we mean groups of individuals that are associated by a common goal, for example companies, trade unions, political parties. Formal institutions are rules in the form of laws that regulate activities of individuals and organizations from the public sector (government offices, courts, police). Informal institutions are represented by series of rules that are not a typical product of human intellect, nevertheless they became foundations of social order and structuring. Typical examples of these are private ownership, market, money, speech, but also habits, conventions, rules of ethical behavior. see Kluson, V.: Pravidla preziti, Ekonom, 12/1999 (Survival Rules, weekly Ekonom, 12/1999)
12Vooruzhennye sily i Ministerstvo oborony Rossii (Armed Forces and Russian Ministry of Defense), Center of Political Information, Moscow, 8/2002
13Data on criminality from Potchemu prestupnosti pravit bal (Why the criminality keeps winning), Russiyskaya federacya (Russian Federation), 5/2002
14Sumasshedshaya statistika (Insane Statistics), Kommersant Daily, September 14, 2002
15Privatization of state duties - or actually destruction of its elementary functions - showed in October 2002 during kidnapping of Lukoil Company vice president. Only the Lukoil's security service communicated with kidnappers. The police played no role at all in this case. Another example of exclusion of the state from its fundamental roles is also burial of "vor v zakone" that was described at the beginning of this article.
16Just enough closed not to notice the Caucasus.
17Big Mac Index is a simple (even though only approximate) calculation of parity of purchase power rubles/USD (in this particular case), based on methodology published in the Economist. According to this calculation, Russia would reach approximately 12% level of the U.S.
18Census 2002 on the Verge of Collapse, Izvestija, October 6, 2002
19Allegedly that is the main reason why they should be reformed. As the Gazprom example shows (Kremlin replaced headstrong Vyachirev for a more controllable person), the most important issue is control over these companies. These "natural monopolies" - state or partially state owned companies together with several private ones (among the biggest of each category are Transneft, Lukoil, Norilsk Nickel) and their daughter companies - create the core of Russian economy.
20For example the number and quality of sports facilities belonging to Gazprom Company is such that they were offered to Russian Olympic Committee for practice of the Olympic team.
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Зденка Вагнерова  & Александр Куранов
Ярослав Шимов
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