Monday, December 30, 2013

Soviet Nationality Issues Live On in Modern Russia

24 December 2013 | Issue 5283

Klipping The Moscow Times

Vladimir Filonov / MT

Nationalists at the annual “Russian March” call for a crackdown on gastarbeiters and immigrants in Moscow.

In his famous 1994 essay "The USSR as a Communal Apartment," Yury Slezkine chronicles the rise of nationalism in the Soviet Union, likening the state to a communal apartment in which each "recognized" ethnicity has their own private room in which to flourish.
For the West, the 1990s were a period in which all of the myriad nationalities previously hidden within the aegis of the Soviet Union surged outwards, creating their own histories, literatures, and diasporas. Over the past two decades, we have managed to differentiate in our consciousnesses some of the new states created, and historians have begun looking back with greater clarity at how these nations formed.
Jeremy Smith's new book "Red Nations: The Nationalities Experience in and after the USSR" is an in-depth look at Soviet nationality policy, tracing the development of this policy from its inception with Lenin's promotion of nationalism, through Stalin's deportations, all the way to the collapse of the Soviet Union into constituent republics and the post-Soviet world.
Covering a vast region and a huge number of groups over a period lasting nearly a century, Smith's project is extremely ambitious. The scope of his work prevents him from going into great depth about any particular group or policy, yet this same broadness forces him to streamline his work, avoiding excessive detail that might have put off casual readers.
As it is, Smith's work is an interesting read for a serious student of history or an armchair enthusiast. Focusing on the entire history of the Soviet Union and into the post-Soviet era, readers can see the issue of nationality develop, as successive Soviet leaders fail to adequately confront the issue of the multinational state, using a variety of mechanisms to temporarily "fix" the nationality problem, either harnessing nationality to serve their purposes, or repressing national movements in favor of Soviet unity.
Beginning with a brief overview of nationality policies and populations in the Russian Empire, the "prison-house of nations," Smith starts his narrative with the Russian Revolution, noting the disparity between the solidly Russian Bolsheviks of Petrograd and Moscow, and the multiethnic residents of the far-flung empire.
This contrast creates the conflict that drives the narrative for the rest of the book, as successive leaders try to reconcile the ruled ethnicities both with each other and with their Russian rulers. Lenin first encourages national movements in order to win over support
during the civil war and later limits the number of "recognized" nationalities that are allowed to have autonomous structures.
Under Stalin, the situation is reversed — national movements are discouraged, ethnic leaders are purged, and mass deportations are inflicted on the peoples of the Baltic and the Caucasus. The backlash against Stalin leads to a reversal of this policy under Khrushchev and a general growth of national movements until the era of Gorbachev and Perestroika, when the Soviet leadership failed to control the burgeoning nationalism of the union republics, resulting in the collapse of the U.S.S.R.
Reading the book makes one realize the extreme difficulty of trying to govern a multiethnic state like the Soviet Union, and the fine balance between encouraging and suppressing national movements that the Soviets never quite seemed to attain.
Furthermore, one cannot help but note the many similarities between the problems of the Soviet Union and the Russian Federation. While the union republics may have seceded, Russia still has huge ethnic minorities, and many regions with predominantly non-Russian populations.
Putin's government has generally promoted a policy of ethnic tolerance, generously subsidizing the republics of the Caucasus and attempting to discourage separatism in Tatarstan and the Far East. However, a new generation of opposition politicians like Alexei Navalny have loudly criticized government support for non-Russians, and race riots like those at Biryulyovo illustrate the ongoing discomfort felt by Russians about their place in a multiethnic state.
While open warfare in the Caucasus has largely ended, ongoing violence suggests unresolved ethnic issues, and continuing immigration from the former Soviet republics, as well as Chinese immigration into Siberia and the Far East, promises future demographic issues.
While Putin's government seems to be trying to find the proper balance between nationalism and unity, it remains to be seen whether he will be able to hold back the rising tide of Russian and Orthodox nationalism, and what will happen in the eventual post-Putin era.
Connecting Soviet history to modern Russia, Jeremy Smith's "Red Nations: The Nationalities Experience in and after the USSR" is a fascinating read for anyone interesting in questions of nationality in the post-Soviet space. The book is available from Cambridge University Press for a list price of $34.99. ISBN: 9780521128704

Contact the author at g.golubock@imedia.ru

Wednesday, December 18, 2013

Why Russia Is Just as Good as China

15 December 2013 | Issue 5277

By Charles Hecker and Kent Kedl

Klipping The Moscow Times

Russia and China are both two large, emerging markets. Both have growing middle classes topped with a frothy layer of the super-rich, and both have thorny, challenging business environments that are fraught with corruption. So why do investors leap at the chance to get into China and balk at Russia?
What a difference a billion customers makes.

How mesmerizing to think of selling something to a billion people. Who could say no to an opportunity like that? In reality, few do, despite the considerable challenge corruption poses in China.

If you dismiss Russia only because it small size relative to China fails to justify the never-ending battle with corruption, you will miss a key market. If you rush into China because its enormity dwarfs any concerns about corruption, you risk crashing on the China superhighway.

But when talk turns to Russia, with only 143 million customers, the conversation grows difficult. For some reason, investors find Russian corruption harder to metabolize. It is puzzling. The problem is as corrosive in one country as in the other.
This divergent approach to investing in Russia and China puts investors in both countries at a disadvantage. If you dismiss Russia only because its small size relative to China fails to justify the never-ending battle with corruption, you will miss a key market. If you rush into China because its enormity dwarfs any concerns about corruption, you risk crashing on the China superhighway.
It is not just a question of market size. The split stance on doing business in Russia and China echoes the equally split public dialogue on the two countries. Russia gets far harsher treatment than China for the role corruption plays in its economic and political systems. Everyone keeps complaining that corruption seems to be part of Russian culture. In the West, this kind of talk verges on reflex, rooted in decades of anti-Soviet invective that finds its modern incarnation in Russia-bashing.
That criticism is applied unevenly. Though China was the power-behind-the-throne during the Korean war, the West seems to have forgotten that and re-engaged with China in the early 1970s through ping-pong diplomacy and eventually full recognition over the Taiwan upstart. Although a Communist system, China never grabbed the West’s attention as the “evil empire” as the Soviet Union once did and as Russia still does to a large extent.
This does not mean that every investor rushes headlong into corrupt transactions in China without considering the implications. On the contrary, many international companies doing business in China prepare exhaustive anti-bribery and corruption policies to protect themselves from taint and regulatory zeal in their home jurisdictions. The U.S. Justice Department looks at China as prime hunting ground to catch companies breaking Foreign Corrupt Practices Act statutes.
Of the companies that actually adopt comprehensive anti-bribery and corruption policies, few will do much to bring them to life. Their policies remain on paper. Some launch a flashy e-learning tool that sits near the bottom of in-boxes in their Chinese subsidiary. Others will at best make a few token anti-corruption gestures — a company-wide e-mail from the CEO perhaps — and see how it goes. This remains a problem in Russia, too.
The anti-corruption environment in China is taking on new energy with the cases around pharmaceutical companies and Chinese health care, a system widely known to be corrupt to its very core. This is where the billion-customer motivation runs most true. Not everyone wants a car or the latest electronic gadget, but everyone at some point in his life will need health care. Multinational companies that are directly or indirectly related to the health care sector are drooling at the prospect of more than a billion patients.
In the world of compliance, we talk about “adequate measures” that a company takes to protect itself against corruption. But the recent probes into health care companies in China are forcing companies to redefine the meaning of “adequate.” For example, one adequate measure is due diligence: doing background checks on suppliers, distributors and other third parties with whom you will do business. The same is the case in Russia. Whether you’re doing business in central Moscow or the provinces, you need to know as much as possible about your partner and the potential risks that a company presents to you.
In most environments, a quick look at a business database and a credit check are sufficient. But in China, where neither databases nor credit checks are possible, “adequate” due diligence means sending people out to discreetly talk to the partner’s customers, vendors, regulators and former employees to get a deep sense of who the company is and how they do business. Russia presents a strong parallel here, as well. Quick database or credit checks are either hard to come by or fail to present a complete picture.
Many of the problems with health care companies in China today are a result of not doing adequate due diligence. Who cares if there are a billion Chinese customers if you’re going to destroy your company and your reputation in trying to reach them?
So Russia may not have a billion potential customers. It may also be a popular whipping boy for its business behavior. But companies who avoid Russia because of corruption and rush into China because of its market size are missing the point. Both countries contain the same risks, and each harbors significant reward.

Charles Hecker is a former head of Control Risks’ Moscow office. Kent Kedl is managing director, Greater China and Northern Asia, at Control Risks and a long-term resident of China.

Ukraine's Two Nations

15 December 2013 | Issue 5277

By James Brooke

Klipping The Moscow Times

To understand what is happening in Kiev today, remember that Ukraine has a larger landmass in Europe than France, the largest nation of the European Union.
Western Ukrainians look to Poland, Austria and Germany. People consider themselves European to the core. City halls in Western Ukraine now fly EU flags. In schools, children study German and Polish. This new post-Soviet generation speaks Russian poorly, if at all.
Travel 1,200 kilometers to the east, and Ukrainians look to Russia. They produce goods that are exported to Russia. They speak Russian. The Soviet generation often has a hard time speaking Ukrainian, the national language.

For three years as president, Viktor Yanukovych has tried to balance these two sides, roughly comparable to the way pre-Civil War U.S. presidents tried to keep America's house together by waffling on slavery.
Now, the EU and the Kremlin are telling Ukraine: make your choice! This winter, in the biggest political crisis since Ukraine won independence in 1991, foot soldiers for both sides are on the march.
At Kiev's pro-government camp, Grisha, a 30-year-old tattooed construction worker from the Russian-speaking city of Nikolaev, says his opposition to the EU is a no brainer. Reeling off the names of his city's three remaining factories, all from the Soviet era, he says: "If Russia refuses to buy, the factories simply shut down."
But one kilometer down a cobblestone street, views are diametrically opposed.
In normal times, Oleg works in a pharmaceutical warehouse in Lviv, the western Ukrainian city near Poland. But now, he mans a 3-meter high barrier that faces Kiev's government quarter.
Taking a break from scrutinizing a constant flow of pedestrians entering the pro-Western camp, Oleg says the EU is a no brainer.
He is confident that by orienting his country toward the EU, Ukraine can be Europe's next Poland. He says: "The country will be more open, and investment will come, and factories will work again."
In Kiev, the capital, people are responding overwhelmingly in favor of the "Euromaidan." Specialized Facebook groups channel a steady flow of warm clothing, tents, firewood and food to Kiev's Independence Square. Some of Ukraine's best pop groups sing nightly on the stage. After three weeks of police attacks and freezing temperatures, the Euromaidan keeps bouncing back, always larger than before.
The Ukrainian Interior Ministry no longer views Kiev police as politically reliable. Repressive actions are carried out by riot police trucked in from Russian speaking areas of Ukraine. But, in general, policemen are known to be fans of Vitali Klitschko, the 2-meter tall boxing prize fighter who is the opposition's rising star.
Ukraine's financial oligarchs now are covering their bets. Two of the nation's richest men, Victor Pinchuk and Rinat Akhmetov, have broken their silence and called on the president to start serious talks with the opposition.
Ducking responsibility, Yanukovych blames the police violence on rogue policemen and the fact that he did not sign a EU trade and political association agreement on his own negotiators.
On Monday, he travels to Moscow to sign economic agreements.
For three centuries, much of what is modern day Ukraine was ruled from the Kremlin. Under the tsars, it was called "Little Russia."
In 2008, at a NATO meeting President Vladimir Putin told U.S. President George W. Bush, "Ukraine is not a real country."
Time will tell if Yanukovych can keep Ukraine's two nations under one roof.

James Brooke is the Moscow bureau chief of Voice of America.

Russia's Path to Progress Goes Through OECD

11 December 2013 | Issue 5275

By Chris Weafer

Klipping The Moscow Times

Russia's Path to Progress Goes Through OECD

In terms of symbols that give investment and business credibility, being a member of the Organization for Economic Co-operation and Development, or OECD, ranks at the very top of the list. Unsurprisingly, membership is not easy to acquire, as evidenced by the fact that even though the organization has been in existence for more than 50 years, there are currently only 34 member countries. Face control was never this tough at Moscow's glitziest nightclubs. The Kremlin is now desperate to gain admittance to this exclusive club and, put frankly, if Russia is to make progress in boosting inward investment and attracting more foreign businesses, the OECD is a club which the country needs to join sooner rather than later.

Gaining membership in the exclusive OECD club would help bring around investors who are reluctant, or even dismissive, of the very idea of coming to Russia today.

But, as with all of the best sought-after clubs, the membership rules are very demanding. As it stands, Russia is a long way from satisfying many of the exacting entry requirements. The government has a lot of work to complete if it is to achieve its goal. It is therefore encouraging that the commitment made during the Group of 20 euphoria, that Russia aimed to join the OECD "within three years," has now been followed up with the announcement of a new task force headed by Deputy Prime Minister Igor Shuvalov. At this point, the critics are reaching for their keyboards to scream "more committees, more talk, more planning … where's the action?" And quite rightly too. But everything has to start with some action, no matter how small.
The OECD was established in Paris in 1961. Its exclusive membership comprises the world's highly developed economies. Six of the former Soviet bloc states in Eastern Europe are members by virtue of the fact that they are also now part of the European Union. Turkey and Mexico are the only non-EU emerging markets to have acquired OECD membership.
According to the OECD's mission statement, the organization aims to "promote policies that will improve the economic and social well-being of people around the world." Unlike the World Trade Organization, which specifically works to improve trade between countries, or topic specific organizations, such as the International Energy Agency, the OECD has a more general focus. Its members must have open economies where entrepreneurs and businesses of all sizes can operate in a legally safe environment; where the rules are known and applied predictably and without bias. That means no corruption, no intrusive bureaucracy, a strong rule of law and a small state footprint across the economy. These are exactly the issues that Russia must work to address in order to attract much needed investment.
But beyond the business and investment rules, the OECD agenda also includes social and environmental change. In many ways, it is a system of behavior based on best practices, developed by observing how others have succeeded and failed in building sustainable economies against a backdrop of social development.
The OECD mission statement also states "the common thread of our work is a shared commitment to market economies backed by democratic institutions and focused on the well-being of all citizens. Along the way, we also set out to make life harder for the terrorists, tax dodgers, crooked businessmen and others whose actions undermine a fair and open society." Any country asking foreign investors to trust them with their money really needs to be a member of that club.
Or does it? While Russia is pushing hard to join, many other big emerging economies, such as China, India and Brazil, are less interested in joining and yet attract a bigger volume of foreign direct investment — as a percentage of gross domestic product — into new industries and infrastructure projects than Russia does. Yet all of those countries have had corruption scandals in the upper echelons of government, and all have had corporate governance issues with local companies listed on foreign exchanges. All three countries also ranked below Russia on the recent update of the World Bank's Ease of Doing Business index. China's response to persistent poor scores was to start a campaign to have the annual survey scrapped as unfair.
Yet it is Russia that routinely generates headlines about corruption, bureaucracy and poor rule of law, while the other so-called BRIC countries get greater investment inflow. As much as any other reason, this is why Russia now has to fight harder and gain entry into the OECD while the others can take more time.
For plenty of fair and unfair reasons, Russia has a worse image with international investors than the other big emerging economies. That is a simple fact, and it has to be addressed with more aggressive actions.
The OECD member countries have recently set out some key goals that they need to achieve. That list is also almost exactly the same as the wish list for investors, reformers and the new generation of Russians in an expanding middle class. Russia will have to tick those boxes, and none will be easy for a country still dealing with more basic problems. The OECD list includes membership goals:
To restore confidence in markets, and the institutions and companies that make them function.
To re-establish healthy public finances as a basis for future sustainable economic growth.
To look for ways to foster and support new sources of growth through innovation and environmentally friendly "green growth" strategies.
To ensure that people of all ages can develop the skills to work productively and satisfyingly in the jobs of tomorrow.
Chinese philosopher Lao Tzu is credited with the quote "the journey of a thousand miles begins beneath one's feet, with the first step." Over the years Russia has taken the first step in many a journey towards reform.
What's different this time? One factor that is certainly different this time is that Russia is now on the cusp of a long period of low growth, which in an emerging economy will feel like stagnation. That can only be avoided if a new investment-orientated driver model can be successfully created. I have said previously that the government does not get enough credit for a raft of improvements and reforms since May 2012. The Russian Direct Investment Fund, for example, has achieved significant success in attracting big ticket investment commitments from sovereign wealth funds this year. But of course, from such a low base, a huge amount more needs to be done.
Gaining membership in the exclusive OECD club would help bring around investors who are reluctant, or even dismissive, of the very idea of coming to Russia today. Shuvalov's task force is not exactly the first step in the long process. Russia has already signed up to the OECD's Anti-Bribery Convention and has been in informal talks with the group's secretariat for some time. But now finally there is a formal focal point within the government to coordinate the process.
Reluctant foreign investors probably have another memorable quote in mind, this one from the larger than life western actor John Wayne: "Hey pilgrim, we know you can talk the talk, but can you also walk the walk?"

Chris Weafer is senior partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia.

When Swine Rules the U.S., Russia and Ukraine

08 December 2013 | Issue 5272

By Alexei Bayer

Klipping The Moscow Times

Alexei Bayer

A banker friend noted recently that even though several investment banks were wrecked by corruption, greed, rigging rates and currency markets and selling fraudulent financial products, their senior executives went home safe and rich. No one was stripped of their assets or thrown in jail.
"The Russians can only look at the U.S. elite with amazement and admiration. But do they?"
Indeed, there are striking similarities between top-heavy income distribution in Russia and the U.S. The two countries are increasingly run for the benefit of their super-wealthy. Their elites are also similar: They did not inherit wealth and privilege but made their fortunes over the past two decades. Although there were differences in the standards of living and quality of life, they came from middle-class families in their respective societies. Russians got free Soviet education, and their U.S. counterparts went to universities on scholarships or through government-subsided loans. In other words, they benefited from systems which had to be whittled down for them to become so wealthy — and which their untaxed wealth continues to undermine.

Not surprisingly, there is growing kinship between the super-wealthy in Russia and the U.S. They have more in common with each other than with their countrymen. They share pastimes, own adjacent real estate and attend each other's parties.
This is all quite Orwellian — not from "1984" but from George Orwell's "Animal Farm," a biting satire of Bolshevism as well as a sardonic reflection on the impossibility of equality. In this fairy tale, work animals take over Farmer Jones' farm and proclaim equality and dignity. But in short time, their leaders, the pigs, become new, harsher masters and start hobnobbing with human masters.
Absolute wealth corrupts just as much as absolute power. As political commentator Andrei Piontkovsky recently observed, Roman matrons paraded naked in front of their slaves since they did not regard them as human. Americans and Russians could feel a kind of solidarity: They are both ruled by swine.
Russia, where political power and wealth have merged, functions almost exactly as Orwell's animal farm — except Russia's swine do not need to work their countrymen very hard. Their wealth comes from the Earth, and they only need to pump it out of the ground. The U.S. swine rule indirectly by pouring money into politics, suborning both political parties and stirring and diverting the resentment of the middle class that is worried by its declining income and status. While U.S. investor Warren Buffett, one of the world's richest men, has for years publicly said his income tax rate is less than half of his secretary's, nothing at all has changed except that the rich keep getting richer, the country's infrastructure is falling apart, and the government sinks deeper into debt.
The rich classes got a scare in the 1930s and 1940s, when financial markets sank and communism and fascism were on the rise. After World War II, there was a major rethinking of the predominant social and economic models. In Europe, the system endures, distributing wealth more equally inside individual countries and across the European Union. In the U.S. and Russia, those lessons have been forgotten. So far, protests such as the white-ribbon movement in Russia and Occupy Wall Street in the U.S. have been laughable. But the peaceful revolt in Kiev, where the population is rising up against their own swine, may show Russians and Americans how to change the system.

Alexei Bayer, a native Muscovite, lives in New York. His detective novel "Murder at the Dacha" was published by Russian Life Books in 2013.

Putin Wins Over Ukraine With Gas Deal and $15Bln Bailout

18 December 2013 | Issue 5279

By Ivan Nechepurenko

Klipping The Moscow Times

Michael Klimentyev / RIA-Novosti / Reuters

President Vladimir Putin, left, shaking hands with his Ukrainian counterpart Viktor Yanukovych during the pair’s meeting at the Kremlin on Tuesday.

President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, agreed to landmark deals in the Kremlin on Tuesday that will see Russia cut the price of gas supplies to Ukraine by one-third and grant Ukraine a much-needed $15 billion bailout.
The raft of agreements, which appear to secure Russia's influence over Ukraine for the time being and stall Ukraine's ambitions to move closer to the European Union, will provide much-needed assistance in keeping the suffering Ukrainian economy afloat. The funds may even last until Ukraine's 2015 presidential vote, in which Yanukovych will seek to win reelection.

For the past month, Ukraine has been caught in limbo between Russia and the EU, which has been trying to convince Ukraine to sign an association agreement. Yanukovych had originally planned to sign the deal at a summit in Lithuania last month but backed out at the last minute in favor of closer relations with Russia, triggering massive ongoing protests in central Kiev.
"Given the difficulties faced by the Ukrainian economy, which are to a large extent connected with the world financial and economic crisis, with the aim of helping the Ukrainian budget, Russia's government has made the decision to convert $15 billion of its reserves into Ukrainian bonds," Putin said following the negotiations.
Those funds will help Ukraine to pay off the more than $17 billion in loan payments that it faces next year, an amount almost equal to its central bank's depleted currency reserves. Yanukovych has cited the need for an immediate injection of cash as the main reason why he refused to sign the EU Association Agreement on Nov. 29.
The price of gas was also key for Yanukovych to maintain support in his political power base, the industrial, energy-hungry regions of eastern Ukraine, where ties with Russia are largely favored. Gas subsidies to Ukrainians were also becoming unsustainable for the Ukrainian budget.
Under the deal signed Tuesday, the price of gas that Russia sells to Ukraine will go down from $400 to $268.5 per 1,000 cubic meters. Yanukovych's government has repeatedly called the former gas deal, signed in 2009 by currently jailed former Prime Minister Yulia Tymoshenko, as "enslaving."
Speculation was rife that in return for bailout money and a gas discount, Russia would force Ukraine to join a Russia-led Customs Union with Kazakhstan and Belarus, but Putin denied that this was part of the deal. Indeed, no concessions from Ukraine to Russia in return for the cash infusion were publicly announced.
"I want to draw your attention to the fact that this is not tied to any conditions. I want to calm you down — we have not discussed the issue of Ukraine's accession to the Customs Union at all today," Putin told reporters at a news conference following the talks.
Putin has repeatedly emphasized that Russia would respect Ukraine's possible decision to establish a free-trade area with the EU, but that such a move would force Moscow to lift the current preferential trade regime between the two countries.
To hammer that point home, in the weeks before the Eastern Partnership summit in Vilnius where Ukraine was to sign the EU agreement, Russia imposed harsh restrictions on Ukrainian imports.
On Tuesday, Putin and Yanukovych signed a roadmap for lifting these restrictions.
Viktor Mironenko, head of the Center for Ukrainian Research at the Russian Academy of Sciences, said that despite its economic problems, geopolitically crucial Ukraine represented something highly valuable for both the EU and Moscow.
"Ukraine is not liability but a prize, and whoever is willing to pay the price for it first will win it," Mironenko said.
"The fact that Putin said we will help Ukraine without conditions because it is in such a difficult situation is a very powerful message," he said.
The liberalization of the trade regime between Russia and Ukraine is likely to increase the interdependence of the two economies and stifle the incentives for Ukraine to move closer to the EU. At the same time, the pro-Western opposition in Ukraine will almost certainly continue to demand integration with Europe.
"The old conflict will remain: Ukraine will be tied to Russia economically but will cling to Europe politically," Mironenko said.
Ukrainian opposition leader Vitali Klitschko, a probable rival to Yanukovych in the 2015 presidential race, said after the deals were announced Tuesday that Yanukovych had up given up national interests, independence and prospects for a better life for Ukrainians, using the country as a financial deposit to raise $15 billion, Reuters reported.
Yanukovych, who in the past has expressed a desire to balance ties with Western Europe and Russia, signaled that there was no turning back from the path chosen Tuesday.
"We need to learn our lessons for the future and never make such mistakes," Yanukovych said, referring to the trade clash with Russia.

Contact the author at i.nechepurenko@imedia.ru

Putin's Conservative State Capitalism

18 December 2013 | Issue 5279

By Anders Åslund

Klipping The Moscow Times

The essence of President Vladimir Putin’s annual address to the Federal Assembly on Dec. 12 was that his enchantment with state capitalism and Soviet economics is continuing. Rather than promoting higher economic growth, he wanted to go after the remaining prominent private businessmen.
Russia’s most urgent economic concern is the disappearing economic growth, but only in the middle of his speech Putin arrived at the need for the “renewal of sustainable economic growth.” This time he did not blame the euro crisis, but he admitted that “the main causes of the slowdown are not external but internal.”

Putin sounded completely Soviet during his address to the nation. He seems unaware both of the collapse of the Soviet economic system and why it happened.

Liberal economists usually blame corruption, expanding state capitalism, red tape, decreasing competition and stalled international economic integration as the main causes of the declining growth. In a more positive language, Putin mentions four “new factors of development” — namely “high quality of professional education, a flexible labor market, good investment climate and modern technology.”
All are correct but hardly key. Putin boasts about the minor improvements in the business climate that have occurred in the last two years and calls for further improvements, which are to be welcomed.
His talk of technological and professional development sounds like a Soviet throwback. It makes sense to revive Soviet-style vocational training, which corresponds to apprenticeships in Germany, Switzerland and Austria, but the unmentioned critical concern is that Putin’s policies are forcing good, modern managers to emigrate.
When Putin talks about technology, it gets worse. Characteristically, he does not use Prime Minister Dmitry Medvedev’s favorite words “innovation” or “modernization.” The only thing he wants to modernize is the defense industry. In Putin’s Russia, everything has to be done by the state: “We must form a domestic demand for high technology.” He wants to do so by “using the system of state procurement and investment programs of the state corporations.”
Naturally, Putin’s state must establish technological standards, measure them and control them. He sounded completely Soviet: “I propose to create a system of statistical evaluation of the level of technology in various branches of the economy to obtain an objective picture of our competitiveness. In the Soviet period such a system worked,” Putin said. “It was liquidated, and nothing else was created. It is necessary to recreate it.”
Sorry, we have seen that show, and it was disastrous. I participated in the destruction of that system because it produced a miserably low level of technology. The iPhone and the iPad were not created by state standards but by competition on the market. Incredibly, Putin seems unaware both of the collapse of the Soviet economic system and why it happened. So here we go again.
In addition, the word privatization was missing in this speech. Putin criticized Rosneft’s purchase of TNK-BP because it occurred abroad, but the real scandal is that this was the largest nationalization since the confiscation of Yukos. Putin wants to tax the profits of Russian offshore companies, but he offers no proposal for how to do so. He could easily abolish the Russian double-taxation agreement with Cyprus, which provides the legal base for these flows, but that would hurt him and his friends personally.
It makes sense that he wants to deprive offshore private companies of state support, but the restrictive policy he outlined will persuade private businessmen to increasingly sell their companies to state corporations, further reducing competition and efficiency in the economy. Private capital will flee all the faster, further depressing Moscow’s stock market.
Putin mentions Russia’s key problem, corruption, four times, but he has little to say about how to fight it, indicating his lack of interest. He advocates external audit of the top dozens of state corporations, but this will presumably be carried out by the Audit Chamber, which is now headed by Tatyana Golikova. But she appears completely subordinate to Putin, unlike her predecessor Sergei Stepashin, who once was a competitor of Putin, so this control seems a chimera.
If Russia really wants to fight corruption, it needs to move toward competitive and open procurement of the large state enterprises. But since Putin’s closest friends are considered to have made their fortunes on such nontransparent procurements, he said nothing about that.
Currently Putin is instigating the merger of the corrupt ordinary court system and the well-functioning economic courts, which in all likelihood will render the economic courts as corrupt as the ordinary ones. Not very convincingly, Putin argued that “unifying these courts will allow us to bring judicial practice onto one track, and therefore strengthen the guarantees protecting a crucial constitutional principle, the equality of all before the law.” Of course, the president cannot state openly that he is promoting the inequality of corruption.
This speech does not advocate more market competition but discretionary state intervention. The only market Putin seems to favor is the labor market. He does use words, such as competition and entrepreneur, but rather than encouraging competition and economic freedom he calls for “targeted support for small and medium business.”
As usual, Putin becomes most incomprehensible when he arrives at the Customs Union. “We are not imposing anything on anybody. … Our integration project is based on equal rights and on real economic interests,” Putin claims. But this flies directly in the face of Russia’s severe trade sanctions that it levied against Ukraine for its intention to sign the Association Agreement with the European Union. Meanwhile, he is increasing corruption and protectionism by abrogating the TIR convention, which has facilitated the customs procedures of containers.
One of Putin’s old favorite themes, the BRICS, received just a passing mention, which makes sense after the BRICS have become a sign of economic weakness. The same is true of the Group of 20 and G8, although Russia is hosting their summits this and next year, respectively. And he said nothing about the $51 billion price tag for the Sochi Winter Olympics, which was initially budgeted at $12 billion. This omission might tell us something about what he is really worried about.
Vedomosti columnist Maxim Glinkin recently summarized the essence of the speech appropriately: “Putin told the establishment: I have returned seriously and for a long time. Everything goes according to my scenario and for the time being we are not going to change anything in essence.” Or as Putin himself put it with regard to his support for traditional values: “Of course, this is a conservative position.”
Putin and his rule appear increasingly obsolete like former Soviet leader Leonid Brezhnev, and we know what happened to Russia after him.

Anders Åslund is a senior fellow at the Peterson Institute for International Economics in Washington.