Medvedev's first year as president proved bad for the Kremlin
The election of Dmitry Medvedev as Russia's President appeared to be a big victory for controlled "sovereign democracy." Operation Successor was planned and carried out so smartly that it looked almost like a miracle of modern technologies, or rather political technologies. They had no problem ensuring the required number of votes.
However, the picture now is not as bright as it was a year ago.
Dmitry Medvedev as president looks weaker than his predecessors. His ability to influence events in the country appears to be curtailed, possibly by his commitments or because of a lack of a desire to make important changes, or of a clear vision of what he should abandon to maintain his succession. He has not made a single serious decision other than to prolong the presidential term to six years and recognise the independence of Abkhazia and South Ossetia. The latter decision may have extremely adverse consequences for the country's territorial integrity.
The President's delicate treatment of personnel is surprising in view of his proclaimed key goal - the fight against corruption.
It is rumoured that when Eduard Shevardnadze was appointed First Secretary of Georgia's Communist Party Central Committee in 1972, he asked his colleagues at the first meeting of the Presidium to raise their left hands and say what kind of watches they wore and how they obtained them. Many of them exposed themselves by offering such feeble explanations as "Grandma's present" and claiming that they had found the watch. They were eventually fired.
Medvedev's first gubernatorial appointments make one wonder why he made these men governors. Take Alexander Kozlov from the Ministry Agriculture. What has he done to become a governor? And what has Minister of Agriculture Alexei Gordeyev achieved?
For over six years, Russia has had beef import quotas that are breeding corruption and bad practices, with people paying through the nose for each kilo of beef - and all for what?
When protectionism is aimed at promoting the development of national production, one can button up and take it, paying for supporting Russian producers, even though this could be unpleasant. But in this case, the cattle stock has been dwindling all the while, which means that not a single Russian producer has used the import quotas to develop his business.
Nonetheless, the quotas were not cancelled. Federal spending on agriculture has been growing at a fast pace, and food prices did their best to keep up with it.
As soon as the production of poultry meat and eggs and their share on the market increased, Gordeyev said we were overproducing, and insisted that quotas be imposed to force producers to cut output and to prevent prices from falling.
This is surprising, isn't it? As if the goal of the party's agrarian policy and of Gordeyev is not to ensure the supply of cheap foods to the people, but a profit for producers.
In this case, why should the taxpayers provide money to support lobbyists-capitalists?
Gordeyev will now be working to develop agriculture in the Voronezh Region, presumably with limits and quotas.
If these people are the symbols of renewal among the gubernatorial corps, maybe we should keep the old ones? However, we must do something about them.
Vladimir Putin as Prime Minister has not demonstrated the ability to clearly implement anti-crisis measures, either. His government is ineffective; it is not aimed at reforms or development. The economic block has been weakened, as its superstar is Alexei Kudrin, a man with modest potential as the organiser of macro- and microeconomic change. He is an accountant, a man sitting on piles of money, a scrooge. Development is impossible without spending. He should have been developing financial institutions, but he has nothing to account for in his 10-year career as Minister of Finance.
Another of Putin's clear mistakes was his reliance on state capital and state corporations. The concept of enforcing development "from above" is an illusion of the ability to repeat the achievements of the 1950s, the era of industrialisation and the public sector.
Practice has long proved the uselessness of enforcing economic models from above. Only the trends that develop from the grassroots can be viable, but this calls for decentralisation, deregulation, and delegation of powers. These three D's do not fit into the vertical system of power, but this only means that this system does not fit the development structure. Making decisions without taking local needs into account is a way to a dead-end.
One more drawback of Putin's government is the lack of a clear regional policy with clearly defined principles. Do we still want to level off the socioeconomic development levels of the regions or not? If not, how can we ensure the constitutional rights of people to access such elements of the social infrastructure as healthcare, education, and housing, let alone employment?
I think that keeping such "invisible men" as Viktor Khristenko on the government payroll is a big mistake. The industrial slump has grown completely out of proportion, yet the Minister of Industry is nowhere to be seen or heard.
Deputy Prime Minister Igor Sechin sometimes appears on television pleading for assistance for oil and gas companies, explaining the strategic importance of these sectors for the country and advocating lower taxes and increased allocations for them. This is obvious. However, they almost never say anything about the other sectors, the small and medium-size businesses, which means that the focus on commodities will only grow stronger as a result of the crisis. Why then did they say so much about converting the economy to knowledge-based development that is not dependant on commodities?
The growing crisis has exposed the initial weakness and limits of the proposed vertical division of powers. Both houses of parliament proved unable to become the venues for a serious discussion of the government's anti-crisis policies. The ministers do not uphold their versions of priority spending of the reserve funds during parliamentary hearings, which last five or six hours at a time. The deputies do not propose changes to the government's plans. Why do we need such members of parliament then? Whose interests are they representing? Whose benefits are they protecting?
The Public Chamber, another brainchild of Putin's "golden age," also looks hopeless. As a civil society institution, it is not having any influence on the elaboration of anti-crisis measures.
Don't the people care how the $200-$400 billion that we have accumulated over the past years will be spent? Mind you, that money was accumulated through a curtailment of the people's consumption; we did not build more schools, hospitals, theatres, swimming pools, and libraries. Now, the money we saved on these social projects will be spent on unclear goals.
What can we learn about the scale and depth of the crisis in the mode of free access and free discussion? What is the production and employment situation in this or that economic sector and region? How much do our enterprises owe, and what is the structure and duration of their debts? Which of them will we stimulate, and what will they produce? Who is receiving money from the state and how are they spending it? Who moved $40 billion from the country in January, and where did they take it? Who converted state assistance into foreign currency, and how much, thereby removing roubles from credit liquidity?
MPs and ministers must discuss these questions openly. Such discussions reveal the level of competence of state officials. If it is high, so is our confidence that we will overcome the crisis. But if it is weak everyone will see which of the officials should be dismissed or even punished.
This situation points to a dangerous disregard for democratic procedure as an instrument of ensuring the adoption of more effective decisions and changing the elites. This is the applied and not imaginary meaning of democracy. This is the kind of democracy Russian society needs, a democracy that is not inspired by any external force, as they used to say in the past.
I would like the crisis, which has hit Russia harder than any other country, not to develop to a point of no return. Depression and recession may last decades, changing the social, political, and economic landscapes beyond recognition, and not always for the best.
The specific feature of the crisis in Russia is that it was provoked by the bursting of an asset bubble. Loans taken against that bubble cannot be repaid in the near future, because when you take out a $10 billion loan against the collateral of 25% of your $40 billion company, you cannot repay it from your company's turnover because it now costs $4 billion.
Huge holes have appeared in companies' balance sheets. In a normal situation, the goal of business is to maximise profit, but the crisis has changed it to minimising losses. The money a person, company, or bank with a huge hole in their balance sheet receives will be used to repay debts, and are never spent on investment, acquisition, or development. We must admit this, or we will squander all our reserves in the belief that we are stimulating demand, without creating a single job.
We need a serious programme for restructuring and removing debts from companies' balance sheets, and dividing them in accordance with their goals. Only then will we see more clearly what we can expect from borrowers, which of them can turn the loans into an element of composite demand and possibly even "effective demand", according to John Maynard Keynes, and thereby also single out those that cannot create demand due to holes in their balances, no matter how much they borrow.
The authorities' unwillingness to curb the tariffs on natural monopolies is outrageous. Growing rent, utilities, electricity, gas, and telephone fees is a fact of life for everyone in Russia, but there is no logic to the growth of tariffs during a crisis.
First, all companies are cutting expenses by at least 30%. Second, the prices of fuel oil, gas, and coal - the main element of spending on electricity production - have fallen. Gas prices fall six months after oil prices, which have plunged to 25%.
Why are tariffs growing then? The answer to that question can be found in the essence of the Russian state, which can be described as "monopoly capitalism."
Scientists, including in Russia, have scrutinised this model of capitalism and exposed its drawbacks, such as ineffective distribution of resources because of price distortions. Our MPs look surprisingly calm in this situation, as they have not found the words to express the fury of the people they represent. Besides, it would be dangerous to "offend" the governors and mayors who stand behind the growing tariffs.
The Federal Antimonopoly Service is not a highly respected executive body, a fact that prevents it from fighting monopolies, each of which has high-ranking patrons. The growth of tariffs is also an extremely negative method of correcting composite demand in the Russian economy. Instead of generating diversified supply, people and businesses send increasing amounts of money to the monopolies' accounts, thereby extending the crisis.
Those who have talked with Medvedev say that he is not a technical but an ambitious, independent-thinking, and strong president. We know that Putin was authoritative and respected. What has happened then? Why have their positions and ratings weakened over the past year?
The answer lies in the weakness of the system they created, which is aimed at suppressing grassroots initiative and pleasing the superiors. That system proved unable to operate effectively during the crisis, when caution, deliberation, and inefficiency stick out like sore thumbs. Even the President can see this in his relations with the government.
Discontent is brewing in Russian society, in both its upper and lower levels. Internal freedom is growing alongside an increase in crisis outlays, loss of jobs and incomes, and hopes for salvation. The crisis has greatly amended the continuity of policies, and the system of power should be adjusted likewise, with broader real democracy capable of stimulating smart people who care to address development problems. For it is the task of all people, and not only their leaders, to save the country at the time of crisis.
I think that the growing uncertainty in the system and growing entropy can be counterbalanced only by an injection of new energy among the people, which can be released only in conditions of a genuine democracy that favours individual development. Otherwise, the system will become increasingly weak, which is always associated with the weakness of its leaders and managers.
Konstantin Remchukov
