Medvedev Attempts to Rationalize his “Modernization” Agenda

It is hardly a mystery for President Dmitry Medvedev that his “modernization” project is not going anywhere; it is, however, unclear whether this is an issue. Speaking at the St. Petersburg Economic Forum last Friday, he tried to portray Russia as a “country attracting people from all around the world to come here to realize their dreams” (www.gazeta.ru, June 18). This image, however, remains far from the reality of bureaucratic predation described by Mikhail Khodorkovsky in an interview with Les Echos (www.khodorkovsky.ru, June 18). Russia’s omnipotent president has a significant advantage in delivering his message over a convicted criminal sitting in his second trial, yet he cannot overrule the simple truth that “private property in Russia is not protected –and actually does not exist.” Khodorkovsky praises Medvedev’s intentions, but remonstrates that his “actual authority is clearly insufficient for implementing long-overdue changes.”

Medvedev remains reluctant to assert this authority and prefers a small-steps policy, such as reducing the list of “strategic” enterprises that must be protected from bankruptcy –and from falling into the hands of Western competitors– from 231 to 41 (Kommersant, June 19). Such a reduction of protectionism would be a low-risk change if Russia is indeed on the path to recovery and adopts a post-crisis strategy, as Medvedev claimed in a recent interview with The Wall Street Journal (Vedomosti, June 18). A key part of this strategy is encouraging an “investment boom,” but Khodorkovsky’s warning that any new project might attract “unhealthy attention from corrupt bureaucracy” remains highly relevant, and consequently the net balance of foreign direct investments in 2010 will probably remain negative (www.newsru.com, June 18). Medvedev is particularly keen to build an “innovation city” in Skolkovo, outside Moscow, and plans to visit Silicon Valley during his forthcoming visit to the US in order to see how it is organized. He might be surprised to discover, however, that nobody in this legendary high-tech cluster needs special legislation protecting them from a hostile takeover by some law enforcement agencies (www.gazeta.ru, June 15).

One area where Medvedev appears to be on the same wave length with Khodorkovsky is overcoming Russia’s addiction to oil and gas export revenues, which in principle fits well with President, Barack Obama’s, aim of reducing the consumption of fossil fuels outlined in his recent address (Vremya Novostei, June 17). Nevertheless, Medvedev characteristically avoided the question from The Wall Street Journal about the implications for the global oil industry. He knows too well that Russia’s economic recovery depends crucially upon the performance of the oil and gas sector, which also remains far more important for foreign investors than Skolkovo. Indeed, the main news from the St. Petersburg Economic Forum concerned the annual meeting of Rosneft (Sergei Bogdanchikov has retained the CEO post despite differences with Deputy Prime Minister, Igor Sechin) and the new joint venture for Chevron and Rosneft to develop the Black Sea shelf (Kommersant, Ekspert, June 18).

Medvedev has very little impact on these decisions, which remain under the exclusive control of Prime Minister, Vladimir Putin, who had a special meeting with Chevron’s CEO, John S. Watson, but opted not to attend the gathering in St. Petersburg. Medvedev may promise some tax breaks to investors in “innovations,” but it is up to Putin to decide on the overall increase of taxation necessary to balance the over-stretched federal budget. One “champion” that enjoys a more favorable tax regime than any oil company, who are very skilled at lobbying their interests, is Gazprom, and Finance Minister, Aleksei Kudrin, has, for the fifth time, requested to trim its privileges –hardly expecting any positive answer (Vedomosti, June 18).

One particular problem where the interests of the Russian petro-economy, and the aims of a “modernization” project are rather far apart is the stalled application to join the World Trade Organization (WTO). Medvedev wants to make this deadlock one of the key issues of his visit to Washington, arguing that “we have been pulled by the nose for too long” and that the remaining disagreements are “a matter of taste.” In real terms, the scope for these disagreements has widened, as Russia builds the Customs Union with Belarus and Kazakhstan, neither of which is a member of the WTO. The benefits of this union for Russia are doubtful and Putin drives it forward as a political project demonstrating Russia’s economic influence in the post-Soviet space (Kommersant, June 18). This ambition is spoiled by demands from Belarus for a duty-free energy supply, and as Medvedev will tell Obama about Russia’s responsible economic behavior, Putin will manage another “brotherly” gas conflict with this difficult ally (Nezavisimaya Gazeta, June 17).

Russia’s self-reproducing dependency upon hydrocarbon rent is not just a matter of economic inertia, but primarily an issue of vast bureaucratic interests focused on its redistribution. Putin is both a master and a hostage of this executive pyramid; he is aware of its irresponsiveness to the orders of “modernization” – and is not bothered by this sabotage. Medvedev tries to find allies in this super-structure, but is afraid to antagonize it; hence a retreat in the fight against corruption, which was not mentioned once in his visionary speech (Kommersant, June 18). Khodorkovsky argues that Medvedev cannot tackle this menace without “cadre decisions,” which should go higher than firing Viktor Cherkesov, the former Deputy Director of the Federal Security Service (FSB) (Vedomosti, June 15).

Medvedev cannot win bureaucratic hearts and minds by arguing that “flexibility and adaptability have become much more popular words today than stability and predictability,” but this discourse cuts into Putin’s rationale for reclaiming the presidency (Vedomosti-blogs, June 18). Words about change could gain unstoppable momentum, but Medvedev has to start believing in them himself. A precedent that might give him an idea was created ten years ago at the dawn of Putin’s era: Aleksandr Nikitin, an expert in the ecological NGO, Bellona, was acquitted from FSB charges of high treason. Every day in the farcical court case against Khodorkovsky, directed by Putin, discredits Medvedev’s presidency, but a stroke of the pen could make him a free man. Medvedev extols that his personal relations with Putin have not changed –but perhaps they should.