Medvedev Promotes Intellectual Economy and Putin Resorts to Soviet Methods

Publication: Eurasia Daily Monitor Volume: 6 Issue: 109

Russian President Dmitry Medvedev speaks at a working breakfast with international bankers and business leaders in St. Petersburg on June 6, 2009 during the International Economic Forum.

On June 6-7 the Economic Forum in St. Petersburg had a far more somber atmosphere and a greatly reduced entertainment program than last year, when Russia was still portrayed as an "island of stability" in the sea of troubles. The central event was again the keynote speech by President Dmitry Medvedev, who refrained from any optimistic predictions concerning a rapid recovery and described the crisis as "a long-running and very resistant ailment" (, June 5). His modest hope that Russia might overcome problems faster than current forecasts indicate was disproved by Finance Minister Aleksei Kudrin, who argued again about the inevitable "second wave" of the crisis (, June 5). There was a usual dose of anti-Americanism issued with the familiar coating of condemning the "artificially maintained unipolar system," but perhaps more interestingly the emphasis was on warning against relying too heavily on regulation since that would "inevitably end up substantially slowing down economic growth."

Instead, Medvedev tried to elaborate his favorite theme of innovations and offered a new guideline: "Our goal now is to form an intelligent, ‘smart’ economy and a corresponding intelligent and smart society." The audience at the forum was certainly ready to regard itself as "smart society," but a high-resonance conflict in the small town of Pikalevo, Leningrad oblast, proved that Russian socio-economic reality remains rather different. Three plants that employed most of the local population had stopped their production lines since early spring, and the unpaid workers – brought to desperation by the switch-off of hot water – blocked a federal highway and demanded that Prime Minister Vladimir Putin come and sort out the mess.

Putin is generally extremely reluctant to yield to such pressure, but on this occasion he visited and forced the owners to sign an agreement on resuming work (, June 4). He was demonstratively rude to the oligarch Oleg Deripaska, who one year ago was one of the richest men in the world and now begs for the restructuring of his debts, which might lessen disgruntled public opinion -it was less appealing for nervous investors. This "hands-on" management style demonstrates that most mechanisms of administrative regulation in the sinking economy have ceased functioning, so for hundreds of other "mono-cities" Putin’s interference – prompted by radicalized demonstrations – is the only hope (Moscow Echo, June 5).

This relapse into the Soviet-style methods of enforcing political solutions on economic problems proves that the real value of Medvedev’s pledges to uphold the market environment is rather limited. He most likely realizes that his instructions ring increasingly hollow, consequently he deplores the economy that "is infested with corruption and is ruled by an ineffective bureaucracy." In a recent interview he also promised to continue reshuffling the elites and dismissing regional governors and all decision-makers who fail to adapt to the new situation (Kommersant, June 4). This readiness to sacrifice a loyal cadre stands in sharp contrast with Putin’s preference not to fire incompetent underlings, which he expressed in an unusual didactic essay (Russkii pioner, May 28). Putin maintains that replacing one bureaucrat with another makes little difference, while the boss instead of asserting his power risks becoming a victim to political intrigues (, June 1).

This peculiar discrepancy of views on disciplining the frustrated nomenklatura extends into the perceptions of the role of the oil rent in supporting the overgrown bureaucratic machine. Medvedev argues with growing ardor that the excessive dependency on energy exports has made the economy unstable and vulnerable to price volatility, which has to be overcome through state-sponsored investments within the high-tech industries. This implicit attempt to put the blame for the unfolding disaster on Gazprom, Rosnfet and other energy majors is in fact, less convincing than it might appear -since it is machine-building and other relatively advanced industries that are experiencing the sharpest decline, while worldwide the "petro-states" are suffering far less than other post-industrial economies (, June 5). At the St. Petersburg Forum, Putin’s "lieutenants" such as Deputy Prime Minister Igor Sechin, argued that oil prices were climbing back to the "fair" level of $75 per barrel, while Gazprom’s CEO Aleksei Miller expressed confidence that the market expectations for 2010 have shifted to $100 per barrel (Kommersant, June 6).

The bottom-line in these forecasts is that the recovering oil-and-gas revenues will very soon pull the Russian economy out of the hole, easing the pseudo-portentous crisis. Putin is not pressing this theme, but he certainly draws a very aggressive line in his "gas diplomacy." After the scandal-ridden meeting with Belarusian President Aleksandr Lukashenka, he paid a visit to Finland, where issues with the planned Nord Stream pipeline remained unresolved (Vremya Novostei, June 4). The main target, however, was Ukraine, as Putin sent a series of warnings to European partners about a looming interruption of the gas flow caused by non-payments from Ukrainian Naftogaz, which Miller called "Europe’s major headache" (, June 5). On June 5 however, Kyiv managed to pay $475 million for gas imported in May, subsequently Putin will have to replay his grave warnings next month.

The importance of Ukraine goes far beyond the contentious matters of gas transit, as Moscow follows the development of the ever-escalating political crisis in Kyiv -expecting that an ugly squabble for presiding over the bankrupt state will have a sobering effect on the resentful Russian political class. While Kudrin ponders on sequestrations in the federal budget, the situation in many regions is already desperate, as confirmed by Bashkortostan’s president Murtaza Rakhimov in an explosive interview in which he claimed that centralization is now worse than in Soviet times -and that the Duma is a shameful parliamentary fake (Moskovsky Komsomolets, June 5). Medvedev now has to show that he means business, promising to fire corrupt and under-performing officials of which Rakhimov is certainly a prime example. His "get-smarter" discourse however, remains abstract to the rank-and-file within the bureaucratic pyramid, and to the general population who still expect Putin to descend on every Pikalevo and deliver salvation from the undeserved economic punishment.