Publication: Fortnight in Review Volume: 8 Issue: 8

The fortnight in Russia’s domestic politics culminated yesterday (April 18) with President Vladimir Putin’s annual State of the Nation address. Although an unprecedented shroud of secrecy had surrounded the speech prior to its delivery, the Russian head of state had tipped his hand on April 8, when he upbraided his ministers during a cabinet meeting for drafting a four-year economic plan projecting annual growth rates of “only” 3.5 to 4.6 percent per year. These numbers look great compared to those chalked up during the disastrous 1990s, but they would not be enough for Russia to catch up with the developed countries–that is, the West. Putin thus criticized the projections for being “insufficiently ambitious,” suggesting that something more in the neighborhood of 8 percent per annum was required.

No one could accuse the Russian president of inconsistency. Two years ago, at the start of his tenure, Putin had ruefully noted that even with an annual growth rate of at least 8 percent, Russia’s gross domestic product would need eighteen years to catch up to Portugal’s. The president’s frustration today is understandable. Given continued high world prices for oil and the fact that Russia has almost caught up with Saudi Arabia in terms of oil production, there is little excuse for the steady decline in its gross domestic product since 2000, the year its growth rate peaked at an impressive 8.3 percent. What is more, just prior to the April 8 cabinet meeting, Putin’s Cassandra-like economic adviser, Andrei Illarionov, had rubbed the decline in the face of more than a few cabinet members. He declared yet again that the main obstacle to high economic growth is excessive government spending and, by extension, the unrestrained growth of Russia’s unreformed state bureaucracy.

Thus it came as no surprise that this issue topped the annual presidential address. While noting that there had been some progress over the past year–a modest reduction in unemployment and a modest growth in real wages, the passage of measures aimed at reforming the tax and judicial systems and debureaucratizing business–Putin said these were “not big” achievements. He turned instead to the country’s main problems–an “ineffective state apparatus,” which remains “a black box” for most Russians, and pervasive bureaucratic corruption. The only way to ensure a faster rate of economic growth, he insisted, is to create conditions under which Russian citizens can earn money and profitably invest it in the Russian economy. “Today the colossal capabilities of the country are blocked by an awkward, ineffective state apparatus,” Putin declared. He concluded that “the very system of state institutions” must be “changed substantially.”