Putin calls for liberal reforms

Map of Russia

(Business New Europe – bne.eu – MOSCOW BLOG – December 13, 2013)

Russian President Vladimir Putin gave his state of the nation speech on December 12 where he laid out his plans for the coming year. In a nutshell he called for decentralisation and for the regions to take more responsibility for promoting their local economies.

These speeches are important milestones that are a good indicator of where Putin sees Russia’s progress. Last year the speech was in effect an oligarch meeting II’, a repeat of his now famous meeting with the collected captains of industry that ruled Russia (and were robbing it blind) in 2001 just after he took office. The message to the oligarchs of “keep what you’ve got but stop stealing” was repeated, except this time the message was delivered to the government bureaucrats.

In both cases these meeting were followed by a crack down on those who ignored his message, with Yukos owner Mikhail Khodorkovsky being the most famous victim from the first meeting and defence minister Anatoly Serdyukov being the most prominent victim this time round. More generally last year Putin introduced a ban on owning foreign assets and property on Duma deputies and a dozen have either been sacked or left politics as result.

If last year Putin’s message was about what plutocrats could not do (steal) this year it was about what they should do (reform).

Putin set the tone of his speech by kicking off with a reference to Pyotr Stolypin, the prime minister of Russia’s third Duma during the brief period of pre-revolutionary democracy and generally regarded as one of the very few (the only?) great Russian reformers in the last 100 years.

“I think the most important task is to clarify the general principles of local self-government organisation, develop strong, independent, financially sustainable local authorities. And we need to start this work and give it sound legal foundations already next year, 2014, the year of the 150th anniversary of the famous Zemstvo Reform of 1864,” Putin said. “At the time it was precisely the development of zemstvos, of local self-government that enabled Russia to make a breakthrough and find competent people capable of implementing major progressive reforms, including Pyotr Stolypin’s agrarian reform and the restructuring of industry during the First World War.”

This is a heavily charged reference for the Russian audience, who this speech is aimed at. Stolypin’s name has come up regularly over the last two decades, as a model for Russia’s desperately needed structural reforms, but it is has never been so explicitly cited as by Putin did this time, putting this at the front of his speech.

The essence of the reform is to decentralised the government’s power and make the regional governors more responsible for the prosperity of their local economies.

If actually undertake, and more importantly, if actually successful, this reform could transform the country. Putin has clearly become increasingly frustrated with the local of progress in both his anti-corruption drive and also the economy’s dramatic slowdown and is looking for ways to turn Russia Inc around.

One of the federal government’s biggest problems is that it doesn’t actually have much control over the regions. Deputy Prime Minister Arkady Dvorkovich told bne last year: “The federal government has no power to force policy on the regions unless we get the regional governors on board.”

Putin is clearly thinking of Russia handful of successful regions and hoping to extend the model to the more backward ones. In Kaluga, for example, the charismatic leadership of Anatoly Artamonov has turned a backward economy that was heavily dependent on the military industrial complex into a vibrant region that now leads Russia in terms of industrial production, rising incomes and tax take for the local budget.

Putin said that in 2014 the state would introduce a regional investment index, which would rank the success of a region and extra federal funds will be made available to the best performers.

Prior to the speech there was speculation that Putin would nix regional elections of governors in another step back for democracy. IN fact precisely the opposition has happened. Putin is attempting to make the regional governors more accountable to their populations than they are to the centre and one of the mechanisms is he called for more freedom to be given to opposition parties in the hope they will hold the governors to account.

“I am sure that today as well strong local self-government can become a powerful resource for enhancing and renewing our country’s human resource potential. And of course, we are all interested in ensuring that elections bring to power qualified, motivated, professional people who are ready to perform their duties responsibly. For this reason we shall continue to work on developing the political competition, improving political institutions, and creating conditions for them to be more open and efficient,” said Putin in the same section of the speech.

This is a radical departure from the previous model. The first thing Putin did on taking office was to centralize control to prevent the country from breaking up and to retake control of the finances. What he is suggesting here is a reversal of the process and decentralizing control in the hope that it will be more efficient way to promoting economy change.

Of course Russia’s problem has never been the lack of good ideas, the obstacle is to implement these ideas over its vast territory. If Putin can be taken at his word then he is talking about radically changing the way Russia has been run for the last century: instead of orders from the centre to be followed by the peons in the regional apparatus, he is asking governors to emulate people like Artamonov and take the initiative on their own and worry about the good of the people below them rather than being in the favour of those that sit above them.