Putin's Russia: Is It a Doable Project?

Abstract

IntroductionThe new Russian president repeatedly has claimed that the economic revival of Russia is the principal goal of his administration. After an initial period of uncertainty, the policies that Putin and his aides have chosen to improve the economic performance of the country have become clearer. They are (1) a strong state, able to enforce the rule of law, and (2) a liberal economic policy.Following a drastic output contraction during the first decade of post-communist transformation, Russia has experienced considerable economic growth (ca. 20 percent of GDP in 1999-2001 ; see MERT 2002). The projections for 2002 are in the range between 3.5 and 4.5 percent of GDP increase. The unemployment rate dropped from its peak of 14 percent in early 1999 to 8.5 percent in 2001 (OECD 2002). Inflation also has been reduced.However, skeptical observers claim that the impressive results of 1999-2001 are due to the ruble devaluation in August-September 1998 and relatively high world prices on crude oil and other natural resources. The ruble devaluation stimulated import substitution by Russian manufacturers and, consequently, employment of idle production facilities.1 At the same time, high oil prices created over-profits for Russian exporters and amplified the revenue of the federal budget.To what extent should the recent improvements in the Russian economic performance be attributed to policy measures?2 This question relates to a more policy-relevant one: Can the combination of the strong hand government with liberal policy serve as the means of economic recovery in the near future?The main idea of this paper is to test the viability of project, combining strong hand government with liberal economic policies as a means of economic revival, against the latest empirical data from Russia. Recent empirical research highlights the diversity of policies and institutional frameworks in Russian regions through the 1990s and at the beginning of this decade. The outcomes in terms of gross regional product (GRP) change, investment, and consumption vary significantly as well. Can the interregional variance in economic performance be attributed to the policy factors upon which administration strives to capitalize?The next section presents an overview of Putin's project (that is, two dimensions of the policy of the new administration): government by a strong hand and economic liberalization. Then, to address the question of whether these two trends can contribute to the aspired economic revival, this research draws on the pertinent literature and international experience. The following empirical sections address the above questions as the hypothesis that the combination of the strong hand government with liberal economic policy has been instrumental for socioeconomic development in the post-1998 Russian setting. This hypothesis is tested against the empirical data from seventy-eight regions of Russia.Two Dimensions of Putin's ProjectStrong HandSince Putin became prime minister in 1999, the Russian government has implemented several measures to discipline regional and local authorities. First, seven federal districts were created in May 2000 to supervise the implementation of federal legislation in the regions. Second, the legislators vested the president with the authority to suspend governors from their office if they refused to comply with federal legislation.3 Third, as a result of several amendments to the Law on the Formation of the Federal Council, governors and chairpersons of regional legislatures had to leave the Upper Chamber of the Russian parliament by January 1, 2002, and were replaced by appointed or indirectly elected regional representatives. Simultaneously, the share of the regional governments in the Russian consolidated budget shrank in 1999-2002, after considerable expansion in the previous years.4 Then, the new political party law and pending amendments to the electoral legislation aimed to secure the key role of federal political parties in electoral campaigns, including those at the regional level. …