Putin Claims He Cleared Up Soviet and Post Soviet Mess

January 30, 2012  

One must give Vladimir Putin credit. He has been churning out lengthy policy manifestos at the rate of nearly one a week. The first was on democracy and reform; last week was Putin’s take on the nationality issue and this week it was time for the economy.

Here Putin faced a challenge. Having been in power either as president or de facto president for the past 12 years, Putin had to respond to charges that Russia has a third world economy that is still dependent on the export of raw materials. There was large-scale capital flight and endemic corruption that discouraged talented Russians, who increasingly sought their fortunes abroad. On the face of it, this was not a glittering record for a presidential campaign.

Predictably, Putin blamed the legacy of the Soviet Union and the decade following its collapse, while arguing that his years in power had put the infrastructure in place for both takeoff and a successful fight against corruption.

The Soviet era (and this comes from a person with an avowed nostalgia for that era), meant that Russia was locked out of major markets and was technologically behind its competitors. This led to large-scale deindustrialization.

One could not go back to protectionism or the outdated Soviet model, he argued. That would impose backwardness as well as high costs upon Russian consumers. Russia had to choose and target advanced industries and give them priority. The state would have to help this process at the outset, because private capital would not take the risk of entering new sectors. Therefore, the state created government owned holding companies. This helped preserve talented manpower.

Russia also had to become a research driven economy, because competitors would keep advanced proprietary technologies for themselves. Therefore, the government seeded science centers and would step up financial assistance to them.

Russia needed to attract foreign corporations to sell their wares, then to move production lines to Russia, and finally, to create new technologies and products in Russia. They would do so only if Russia could provide world-class innovation.

Putin commented on the cost of housing and identified a paradox: Russia with a seemingly inexhaustible supply of land had an effective land shortage. The reason was that globally it was possible to build a home or factory 50 or 80 km away from a major city because the infrastructure was there. Russia, by contrast, became a wasteland 20 km away from the cities. If that situation were changed, land costs and housing costs would decline.

It was necessary to reduce government control and bureaucracy to encourage capital to both invest and stay in Russia. While it was once necessary to rein in the oligarchs who sought political control, it was now time to reverse course and liberalize the economy.

Putin referred to the fact that Kazakhstan was ranked 49 in terms of business friendliness compared to 120 for Russia. It was doable.

With Putin now posing as the great economic reformer, there will be little need for Dmitry Medvedev, who played that role with little practical effect during the last 4 years.

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