LEFT TURN II

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Russia should pass into the hands of a responsible new elite

Solving Russia’s many urgent problems will require all its citizens to rally around a national idea. Russia needs to increase its population to 220-230 million, change the structure of its economy, and build up a new military from scratch.


It is commonly assumed that dozens, or even hundreds, of Russian politicians and administrators have ambitions to become president in 2008 – in order to control Gazprom and Rosneft, arms exports, and the three major national television networks.

But Russia is unable to compete, and the reserves of endurance laid down in the Soviet era are running out.

So the Russian Federation will approach 2008 with the following selection of objective problems. I wish to stress that they are objective, existing regardless of whether we want to think about them.

– The nation’s infrastructure is wearing out, thus increasing the risk of system-wide industrial disasters;

– The demographic crisis: due to Russia’s population declining at the rate of almost one million people a year, a number of regions in Eastern Siberia and the Russian Far East will see their Chinese population (mostly illegal immigrants) almost equal their Russian population; Chinese citizens will dominate various sectors of the Russian Far East’s economy – from retail trade to new investment projects in natural resources; the paralysis of a number of machine-building sectors, leading to the loss of about 3 million jobs as well as negative consequences for the structure of the economy; a system-wide crisis in the military-industrial complex;

– Scientific research, already suffering from a shortage of fresh blood, will move toward physical extinction; already, there are hardly any personnel under 30 engaged in basic research, and this will turn the existence of basic research into a chronicle of unpublicized death;

– Moscow’s de facto loss of control over the internal situation in the North Caucasus, especially Chechnya and Dagestan, which will see a drastic rise in activity by Wahhabi fundamentalists and other extremist groups; among the significant reasons for the Caucasus crisis is the unprecedented level of unemployment there, and the lack of any development program for the North Caucasus; the federal government’s entire participation in the fate of the North Caucasus comes down to periodic funding hand-outs, which are immediately stolen, thus exacerbating the power-struggle between governing-criminal clans for the right to steal every ruble of federal funding;

– the collapse of our Armed Forces; rather than being a modern military for Russia, they are a decaying and almost entirely ineffective remnant of the armed forces of the long-vanished USSR;

– the paralysis of the security and law enforcement system, which is accustomed to running protection rackets and other forms of specialized economic activity, but incapable of solving real problems, whether in the blazing Caucasus or other regions of Russia; and there is no question of the law enforcement agencies being capable of stopping the monstrous amount of illegal immigration in eastern Russia.

And those aren’t all the problems; only some of them. Are you still keen to move into the Kremlin, dear would-be successors to Putin?

With Vladimir Putin’s departure (at the lawful time, not a day sooner and not an hour later), Russia should pass into the hands of a responsible new elite: one that thinks of governance as long-term, perhaps thankless (at first) constructive effort, rather than nothing but distributing and redistributing assets.

Solving these and other serious problems will require the traditional mobilization of the whole people. Not mobilization as in labor camps, but creative mobilization – using the intellectual resources of tens of millions of our fellow citizens, on the basis of a common national idea. The people are accustomed to the authorities being infinitely remote from them, and not having a say in anything, and the “elites” not caring about them at all. The people need to regain a sense that Russia is our common country, mindful of and caring for all its residents, and they are also responsible for Russia. The first steps in achieving this are a qualitative change in the principles of state and social policy, a revival of democratic methods of governance, including state paternalism as an instrument for uniting the state and the people, acknowledging that the state and the economy exist in order to meet the people’s needs.

And that’s why we need that left turn: in order to overcome the pathological alienation of the elites from the people, the authorities from those who are governed by them. Unless we overcome this alienation we can’t have a common national idea, and without a national idea we can’t rescue and revive our country. Anyone who doesn’t like the word “left” is free to choose their own term. That doesn’t change the nature of the turn.

What’s more, a left turn is inevitable, because a new “left” cycle in Russian national politics has long since set in.

A policy program for 2020

The political and economic policy program for Russia’s ruling elite of the future (the program may be described as social or social-liberal; that would be accurate, if only partially) is calculated to span 12 years. That’s a reasonable time-frame for implementing it. And we shouldn’t think of 12 years as “three presidential terms.” This policy program can only be implemented effectively if Russia’s model of state politics is changed: if there is a transition to a presidential-parliamentary republic, with the president being the moral authority, the guarantor of Russia’s unity, commander-in-chief of the Armed Forces, the direct superior for the security and law enforcement agencies, and the central focus in shaping foreign policy ideology. Meanwhile, the entire range of economic and social issues would be handled by a government formed by the Duma and accountable to the parliament for the results of its efforts.

Moreover, we need to revive real federalism, move to electing regional leaders and federal senators, and establish real local government with the necessary powers and authority in financial matters as well as other areas.

Most of the fundamental postulates of this policy program can be implemented by 2020. Its goals are as follows:

1. Increasing Russia’s population to 220-230 million; this would make it possible to develop Eastern Siberia and the Russian Far East by the Russian people’s efforts, averting the prospect of Russia being dismembered as a result of “Sinofication” in its eastern regions.

2. Achieving the following structure for the national economy: 40% knowledge-based; 40% oil, gas, metals, licensed production; 20% agriculture, including processing and trade. The transition from an economy dependent on oil exports to a knowledge-based economy would make it possible to increase Russia’s GDP by 350-400% over 12 years: to $4-5 trillion. Note that GDP size here is just an indicator, not the end goal of development.

3. Preserving Russia’s territory and reinforcing its current borders, by methods including substantial investment projects in Eastern Siberia and the Russian Far East. Achieving this goal would require establishing large-scale centers of Russian business activity in the east and beyond the Urals. The volume of investment programs, which could be financed by private enterprise or as part of a private-state partnership mechanism, would reach $200 billion over 10-15 years.

4. Establishing a new version of the Russian Armed Forces, practically from scratch. We can no longer make do with the remnants of the military of another state – a state which has long since ceased to exist, as I mentioned above. The volume of initial investment in creating a new military would be around $50 billion.

5. Reviving education and basic research as a system for reproducing our nation’s intellectual resources. Such a program will require funding for basic research to be doubled or tripled.

Implementing this policy program will require around $400 billion in state investment and around $500 billion in private investment. The private investment is easier: it will stream into Russia as soon as the obviously inefficient “hierarchy of governance” phantom is abolished, full-blooded federalism is restored, and a responsible elite emerges, prepared to undertake responsibilities and give guarantees. The state investment is more problematic, as always. Where would the money come from?

Three sources.

1. Changing the regulations for the use of natural resources taxation revenue. According to the Kremlin’s forecast, Central Bank reserves will reach $300 billion by 2008: that’s an increase of $140 billion over three years. The Stabilization Fund has already collected $50 billion, and will accumulate $100 bilion over the next three years, given only minor changes in the reference price. Thus, the state will have $60-70 billion a year in spendable resources. These resources can and should be used to invest in our own economy.

2. Legitimizing privatization – via a special compensation tax – will bring in around $30 billion for the federal budget and targeted extra-budget funds.

3. Additional budget revenues generated as a result of changing economic growth rates. Growth of 12-15% a year, which is entirely achievable if we change the structure of the economy and our economic management model, would bring in around $20 billion a year in additional budget revenues.

Thus, there are sufficient financial sources to provide the required level of state investment.

Legitimizing privatization

Privatization during the 1990s should not be dismissed as entirely ineffective in economic terms. Yes, many of Russia’s largest enterprises were sold for token sums. But it should not be forgotten that the main goal of privatization back then wasn’t an immediate increase in budget revenues due to payments for the enterprises; rather, the goal was to establish the institution of effective property ownership. And on the whole, that objective was achieved.

All the same, privatization was ineffective in political and social terms – because over 90% of the people consider it unfair. So our fellow citizens do not accept the results of privatization, and these circumstances make continual, endless redistribution of property inevitable.

I propose that there’s no need for us to re-invent the wheel: let’s use the fairly successful system for legitimizing privatization that was used by the Labour Party in Britain – Tony Blair’s government – in the late 1990s with regard to infrastructure companies privatized back in the 1980s. This system entails applying what is called a tax on bonus revenues gained due to favorable circumstances. In Russia’s conditions, the tax could be set at the level of a company’s real annual turnover in the year it was privatized; and in order to take account of the money stolen by executives back then via figurehead companies, we should multiply output volumes by market prices, not being deluded by the entirely useless accounts produced according to Russian accounting standards.

In other words, anyone who wants to settle the question of whether their major industrial assets are owned legitimately (fairly) ought to make a tax payment equal to the company’s turnover in the year it was privatized, to either the federal budget or special targeted funds (such as the birth-rate stimulation fund, which pays grants to the parents of new-borns). Once the tax is paid, the property owner receives an unlimited “security certificate” from the state and society: his property is considered lawful and fair.

Legitimization should be the result of a well-considered pact between the state and property-owners (big business). Business owners who have long-term intentions of living and working in Russia ought to accept such a pact, based on the principle that it’s better to hand over some of your money today than lose it all tomorrow.

Based on my preliminary calculations, the quality of which is limited by the conditions of a shared cell and the Krasnokamensk prison, legitimizing privatization would bring in $30-35 billion for the state over three to four years.

Opening the floodgates

My critics say that Russia lacks suitable personnel to carry out large-scale transformations; everything would fail or be stolen in the process of reforms.

I categorically disagree. Members of the present ruling elite judge everything and everyone by their own standards. But I have the experience of creating Russia’s largest corporation – YUKOS. And this company’s rise from late-Soviet ruins to an international giant worth $40 billion was primarily due to its personnel policy.

If we had prioritized personal loyalty and sycophancy as recruitment criteria, like the Kremlin does now, YUKOS would soon have ceased to exist.

I’m astonished by the Kremlin’s reasoning on the topic of personnel: look, we don’t have enough specialists, we’re in trouble, we’re going under – but we still won’t let anyone else into our circle! We’d rather die than open the door to any professionals from outside our exclusive club! Well, the comparative results are plain to see. On the one hand, YUKOS as it was in 1995-2003; on the other, today’s Kremlin.

So don’t worry about that. Suitable personnel do exist, and they will be found. We’ll bring in new generations for real cooperation, and these generations will build the Russia of the future. And these people won’t steal their own future from themselves.

There can’t be any progress, any investment, or any development if there is constant fear of imminent theft.

Modernization as salvation

Russia’s present political elite seeks salvation for itself in rejecting modernization and attempting, as in the good old Brezhnev-era joke, to rock a stationary train carriage back and forth, pretending that it’s going somewhere. “Which station is this – Bologoye or Popovka?” But there’s no reply from the platform; the people are silent.

I’m not disputing that this is a good way of life for many bureaucrats and reapers of natural resources-status rent. For the next three or four years, until the alarm clock rings, inviting them to leave Russia for the beaches of any of the Maldives that haven’t yet been devoured by tsunamis.

Russia, however, must have a real modernization plan. Without one, it simply won’t survive in the 21st century. It won’t be able to meet the objective challenges of history. The outlines of that plan are already visible. Just over there, around the left turn.

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