Russia now has a growing consumer class

The Economic Level -- Stimulation, Modernization, R&D, Liberal Labor Force, Social Welfare and Demographics

Stimulation

The key to advancing democratic principles and institutions is through economic growth built upon security. In fact, the key to advancing anything is economic growth whether it is a nation, business or personal advancement. Money and money flows are extremely important. Politicians can promise their constituents that they will institute many types of reforms and ideas but with no means to pay for it their promises are baseless and empty. This is why one of President Putin's main objectives was not only to keep the economy stable, but to stimulate it as much as possible. As he stated in his Address to the Federal Assembly on July 8, 2000:

"Russia needs an economic system which is competitive, effective and socially just, which ensures stable political development. A stable economy is the main guarantor of a democratic society, and the very foundation of a strong nation that is respected in the world."(117)

When President Putin took over as president he found an economic system in Russia that was close to the economic situation in Great Britain during the 1960's. In his book, The Struggle for Europe, William Hitchcock when describing Great Britain said:

"Without strong economic growth, the government found it hard to maintain its obligations to provide salaries to a huge public sector workforce, to provide pensions to the elderly, health care to the sick, education to the young, homes for the homeless and so on. Nor could the government maintain investments in new technologies or modernize the vast industrial sector..."(118)

Russia's Painful Transition During the Nineties and Energy Resources

The economic problems coming out of the 1990s were dire. There was high inflation, government revenue was shrinking, deficit was increasing, there was a currency shortage which led to wages, pensions, and scholarships not being paid, capital flight was increasing, personal incomes were falling, production was falling, banks were failing and there was a series of events which caused the loss of private savings. In order to combat these problems in the most effective and long term it was necessary to develop the vast supplies of the natural resources sector (see Appendix 7). Russia has the world's largest supplies of natural gas and the world's third-largest proven reserves of oil. As Harly Balzer write in his article, Vladimir Putin on Russian Energy Policy:

"Russia will need to rely on its mineral resources at least during the first half of the 21st century, and possibly longer. Used effectively, the resources can be the basis for Russia's entry into the world economy. Therefore, the sector is crucial to the entire life of state, supporting industry, providing 50% of GDP and 70% of export revenues, and creating conditions for modernizing Russia's military-industrial complex. The large number of "company towns," in the sector gives it a crucial role in preserving social stability."(119)

Increasing Foreign Direct Investment in Russia

In addition to developing the resources sector of the economy, Russia also has also taken advantage of reinvigorating its large military industrial complex. During the time of the Soviet Union, the military industrial complex was the main driver of the economy. Exportation of arms and military products has become now a big boost to the Russian economy. It represents 70% of Russia's science production. This has provided much needed income to the Russian state.
Once the economy has a net inflow of money and is able to sustain itself the government in order to ensure continuous growth in the future, the next step will be to diversify the economy. Russia under President Putin has stabilized the economy. As he stated on February 8, 2008:

"Over these last eight years total investment in the Russian economy has grown not by percentage points but has risen seven-fold. During the preceding period, annual net capital outflow was from $10 billion and up to $25 billion. But in 2007, we had record capital inflow of $82.3 billion. Stock market capitalization has undergone a fantastic 22-fold increase compared to 1999. In 2006, this indicator put us ahead of Mexico, India, Brazil and even South Korea, which has been showing very rapid growth. The stock market was worth $60 billion at the end of 1999, but by the end of 2007, it had risen to $1.330 trillion. Russia's foreign trade turnover has increased more then five-fold."(120)

Diversifying the Russian Economy Beyond Oil and Gas

Russia is also now in the beginning stages of diversifying the economy away from oil and gas. As President Putin further stated on February 8, 2008:

"We have begun major projects in the energy sector, transport infrastructure, machine-building and housing construction. We are carrying out structural reform in the aircraft manufacturing and shipbuilding sectors. We have attracted substantial investment to the car industry and the railway equipment sector."(121)

In order to continue and ensure the economic gains and keep the momentum going it is imperative that the economy modernize. This is done by simplifying the tax code, reinvesting in infrastructure, promoting research and development and promoting foreign direct investment.

Modernization --Taxes, Infrastructure, Research and Development and Foreign Direct Investment (FDI)

Modernizing the Russian economy is essential to maintain future growth. In addition pro-growth economic policies of law and taxes help ensure this feat. Modern infrastructure and enabling FDI is also a key to further diversifying the economy from oil.

When President Putin came to office the current tax regime was extremely burdensome on business. This stifled small business and prevented the development of a middle class. One of President Putin's first economic reforms was simplifying the tax code by creating a flat tax. This has had a profound and almost immediate effect on stimulating economic growth. As Daniel Mitchell states in his March 2003 article, "Russia's Flat Tax Miracle", from the Heritage Foundation:

"Russia's economy has expanded by about 10 percent since it adopted a flat tax. That may not be spectacular, but it's better than the United States, and it's very impressive compared to the anemic growth rates we see elsewhere in Europe. It also appears, conventional wisdom aside, that a low tax rate doesn't mean less money for government. Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent." He continues "Interestingly, the flat tax is just one of several positive reforms enacted by President Putin. Russia also has reduced the corporate rate of tax from 35 percent to 24 percent. (U.S.-based companies still pay 35 percent, the second-highest corporate tax among industrialized nations). Small businesses also get better treatment. The old system with high tax rates has been replaced by a new system where companies can choose either a 6 percent tax on gross revenue or a 15 percent tax on profits."(122)

However good economic policies are only part of the solution, for when business start growing the speed at which they grow is often determined by the infrastructure.

Russia's Infrastructure Buildout

Modern infrastructure such as roads, railroads, communication lines, electrical systems and energy pipelines are extremely important. These things determine when supplies arrive or get shipped, when orders are given or received for those supplies, whether or not there is enough power to produce the supplies to be shipped. These things keep the market moving. The faster these things work the more efficient it becomes in terms of time and therefore cost. This results in a more firm the economy. This also has an effect on military, mobilization and defense. A modern infrastructure also makes emergency response quicker and more effective which saves lives. This in turn means more tax revenue for the state.

A good way to bring about infrastructure and economic development is through Foreign Direct Investment (FDI). FDI helps bring economic change in a number of ways. For example, foreign companies work with local government to address issues from lack of efficiency because of bureaucracy, forcing it to become more open and efficient and helpful. Foreign companies provide labor thus decreasing local unemployment. FDI also takes economic pressure away from the government by having the foreign company share the infrastructure costs.

The Benefits of Foreign Direct Investment for Russia

FDI companies on average pay 50% more money to their employees than the local economy. This in turn brings about a better quality of life by foreign companies offering better services like health care. Domestic companies in Russia learn and realize that to be competitive they must improve their wages to compete for the work force and to modernize their methods of doing business. FDIs will also bring the willingness of the local population to be more open to new ideas.

By bringing in foreign companies there is a fusion of two cultural realities. The initial shock or reaction may be negative, which is expressed in a rise in nationalism, because people view the changes as a threat to their culture. But money, growth and modernization will trump all these over time, with the acceptance of the populace to these innovations.

The NIC Report stated in 2001, "Progress toward a market economy in Russia seems to be at an impasse. The economy could improve if Russia were to attract massive foreign investment." However under President Putin, FDI has increased substantially. As he stated on February 8, 2008:

"Over these last eight years total investment in the Russian economy has grown not by percentage points but has risen seven-fold. During the preceding period, annual net capital outflow was from $10 billion and up to $25 billion. But in 2007, we had record capital inflow of $82.3 billion."(124)

Russia: The Americans Are Here

American companies like Coca Cola, Pepsi, Microsoft, Google, John Deere, Kraft, Philip Morris and Intel have invested millions upon millions in the Russian economy and there are also significant contributions from European countries as well.

Research and Development in the Economy

Another economic problem that President Putin has had to deal with was the internal problem of a lack of R&D personnel. The term R&D refers primarily to the sciences, engineering and technology sectors of the economy, specifically nuclear and defense areas. Although it should be noted that other sectors of the economy such as industry, automotive, and agriculture were also effected by the mobility of R&D, this work is confined to those other sectors. In the field of R&D, Russia, during the period of the early 1990's, had a traumatic experience. A CRS Report in 1998 describes the situation as follows:

"If the U.S. government had reduced its research and development (R&D) funding by about 76% in real dollars from 1990 to 1996, the U.S. national R&D system would be in crisis. But even then, the situation in the United States probably would not have been as severe as is now the case in Russia, where that percentage of reduction in governmental R&D funding has occurred, because the United States has a large private-sector R&D system."(125)

Developing Innovation Centers in Russia

Today, due to the economic prosperity of the Russian Federation, new attempts are being made to revive this sector. Specifically in the Information Technology (IT) Sector, special techno parks or special zones have been created to established infrastructure in seven key regions, Moscow, Novosibirsk, Nizhny Novgorod, Kaluga, Tumen, Republic of Tatarstan and St. Petersburg. These regions are given tax incentives to promote the growth in IT. In addition, numerous changes in infrastructure are underway due to the significant increase in Foreign Direct Investment. This comes mainly through the energy, automotive and agricultural sectors.

The Role of Russia's "National Champions" and Comparison with French Model

A key component to a modern economy is the diversification of the economy. There is no doubt that a major source of Russian economic success over the past eight years has been the effect of the significant price increase in oil, gas and precious metals. In order to solidify these gains and simultaneously diversify the economy, the Russian Government has national "champions" or leading cooperations to drive development in different sectors. For example, Rosonanotech in the IT sector, United Aviation Cooperation in the aerospace sector, Rosoboronexport in the export and import of military equipment sector, Russian Railways Public Cooperation in the transportation sector, Gazprom in the sector of natural gas. In addition it should be noted that despite that these are state own companies, private companies may also be considered a state champion, for example LukOil and TNK-BP both in the sector of oil, the Alfa Group a financial-industrial conglomerate, Surgutneftegaz in the natural gas sector and Rusal in the aluminum sector.

The creation and promotion of these champions have often been cited as examples of Putin consolidating his power over the economy. This however is to drive the misconception further. When one looks at the developments of capitalistic economies this feature is common. As Andre Nilsen states in his report, Russian Capitalism, "So what we see in Russia under Putin is nothing new or unusual or bad. Public institutions coordinating the economy are long standing common features of French capitalism that have been integral to its comparative advantages"(126)

A More Flexible Russian Labor Force

The economic freedom by movement of people, specifically women, goods, and services through out the globalizing world are important factors when providing strong economic growth. When looking at the Russian labor market one should pay close attention to the role women play. Dr. Barnett points this out in his 2005 book, A Blueprint for Action, when he states:

"There is likewise a modern saying: "You can tell everything you need to know about a man by how he treats his woman." I maintain that the same is basically true for states and nations, as well, as religious institutions and civilizations. If a state treats its women primarily as birthing machines, it will neither develop economically nor succeed at globalization."(127)

It is also likely that the state will not develop democratically either. Barnett continues by stating:

"Once women are freed from the obligations of maximizing family size and related manual labor, they enter the larger, non-commodity workforce, as do their children. When a society has achieved enough success in industrialization, its children are subsequently held out of the workforce to be educated, and eventually the educational achievement rates of women approach those of men. At that point it is likely that you're living in a pluralist society, if not a democracy. It is also highly likely that your economy is globalized."(128)

Highly Educated Russian Women

The education of women is a key factor to economic growth and in turn, economic growth is a key factor to the development of democratic values in a society. Again Dr. Barnett points this out by saying:

"Nothing empowers women more quickly than education equal to men's. Moreover, nothing is more effective for triggering economic progress than education of girls. The benefit from educating girls is very direct: delaying the first pregnancy/sexual experiences has a hugely positive impact on the rates of fertility and sexually transmitted diseases (reducing both). Plus babies born to older females will tend to be healthier and better cared for, in large part because of the improved economic status that comes with both age and further education. Beyond that a more educated female population tends to improve the existing labor force significantly; which in turn boosts female participation in the political process."(129)

This transition is currently unfolding in Russia today. Over the past eight years, Russia's economic development has been one of the fastest growing in the world. One of the key aspects of this economic growth is the participation of women in the Russian labor market. According to the United Nations Report entitled, Gender Equality and the Extension of Women Rights in Russia, published in 2005:

"...the overall level of women's economic activity is still high in Russia owing to the fact that their continual participation in the labor force is necessary for the family budget as it was during the socialist times. In the majority of households, one worker cannot ensure the necessary level of consumption and prosperity. In addition, existent public traditions and women's high educational levels contribute to their high rate of employment. Women's participation in income generating activities is a socially acceptable standard of behavior. Women retain broad opportunities for employment and access to jobs."(130)

Bringing More Women into the Russian Labor Force

The report continues by saying, "The educational level positively and strongly affects women's participation in the labor force as compared to men, i.e. women receive more returns for their education in terms of improving their status in the labor market."(131)

Support for Working Mothers in Russia

The Russian government is also taking steps to make sure that the strong participation of women in the labor force continues, as well as to make it easier for them to have families. In President Putin's Address to the Federal Assembly in 2006 he stated:

Women planning to have a child face the choice of either giving birth and losing their jobs, or not giving birth. This is a very difficult choice. The program to encourage childbirth should include a whole series of administrative, financial and social support measures for young families. All of these measures are equally important but nothing will bring results unless the necessary material support is provided."(132)

He continues by saying:

"Women who had jobs but then take maternity leave and child care leave until the child is one-and-a-half should receive from the state not less than 40 percent of their previous wage. We realize that we will have to set an upper threshold from which this sum is counted. I hope that the government will work together with the deputies to set this threshold. Whatever the case, the total benefit should not be lower than what a woman who did not previously work would receive, that is to say, 1,500 rubles and 3,000 rubles respectively."(133)

President Putin also addressed the problem of getting women back into the workforce. In this respect he proposed introducing compensation for the expenses families pay for pre-school childcare. By keeping women as much as they can in the labor force, the government recognizes the vital role they play in developing a modern economy and through this a more democratic state.

Social Welfare - Russia's National Priority Projects

As economic conditions in Russia improve, so does the ability for the government to provide more beneficial social welfare. The Putin Administration announced in 2005 four crucial areas in which the government needs to focus it's resources. They are: Agriculture, Education, Housing and Public Health.

In the area of agriculture the goal of the project is to establish efficient agricultural development by transforming it into a more economically sustainable business. In addition to retain people in the sector of the project. This project focuses on cattle breeding, accessible loans and leasing, protective customs policies, support for private farming, and support for young professionals. It was allocated 1.08 bln Euros in 2007.

In education, the goals of the project focused on ways to stimulate innovation, provide schools with internet access, support talent and upgrade school equipment. It was allocated 1.03 billion Euros in 2007.

Concerning housing, the goals of the project focused on providing affordable mortgages, increase construction numbers, improve infrastructure and support young families. For the years 2006 and 2007 this project received a combined budget of 6.18 bln euros.

The project concerning public health focused on improving the health of Russia's population, making healthcare more accessible, increase preventative healthcare and implement modern technologies. It received a budget of 3.5 billion euros.

Given the scope of these projects, it will be years if not decades for the results to be seen. However since the creation of these projects there have been significant results. In the field of agriculture there has been an increasing amount of harvest. The harvest of 2007 exceed 2006 by 10%. In housing, the promotion of mortgage lending has led to $12.5 billion in loans. In the education sector, the government has significantly increased the number of schools connected to the internet and hopes to have all 60,000 schools connected by years end. Finally in the health care sector which is often sited as Russia's most dire area, the project has been able to provide much needed equipment. As Jason Bush writes in his article, Russia's New Deal, in the city of Ekaterinburg "Hospitals have received 115 new ambulances and more than 60 X-ray machines, and the government has doubled the pay for general practitioners, to an average of $920 a month. Now there's a big push under way to set up 250 clinics in smaller communities throughout Sverdlovsk."

Demographics - Russia's Efforts for a Turnaround

A country with a dying population quickly falls behind other developing countries. Due to the traumatic experiences of the 1990s, Russia population was decreasing at alarming rate. As the BBC reports on June 23, 2005:

"According to their calculations, the decline is equivalent to 100 people dying in Russia every hour. The subject has received international attention, with the UN warning that Russia's population could fall by a third by the middle of the century."(134)

President Putin has put forth a reform plan that is finally starting to show results. As he stated on February 8, 2008:

"We have checked the falling birth rate and rising death rate. As you recall, we drafted a demographic programme not long ago. Many doubted that the state investments this programme called for would be of any use. Today I am happy to say that they have been of use. The birth rate grew faster last year than at time in the last 25 years, and more children were born in the country than were born over the last 15 years."(135)

Building Confidence in Russian Society

By creating economic strength, President Putin has fulfilled a major promise as leader which gives him more political clout to bring about more changes. Economic stability also brings about international investment and trade and further opens up Russia to the world. It is through the economic growth over the last decade that people in Russia are just now beginning to feel more secure and confident about the economy. Confidence, like most important issues in a developing country, takes time to develop. However once the confidence is established and the fear of a financial collapse starts to decline, the society begins to demand more equality and freedom in other areas. The stabilization of the ruble, the significant increase in GDP, the ability to control inflation, the decrease in unemployment and the rise of wages all lead to a growing confidence in the market and economy. People naturally take the next step by concluding that once they are in control of their own finical situation, they will want more input in political policy.

The Rule of Law Level -- Oligarchs, Corruption, the Siloviki, Modernizing the Judicial Court System and Civil Society

The aim of every political constitution is, or ought to be, first to obtain for rulers men who possess most wisdom to discern, and most virtue to pursue, the common good of the society; and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust. - James Madison Federalist #57

Only a state that has developed and modernized a system based on the rule of law can be legitimized in the view of the world and be held accountable to its citizens. Concurrently the establishment of rule of law is necessary for the citizens of that country to accept its legality. However in order to provide authenticity a nation must first establish institutional order. As Berger and Luckman explain in their book, The Social Construction of Reality:

"First, the totality of the institutional order should make sense, concurrently, to the participants in different institutional processes." Further on they state, "Second, the totality of the individual's life, the successive passing through various orders of the institutional order, must be made subjectively meaningful."(136)

Creating Legitimacy in Russian Society

Once the institutional structures are there, the state can then build a process of legitimating it. As Berger and Luckman state, "Legitimation "explains" the institutional order by ascribing cognitive validity to its objectivated meanings."(137)

Russia in the 1990s had established judicial institutions and attempted to establish rule of law with limited success, if at all. However it was through President Putin's term that the Federation attempted to bring the system legitimacy. He has done this by reigning in the oligarchs, which has had an impact on corruption, and limiting the effects of the shadow economy or black market and by stimulating a civil society. However, it should be noted that this process will take exceedingly longer than the previous levels of security and economic development.

Russia's Oligarchs

One of the most difficult challenges to establishing a transparent system of Rule of law was the Russian Oligarchy. Stephen Fortescue defines oligarchy in his book, Russia's Oil Barons and Metal Magnates as:

"Oligarchies -- small groups of people with economic power who use that power to make significant claims on political power -- are most likely to appear when politico-economic systems are going through rapid and challenging change." (138)

The common belief of Westerners today due to the media reports is that the Russian government is instituting a command and control structure of economy similar to that under the Communist regime. If the truth be told, the government does control some sectors of strategic resources most notably oil and gas. The reasons for which are not readily explained in the right context. For example, when all major companies went private in the 1990s they quickly fell into the hands of the wealthy few, the oligarchs, who took advantage of the lack of legal infrastructure. They hired remnants of the KGB and military as their private security force and army, which functioned like the Mafia. The oligarchs collected all the money for themselves and neglected their obligation to pay taxes. Stephen Fortescue states in his book:

"The oligarchs used illicit means of various kinds, including corruption and extreme violence, to build up their start-up capital. They then used their newly acquired capital to further pervert the political and bureaucratic process in order to seize the most lucrative and strategic economic assets, particularly in the media and resource sectors."(139)

The Cost of Oligarch Control in the Nineties - A Bankrupt State

This deprived the government and the people of billions in revenue. The oligarchs stole and denied millions upon millions of people their pensions and life savings. They put millions of people on the street and added a huge social burden to the state which during the time of the 1990's, it could not handle. In essence they created a class of poor people. The Russian oligarchs, were worse than the American monopolists and robber barons of the 19th century in the fact that they destroyed parts of society. Joseph Stiglitz stated that "America's robber barons created wealth, even as they accumulated fortunes. They left a country much richer, even if they got a big slice of the larger pie. Russia's oligarchs stole assets, stripped them, leaving their country much poorer." When these factors are added to the economic crisis of 1991, 1993 and 1998 the situation was dire. In addition, the oligarchs actively and not discretely, bribed members of the Duma, High Council and the members of the Cabinet. Some question Yeltsin himself, which incidentally is why he was pardoned by President Putin as soon as Putin came into office. As Stephen Fortescue states:

"Despite his silovik origins and orientations, as a politician Putin is strongly committed to maintaining a high degree of popularity among the general voting population not least because he does not want to find himself in the situation in which Yeltsin found himself, of having to surrender to the oligarchs because he had no support anywhere else."(141)

Putin Versus the Oligarchs

In order to control the situation created by the oligarchs, President Putin did what others have done in the past, most notably was how U.S. President Herbert Hoover dealt with the famous gangster Al Capone, he arrested them for tax evasion. When the pressure mounted which was mild at best, President Putin did not detain all of them; and the oligarchs successfully pleaded their case to the media. By using the media outlets which they controlled through ownership, bribes and intimidation, the oligarchs successfully garnered western support. The oligarchs presented President Putin as a dictorial leader who was hampering business and bringing back authoritarian rule. The pressure mounting against the oligarchs caused some oligarchs to leave Russia and still today actively and publicly state how they are trying to over throw the government. The good example of the influence of the oligarchs was in the realm of the media.

How Free is the Russian Media?

One of the most cited examples of Russian Authoritarianism in President Putin's policies is his apparent "attack" on the free press in Russia. The question is however, how free was the press before Putin's so called "attack"? The problem was that due to the lifting of restrictions of the media during the 1990's, the media outlets were quickly bought up by oligarchs who were not presenting a "free press". The oligarch in control of the outlet dictated to the press what to report and how. This reality is a far cry from a free, unbiased and uncontrolled media. Andrew Jack points this out in his book, Inside Putin's Russia: "At the same time, businessmen began to see the importance of influencing public opinion through the media. Soon they were using individual journalists and entire media outlets in their own commercial and political battles."(142)

Oligarch Influence Versus State Influence

During most of the 20th Century, the Russian media was in fact controlled by the government. The press was part of an elaborate propaganda machine and, to a certain extent, brain washing mechanism of the communist state. During and after the transition, however the control quickly shifted from the government to the oligarchs, but the methods of reporting were the same. The message had changed but a different boss dictated the message. As Richard Sakwa states in his book, Putin: Russia's Choice, "Under Yeltsin most of the press and much of the electronic media had fallen under the influence of the individual oligarchs, who then proceeded to use the media as a weapon in their struggle against each other and to influence the policies of the state."(143)

Corruption as a Deterrent to Honest Reporting

There is currently a problem dealing with corruption on all levels of Russian society. While inroads were made this area is still a focus of continuous strong reforms. It is particularly difficult to counter corruption when the only source of connection from the President and his administration to the Russian people is vastly sullied and presents false information through an exceedingly biased point of view. In addition to building a country almost from scratch, President Putin had to strengthen public confidence in the government. In order to build public assurance the government needed to inform the public of the work the government is doing or attempting to do in the most unbiased way possible. This proved extremely difficult when the major Russian media outlets are controlled by oligarchs whose goals are the spread of their own agenda and not the unprejudiced reporting of the news. Andrew Jack author of, Inside Putin's Russia, points out that during an interview with the oligarch Boris Berezovsky (former owner of NTV) he went so far as to say, actually boasted, "What the media writes is rubbish. In any case, I dictate half of what you read in the press".(144)

Loss of Public Credibility Due to Corruption of "Free" Media

Another problem is that there has never been an established culture of free press reporting in Russia. This is unlike most Western countries, most notably the U.S., which has had a long history of freedom of the press and understand the nature of the beast. Media freedom is a new concept for Russia and one that needs time to adjust. Jack describes this in his book: "It also contrasted with the Russian tradition in which many journalists considered themselves writers above all, with stylistic flourish and expression of opinions being seen as more important than gathering or verifying the facts. The results were catastrophic for the liberated media."(145)

Corruption of this kind was placid at best. Jack describes in his book attempts at out right control of the Russian government. Describing a situation in which Vladimir Gusinsky is quoted as saying to future President Putin, "I understand that you have very little chance of becoming President, but if we work with you and you do what we say, we'll try to make you win. And we need $100m in credit."(146)

Every year Freedom House releases it's report on media freedom in the world. The Freedom House Report stated in 2005:

"Rather than seeking democratic controls over the state, Putin is effectively establishing broad networks of informers through which the Federal Security Service gathers information about society. The president apparently sees such a system as a replacement for a free media that would openly discuss the society's problems."(147)

Is the Russian Media Under Government Control?

The government does have a controlling stake in a number of media outlets. However, as Jack states in his book, "Russia still has considerable freedom of speech. The Internet carries all sorts of inflammatory and unverified information, and there are hard-hitting factual and fictional books, as well as newspapers and magazines in Moscow and even the regions that offered a diet of scandal." Similarly Mr. Petro provides an alternate point of view when he states:

"To sum up, under Putin, for the first time in modern Russian history, independent media have become profitable. The typical Russian media conglomerate today is a mixture of foreign investors, Russian banks and local governments. If a local project goes national, as in the case last year of St Petersburg's Fifth Channel, the shares owned by local governments are often bought out by private investors. Russia already has more private media outlets than any other European country, and as long as advertising revenues continue to rise 15% and more each year (87% annually on the Internet), privatization will continue its unstoppable advance."(149)

Limits on Foreign Ownership of Media Outlets in the U.S. and Russia

Another aspect is that the Kremlin wanted to limit the amount of foreign investment in the media. This again was seen as a huge hindrance to freedom of the press. What is interesting is that in the United States the country who invented the notion of "free press" has law limits foreign ownership of media, to 25%.

Providing an unbiased, free access and respectable news to citizens is difficult in all democracies. However unlike Russia which has to deal with oligarchs who control the message, in the U.S as well as in other democratic states the west has to deal with the influence of money on the message. The misconception that the Russian media is completely controlled by the government is unfounded.

Combating Corruption in Russia

In order to advance a democratic society, transparency must be established and the abomination that is corruption must be countered. Corruption for the purpose of this paper will use the definition put forth by Frank Anechiarico and James Jacobs in their book, The Pursuit of Absolute Integrity, "Corruption is the name we apply to some reciprocities by some people in some contexts at some times. The popular use of the term does not require that the conduct labeled corrupt be illegal; it is enough that the labeler thinks it is immoral or unethical."(150)

President Putin's aggressive pursuit of the corrupt businessmen forced some into self imposed exile while others fled to the regions to be their own little czars by bribing their way to local governorships. These regional leaders produced a multitude of new regional rules and regulations. In addition they both reduced and diverted funds and revenues away from the federal government and into their own coffers and those of their favored oligarchs. Electoral politics in the regions became corrupt as local mafias and business interests became the primary backers of gubernatorial candidates and their campaigns. They controlled the elections; blunting any influence from Moscow.

Russian Regional Governors and Corruption

By pushing the corruption out of the capital to the regions and from the regions to local cities and towns' reforms slowly limited the effects of major corruption. In addition to the security benefits of the governors reform bill there is also a benefit to the establishment of the rule of law by which the local governors are responsible directly to the President. If they fail to show positive results in their region or are corrupted they are replaced. Putin ended the Yeltsin era regional policy of "take as much sovereignty as you can swallow".

The Success of Investment Compared to Wasted Foreign Aid

President Putin has also not only ensured the increases in FDI, from $4.4bln in 2000 to a projected $40bln in 2008, but also increasing amounts of FDI goes to the regions outside Moscow and St. Petersburg. FDI is severely less corruptible and can significantly influence the development of a positive local legal infrastructure. Other cities are quickly developing and competing with each other for FDI. Cities like Nizhniy Novgorod, Novosibirsk, Tomsk, Samara and Kazan are all starting to get more financial and global attention. Thus, money is being pulled out of Moscow and St. Petersburg and therefore bringing more financial resources to the country as a whole. FDI brings a new culture of business in which the host or developing country will have to adapt in order to receive the investment. This helps the host nation become more efficient and in the end help become more self sufficient. FDI businesses also learn how to acclimatize to a new business culture. Again FDI not only demonstrates an effective way to diversify the economic but FDI also is effective in helping establishment local business rules.

Politicians ineffectively throw money at the problem of corruption. This however just feeds more corruption. An example would be the lack of democratic development in Sub-Sahara Africa during the last 60 years. The United States alone has given more than $600 billion in foreign aid to Africa in the hopes of developing the continent however due to the fact that the donated money falls into the hands of corrupt officials, this has had little effect.

Leveraging Oil and Gas Resources Across the Board

In order to gain more legal permanence in addition to stimulating the economy, President Putin nationalized some "champion" companies in the strategic sector most notable oil and natural gas. This was to ensure that the state would get the revenues from the sale of the resources and they would not fall in to the hands of a few businessmen who would then proceed to transfer the money out of the country. If this were allowed to happen as was demonstrated in the Yeltsin years, there would be no development of the infrastructure, any reinvestment, and avoidance of social responsibilities. Significantly, a number of the modes of transporting the resources, specifically the electrical conduits, are privatized or in the process of being privatized.

Shutting Down Black Markets and Intellectual Piracy in Russia

One of the most challenging problems that have had a major effect not only on Russia's economy but also on the rule of law is the influence of the black market. According to an article in The St. Petersburg Times on November 29, 2005, 87% of computer software in Russia is pirated. An effective way to combat this is by joining international agreements and forcing a nation to not only enact but also enforce global intellectual property laws. During the course of Putin's presidency laws on trademarks, patents and copyrights were all strengthened by changes in 2002, 2003, and 2006 respectively.

In addition, the black market affects other consumer goods such as alcohol. This has contributed to one of Russia's major demographic problems as well, which is alcoholism. This problem has plagued Russia for centuries. After the dissolving of the Soviet Union however, this problem only got worse due to the effect of "bootleg" alcohol.

Russia Joining the WTO and Shrinking the Shadow Economy

By joining the WTO, Russia will be taking very important steps in limiting the effectiveness of the black market. Due to Putin's economic reforms, specifically the 13% flat tax, that percentage of Russia' GDP that was in the "shadows" or black market has shrunk from 50% in 2000 to roughly 25% today. This is an increase of legitimate business practices of 25%.

Putin's Allies - The Siloviki

The political personnel in positions of power in Russia has changed over the course of Russia's democratic development. During the Yeltsin years it manifested itself in big business and oligarchs. This was due mainly to the big business community being the base of Yeltsin's support. They benefited from the reforms or lack of reforms instituted by the Yeltsin administration.

The Putin Administration put the clamp on influential big business, but this led to the rise of what has become known as Putin's, "siloviki". The word "siloviki" comes from the Russian word for "force" and is a reference to a group of politicians who are from old security and military service. Due to Putin's KGB background and series of security contacts, many soon took prominent positions within the government. This should not be necessarily alarming and in a sense, is a mutated version of U.S. President Andrew Jackson's spoils system. Something that is very common in democracies both in the United States and in Europe. As Ann Orloff and Theda Skocpol write in their article, Why Not Equal Protection? Explaining the Politics of Public Social Spending in Britain, 1900-11, and the United States, 1880s-1920:

"In some European absolute monarchies state bureaucratization preceded the emergence of electoral democracy... When electoral parties finally emerged in such countries they could not get access to the 'spoils of office,' and therefore had to make programmatic appeals...But, in the countries where electoral politics receded state bureaucratization...parties could use government jobs and policies as patronage."(152)

Some political commentary, such as William Safire, gives the impression that this is a government dominated by siloviki. As he states in his article, "Siloviki Versus Oligarchy":

"Russia today is ruled by Vladimir Putin's siloviki, former K.G.B. men and military officers who have the nation by the throat. That power-hungry Mafia (the Russian word is rooted in "power") brooks no opposition from either the small band of democratic reformers or the political leftovers from the Yeltsin regime."(153)

Indeed, some of Putin's closest colleagues are old associates from the KGB. However further analysis shows that they do not form some centralized cabal turning Russia into a police state. Instead, they appear to have diverse backgrounds, which include extensive experience in business or in St. Petersburg city government after the fall of the Soviet Union. Aside from Putin, there is no central coalescing figure for the "siloviki". Some "siloviki" follow their own path (like Sergey Ivanov), and there are reports of factions within the "siloviki" that compete for power and influence. The "siloviki", like other members of the elite, have a corporate interest: to protect their own positions and thrive in a post-Putin administration.

An alternative view of the influence of the "siloviki" has been put forward by Bettina Renz of King's College, London. She writes that of 47 leading officials in the Presidential Administration in 2005, only 9 had backgrounds in the security services, and none of those 9 occupied any of the top three positions. Of 10 Presidential Advisers, only 2 were "siloviki".(154) This is further evidence of influential media personal advancing a perception that is not entirely true.

Modernizing the Judicial System and the Creation of Civil Society

In order to combat corruption effectively there needs to be in place a successful court system that is not susceptible to corruption. The judicial process needs to be open, fair and consistent. Due to the heavy influence of the oligarchs and corruption during the 1990's, this judicial reality proved to be non-existent. Over the course of the past few years however a difference is starting to take shape. The Western media and think tanks fail to recognize and report this progress. For example the Freedom House Report again paints a very negative view of the situation, "The executive has continued to assume increasing power over the legislative and judicial branches."(155) A CRS Report in 2006 states, "The courts are widely perceived to be subject to political manipulation and control." (156)

These negative aspects however are not the entire picture. Again to put a more accurate view of the situation Mr. Petro states:

"Reading the Western press one would never know that since Putin became president, citizens' use of courts to redress grievances has risen sevenfold, and that 71% of plaintiffs win their cases against the government. Largely unbeknownst to us in the West, dramatic changes are transforming the Russian legal landscape. In 2006 alone, laws were passed that virtually eliminate closed judicial proceedings, expand the rights of defendants to call witnesses on their behalf, specify that government officials must respond to a citizen's requests within 30 days, create a nationwide juvenile court system, and add significant new privacy protections for individuals. Over the next five years, nearly US$2 billion will be injected into the judicial system to enhance its openness and public accessibility. The Russian Association of Lawyers has received government funding to establish a nationwide network of support centers where citizens can turn for free legal advice." (157)

NGOs Mushrooming in Russia

In addition the legal system needs to become more efficient. The judicial bureaucracy can be a tremendous burden on the status of the rule of law. Registration procedures need to be clarified and enforced. This was shown in the NGO Law which was harshly criticized as an assault on civil liberties and civil society. "This unprecedented assault on the work of human rights groups will invariably undermine the rights of all Russians," said Holly Cartner, executive director of Human Rights Watch's Europe and Central Asia division.(158) However there is a reality that is not written about in the media. Mr. Petro states:

"And speaking of NGOs, while the view that they are under threat has been widely popularized, no major media outlet has bothered to explain how their number has swelled from 100,000 when Putin took office to more than 600,000 today. Western financial assistance is certainly not the key, since foreign donations constitute only 8.4% of all donations to civic organizations. Could it be that the severely criticized NGOs legislation of December 2005 has actually proved beneficial?"(159)

Furthermore according to David Koeing who writes for AmCham magazine published in 2006, "Registration no longer falls under the controls of the local officials; denial is restricted to set reasons; and any administrative actions have to be done under court supervision."(160) This again proves that Russia's civil society is moving, albeit slowly, in the right direction and towards a more transparent judicial system.

Taking on Gambling in Russia

In addition to addressing these major issues, President Putin has also attempted to reform some of the causes of crime, poverty and lack of civil society by limiting gambling to specific regions away from Moscow and St. Petersburg. Although in many instances gaming has a good economic income for cities, most notable the American cities of Las Vegas and Atlantic City, there are concerns of the influence it has on society. There have been suggestions that wide spread legalized gaming has a link to crime, corruption and poverty. It is no wonder then, similar to the U.S., Russia has supported the limiting of gaming.

Under President Putin, a major reform in the gaming law is hardly noticed, if at all by the western press. Under this new law gaming will be restricted to only 4 of Russia's 83 Regions. It will be banned in Moscow and St. Petersburg with the hope that it will decrease crime, corruption and poverty while bringing more economic output to poorer regions. By limiting the gaming industry to these regions the government will be adding a billion dollar industry that will create jobs, attract FDI, and also raise the living standards over all. As an article in the American Chamber of Commerce (AmCham) magazine states:

"For gaming to be both acceptable to society and also successful, it needs to operate in a well regulated environment. Contrary to popular opinion, professional operators and suppliers spend a great deal of time and effort to lobby for proper regulation. In fact, a well regulated environment is usually a pre-condition before most operators and game suppliers will invest in a market."(161)

The reform does not ban gaming outright in all the regions, but similar to Las Vegas and Atlantic City, gaming in Russia will be similar in design.

The Succession from Putin to Medvedev

Finally in order to build respect for the rule of law in Russia the leader of Russia must follow by example, i.e. President Putin's committed decision to adhere to the limits of the constitution and step down as President. Thereby giving up the reigns of power to his successor is a powerful signal that demonstrates the limitation of the leader. As George Washington said in his farewell address, "Satisfied, that, if any circumstances have given peculiar value to my services, they were temporary, I have the consolation to believe, that, while choice and prudence invite me to quit the political scene, patriotism does not forbid it."(162) In addition, Berger and Luckmann state, "The problem of legitimation inevitably arises when the objectivations of the (now historic) institutional order are to be transmitted to a new generation".

Medvedev's Task

Of the three areas that have been discussed thus far in this paper the establishment of the rule of law is by far the most challenging. This area will be the main focus of the next administration. Despite that there has been achievements in this area, most notable the increase of the use of the court system, the deacrease of the black market and the modernaziation of the NGO laws there is a tremendous amount of work that needs to be done. The next President Dmitri Medvedev, who is a laywer by training, will have to address and bring to and end the era of judicial nihilism that has engulfed the Russian state.

Endnotes

(117) Putin, Vladimir: Address to the Federal Assembly, July 8 2000 www.kremlin.ru
(118) Hitchcock, William J. 2002 "Rule Brtannia". In: The Struggle for Europe. Doubleday, New York p. 312
(119) Balzer, Harley "Vladimir Putin on Russian Energy Policy" - http://www.inthenationalinterest.com/Articles/November2005/November2005Balzer.html
(120) Putin, Vladimir. - http://www.kremlin.ru/eng/speeches/2008/02/08/1137_type82912type82913_159643.shtml
(121) Ibid
(122) Mitchell, Daniel. "Russia's Flat Tax Miricle" March 23rd 2003 - http://www.heritage.org/press/commentary/ed032403.cfm
(123) NIC Report 2001 p. 17
(124) Putin, Vladimir - http://www.kremlin.ru/eng/speeches/2008/02/08/1137_type82912type82913_159643.shtml
(125) CRS Report 98-739 - http://www.ncseonline.org/nle/crsreports/science/st-37.cfm
(126) Nilsen, Andre. "Russian Capitalism" http://www.oxfordgovernance.org/fileadmin/Publications/EB002.pdf
(127) Barnett, Thomas PM. "Blueprint for Action" New York G.P. Putnam's Sons 2005
(128) Ibid
(129) Ibid
(130) United Nations. Resident Coordination in The Russian Federation. Gender Equality and Extension of Women Rights in Russia. New York: 2005.
(131) Ibid
(132) Putin, Vladimir. "Annual Address to the Federal Assembly" May 10th 2006
(133) Ibid
(134) BBC Russia's Population is Falling Fast - http://news.bbc.co.uk/2/hi/europe/4125072.stm(135) Putin, Vladimir. February 8th 2008 - http://www.kremlin.ru/eng/speeches/2008/02/08/1137_type82912type82913_159643.shtml
(136) Buger and Luckman p. 92
(137) Ibid p.93
(138) Fortescue, Stephen. "Russia's Oil Barons and Metal Magnates" palgrave macmillian 2006 p. 3.
(139) Fortescue, Stephen. p.13.
(140) Stiglitz, Joseph. "Globalization and its Dicontents" Penguin, London, 2002 p. 160
(141) Fortescue, Stephen p.11
(142) Jack, Andrew. p.139
(143) Sakwa, Richard, "State and Society", In: Putin Russia's Choice" Routledge, London 2004 p.107
(144) Jack, Andrew. "Shooting the Messenger" In: Inside Putin's Russia. Oxford University Press 2004 p.140
(145) Ibid. Jack Andrew p. 139
(146) Ibid Jack, Andrew p.135
(147) Freedom House Report 2005 - http://www.freedomhouse.org/template.cfm?page=47&nit=366&year=2005
(148) Ibid Jack, Andrew p. 172
(149) Ibid. Petro, Nicolai 2007
(150) Anechiarico, Frank and James B. Jacobs, The Pursuite of Absolute Integrity. Chicago. University of Chicago Press, 1996 p.3
(151) Lissovolik, Yaroslav. Russia's Comeback: From Fragmentaion to integration. May 5th 2008 http://www.prime-tass.com/news/show.asp?topicid=0&id=437858
(152) Orloff, Ann Shola and Theda Skocpol."Why Not Equal Protection? Explaining the Politics of Public Social Spending in Britian, 1900-11, and the United States, 1880's-1920." American Sociological Review. Vol. 49, (1984), 726-750
(153) Safire, William. Siloviki vs Oligarchy, New York Times. November 5th 2003
(154) Bettina Renz, "Putin's Militocracy? An Alternative Interpretation of Siloviki in Contemporary Russian Politics," Europe-Asia Studies, Vol. 58, No. 6, September 2006, pp. 903-924. See also Bettina Renz, "The Siloviki in Russian Politics: Political Strategy or a Product of the System?" RussianAnalytical Digest, No. 17, 20 March 2007, pp. 2-6.
(155) Freedom House Report 2005
(156) CRS Report 2006 - http://fpc.state.gov/documents/organization/66504.pdf
(157) Ibid. Petro, Nicolai 2007
(158) Human Rights Watch - http://www.hrw.org/english/docs/2005/12/28/russia12349.htm
(159) Ibid Petro, Nicolai 2007
(160) Koening, David, "The NGO Law", In: AmCham News, December 2006 p.16
(161) AmCham News #75 p. 12

Kevin Cyron is a native of Burke, Virginia, USA and a graduate of Marymount University in Maryland. Mr. Cyron has worked on the staff of Congressmen Dennis Kucinich (D-OH), Steny Hoyer (D-MD) and the Organization for Security and Cooperation in Europe (OSCE) in Washington D.C., and for an MP in the European Parliament in Brussels. In 2005, Mr. Cyron moved to St. Petersburg, Russia to begin his Masters degree in European Studies the following year. While completing his Masters, Mr. Cyron worked for the American Chamber of Commerce in Russia. Mr. Cyron graduated from St. Petersburg State University with an M.A. in Sociology in June 2008.