October 1998

Russia a country in change

Russia a little history

The dissolution of the Sowjet Union and the consequent resurrection of Russia and several other new countries started a process of change which was underestimated by most people.

The whole geographic, political and economical structure of the region changed by the dissolution of the former dominating entity. Everything had to be reshaped in the region, where as Belorussia and the Asian republics continued more or less with the old structure and the same old political elites in power, Russia and to a lesser extent Ukraine had to introduce new ways of political and economical organisations.

Russia turned into a kind of democracy with a parliament and a strong president. The power of the president is very large he only needs the parliament for the permission to install a new prime-minister who is proposed by himself and to introduce new legislation. If necessary he can however rule on his own by decree. The regions in Russia have become very powerfull in this time because of the lack of a strong central control/policy.

The parliament, the Duma, is controlled by former communists and other nationalistic parties which want to reinstall the former Sowjet Union or want to resurrect a strong Russia. The actual power of the Duma is limited but they can and will use every mean available to destruct the policy of the presidents prime minister. A what Marx called a “verelendung”, deteriorating, of the economy and state could be benificial to their own goals and agenda.

The situation of the economy has also deteriorated. The privitisation process have been very painfull and to slow to create new chances for the future. The many unprofitable companies lost a lot of there customers because of competition from foreign companies and the irregular and bad quality of the products which are produced in Russia. The absence of a fair and functioning tax system eliminated the solvability of the Russian state and the means to stimulate the Russian economy. The dropping commodity prices finally destroyed all hopes of Russia to go on and this was essentially the famous last drip after which the crisis started.

Russia is in a very bad situation, there is no clear leadership, the legislation is non-existent or will limit economic growth and the several regions are beginning to introduce laws and programs on their own.

Future development

The future of Russia is a very complicated one. They are at the cross roads to further disintegration or with a lot of work, hardship and luck to a new booming Russia. Everything seems to be possible.

There are a lot of possible scenarios which might possible to happen in Russia. The potential of Russia is enormous. The intellectual or educational potential is among the best in the world. The natural resources are on average the largest in the world. And finally there can be created a market which belongs to the top five in the world. The policy and attitude of the leaders and people will be the decisive factor what is going to happen. We will give a short comment on the situation and two scenarios, a worst case and a best case scenario.

Russia return to might

If Russia wants to be on the road to economic well being the goverment has to act as a government. The president and parliament have to forget rivalries and political agendas, they have to cooperate. Russia is in need of a government which clearly leads the country and introduces and executes general and taxation laws which stimulates the economy and the start of new companies. The companies have to be competitive and deliver products which are demanded by the market. An upswing of the economy will create jobs and will give the government the opportunity to pay off their debts and the wages which they owe to pensioners and workers at state enterprises. Only if the private companies start to grow a restructure of the economy and the state enterprises will have a viable chance.

A rise in the prices of commodities and energy, which is not very likely for commodities on the short term but the perspective looks a bit better for energy/oil, would make things a lot easier. If the government has to stomach to limit the influence of the Russian oligarchs which control a large number of important and profitable businesses they could use the natural richess of Russia to develop the country. The existence of the oligarchs is not perse negative but the Russian variant has the nasty habit to move the profits out of their businesses and country instead of re-investing the profits in the Russian economy.

The end of Russia

Another option is the further disintegration of Russia. The economic problems and the weak central power together with the more powerfull and confident regional leaders will put a lot of pressure on the Russian federation. The nearly paralysed and ineffective federal government forces the regional governors to solve the problems on their own. If those leaders have to do even more to save their region they will get even more control over the running of their region. Consequently the temptation increases to limit the central influence even more and create a de facto independent region.

The ambigious process of lesser central control and support and the increasing power of the regional leaders could become the fuze which will blow up what is left over from the Sowjet Union and Russia.

The inability of Moscow to support the regions which are instabile and in need for support will speed up the disintegration process. An example of such a region is Dagestan. Dagestan is dependent on central support, 65 % of their budget comes from Moscow. If Moscow fails to support them they will be drawn unevitably in a same kind of conflict as in Chechnya. Another example is from Krasnojarsk, Moscow was unable to pay the wages of the military forces which are situated in the army nuclear base in Oezjoersk in the Krasnojarsk region, the governor of that region, the famous former general Lebed, threatened to take over the compound if Moscow did not react. Other regional actions in the Kuzbass and in Jakoetia are the refusal to hand over of gold to the treasury in Moscow. The regional governors want to keep the gold to protect local banks and essentially creating an own currency. Or the implementation of price controls on basic foodproducts also in the Krasnojarsk region. There are many more examples of the actions of the regional governments to limit and solve the existing problems. Some will bring a solution but some other will mean a return to the old days of state planning/control and suppression of human rights. But all actions have in common that the role of Moscow is diminished.

Russia could be divided into eight to nine large regions which are strong enough to go for it on their own. Moscow and the surrounding areas. St. Petersburg and North-West Russia. Samara and the areas around the river Wolga. The Caucasus areas north of the muslem dominated areas. The Ural mountain region with Jekatarinenburg as centre. Jakoetia with the East and South of Siberia. The area around Krasnojarsk, this is the middle part of Siberia between the Ural area and East and South Siberia. And the most eastern part comprising Sachalin, the Kuriles, Kamchatka, the areas around the river Amur and the areas around the city of Vladiwostok. There would be further a number of smaller areas like Kalingrad, Karelia, and areas like Dagestan.

The above mentioned areas are a kind of natural areas which are also yet more or less administrative areas or there is a strong inter-regional cooperation. The division of Russia might be along those lines if the central government keeps to excel in ineffective policy and nepotism. The governors in a number of regions will be very capable to run the region on their own as a seperate country. The above mentioned regions are very suited to be run as a independent entity. The problems could be dealt with with more speed and efficacy.

Russia after 2000

The coming decade will prove the most important one in Russian history. The creation of the Russian empire, the Russian revolution and the subsequent rise to superpowership are minor to the choices which have to be made right now. The development of Russia could have an incredible effect on the position of Russia and its people but also on the political and economical wellbeing of the entire world. The negative impact of a destroyed Russia will be limited on the economic situation in the world but an economic healthy Russia could become decisive factor in the world.

The Russian power elite owe it to themselve, Russia and the world to finally take some action towards a recovery of their economy. They are the ones which are in a position to do something. Nobody can do it for them, the West can support them but if the foundation is not in order it does not make any sense to start building the walls. The Russians themselves are responsible for the creation of a fair state organisation, economic and taxation laws and the effective collection of taxes. If they can somehow make those things in order the walls can be constructed.

The return to a new might is then just a matter of time. Russia could become the superpower which it used to be but this time with a healthy economic foundation.

The new government under the leadership of Primakov should be warned that a return to old habits like state planning, nationalisations, inefficient production and currency control will not bring a long term solution. However tempting those old habits may look they will prove to be disastrous in the development of a healthy economy. The already to powerfull and influential regional governors will then continue to use the weakness of the central government to alienate them even further from the influence of Moscow. This process will be faster if the regions get even more power and what is important if it is given without central control or direction. Primakov should not expect support from the regions if he has not something substantial to offer. The cooperation will therefore be very difficult with the regions.

The policy of printing money which are not covered to pay the arrear wages will only devalue the currency even more, it will make live even more difficult and in the end weakens the power of Moscow. Russia’s policy will be a minefield where every step should be evaluated and aimed at stabilising and creating possibilities for growth in the economy. The existence of a healthy economy based on small and medium companies will be the road to prosperity.