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Russia: a stable and prosperous partner?

A Note by the Director (Ditchley 2004/06)
 
23-25 April 2004
Over a glorious Spring weekend at the end of April, we met to discuss Russia’s future path.  Would Russia become a stable and prosperous partner in the post-Soviet, globalised world?  We were fortunate in being able to draw on the experience of some who were currently engaged in policy formation, others who had experience of developments in Russia over many years and most importantly of all a number of Russians who were able to comment, from their point of view, on the issues we were discussing.  Their presence underlined the changes that have taken place since the first Ditchley conference some years ago when Russians participated for the first time under rather more restrictive conditions.  We were also fortunate to have in the chair someone who both professionally and personally, has been involved with Russia at important moments in its recent history.
Before looking in detail at Russia’s political, economic, and foreign and security policies we looked at the current state of affairs in an attempt to put these into context.
We noted President Putin’s current command of the political scene following the Duma elections in December and the Presidential elections in March.  Putin, we were told, had 80% support among the people as he was seen to be struggling with the remnants of Communism.  While there could be no doubt who was running Russia we thought that Putin’s objective had been to consolidate state power given its disintegration in Yeltsin’s later years.  The challenge of his new mandate was, some suggested, economic reform and the modernisation of Russia.  Others commented that this was based on the rule of man and not the rule of law.  There was no independent system of justice.  In one participant’s view the changes over the last 15 years had been so dramatic and incessant that Russia had, in a sense, “grown old” and the overwhelming desire of people in Russia was now for some stability.  The concern of the majority was for their living standards and not necessarily for democracy.  Another added that while political democracy might not be a high priority, there was a strong attachment to individual human rights such as freedom from arbitrary arrest and torture.  Some thought that democracy would be legitimised if it coincided with or was seen to cause, better living standards.  A number of domestic problems were noted:  health, where the scale of HIV/AIDS epidemic was hard to gauge.  There was too little Government information or action.  There were also pockets of deep poverty with, it was claimed, one third of all children living in poverty.  In the medium term there could be a serious demographic problem with low birth rates and declining life expectancy.
One participant thought that the key decisions were determined by Putin and were often not accurately predicted, even by those who worked with him personally.  It was suggested that he was a pragmatist, not necessarily a strategist, and that he reflected the widespread sense of humiliation in Russia following the collapse of the Soviet Union.  This, in the view of some, also underlay a worrying resurgence of interest in Stalin, particularly among the young who had had no experience of life under his rule, but who saw him as a leader who had made Russia important and respected in the world.  Putin was assessed to have played a weak hand brilliantly in relation to the USA and the West generally over the last three years.  He was concerned to avoid a major confrontation with the USA but had found himself boxed in over Iraq.  Putin was also described as a balancer, as someone who was able to reconcile the conflicting views in the elite, which, as a result, was now stable.  As far as external policy was concerned, we assessed that Russia had shown almost no interest in Latin America or Africa, its concerns were with its near neighbours.  The suggestion was also made that Russia was becoming more European and less Asiatic. 
In looking in more detail at the political issues we agreed that at the top of Putin’s list of priorities were economic reform, security and the succession.  We were doubtful that political liberalism was on his list.  If a free media was one measurement of democracy then the Russian media was largely controlled including a strong element of self-censorship.  In the economic sphere Russia occupied 137th place on the Index of Economic Freedom.  We thought that social sector reforms would be controversial.  Attempts to levy charges for domestic heating had already provoked resistance.  We were told that, like voters the world over, Russians wanted low taxes and high levels of social security.  And they thought that oil and gas revenues could square the circle.  We identified Putin’s central dilemma, shared by many of his predecessors, of trying to modernise Russia using the central command levers of power, from the top down.  But the state apparatus which he was using was also a brake on progress.  Perhaps the central question was what sort of state Russia wanted to be.  Did it really want, as some Russians hoped, to be part of the new Europe?   As far as the succession was concerned there was a general feeling that Putin would look for political insiders rather than allowing someone like Khardorkovsky to come from outside.  Someone asked if Putin would come to see himself as indispensable, would managed popularity be the tactic in the Duma and Presidential elections of 2007 and 2008?  No clear answer was given. 
It was suggested that the gap between the elites and the people was widening at a time when space for civil society was shrinking.  This might, in part, be due to a traditional Russian preference for collective over individual values.  For change to occur it would require those at the top voluntarily to limit their power, which, most thought, was unlikely, particularly in Putin’s case.  We asked ourselves if political parties were likely to become a focus for interest groups.  While there was lively interest in questions like ecology or nuclear issues on which there was real concern, and also single interest groups like the Mothers of Soldiers, no-one predicted the formation of parties on western lines in the near term.  The first requirement would be to give the Duma real powers to persuade the electors it had a serious role to play and that not all the requests should be directed to the Executive.  Some thought, by reference to Rodina’s success in only three months, that there was a possibility of a nationalist party becoming a focus of wide support.  An anti-western nationalist party, added others.  Nothwithstanding the lack of effective political checks at the national level, we noted that Putin’s power was not unlimited.  Regional leaders and governments did not always follow the line from Moscow and enjoyed considerable local autonomy.  Our conclusion was that for those western governments wishing to influence events in Russia there was no alternative to dealing with Putin.  It would be particularly useful to share experience of democracy building.
We also focussed on Chechnya.  A Russian participant pointed out that withdrawal was not an option.  This was an action to preserve national territory and integrity.  But the effects were acknowledged to be serious.  It was inflaming Russian popular prejudices, especially among the young, directed mainly at Caucasian minorities.  Putin was, however, thought in general to be treating the Muslim population of 20 to 25 million in Russia with care.   Nevertheless soldiers returning from Chechnya were feeding the poison of their experience into society generally.  Concern and some criticism were expressed about Kadirov’s role.  In discussion with foreign visitors Putin had proved to be emotional on the subject of Chechnya.  Incipient attempts by the Russian authorities to open channels for discussion with the rebels had apparently been ended by the Dubrovka theatre siege.  The view was also expressed that western interlocutors were guilty of double standards, Iraq and Israel/Palestine were cited as examples which weakened Western credibility.  Putin was seen as acting no differently from Bush or Sharon.  Nevertheless, Western leaders should, we thought, maintain Chechnya on their agenda for discussions with Putin.  They should weather Putin’s opening storm and in reply and go on to express their concerns about the damage caused by and to Chechnya and offer either help for reconstruction or in training Russian forces in assistance to a civil power.  Throughout, however, the accent should be on quiet diplomacy for the long term.  Lecturing and preaching would be counter-productive.
In looking at Russia’s economic reforms we found it relatively easy to agree on a list of desirable policies which included diversification from oil and gas, separation of the state from business, an improvement in the investment climate, more help for small and medium sized enterprises, a reduction in absolute poverty, a clamp-down on corruption, a shake-up in the banking sector, strengthening of property rights and a commercial legal system that worked.  We found it harder to agree on priorities in this list.
There was a strong debate about whether the present system, described by one participant as  semi-criminal, was so flawed by oligarchic capitalism without any real political or juridical checks and balances, that no real progress could be made until it was reformed.  At present, it was claimed, big business relied on big (central) government and small business relied on small (local) government.  It was also alleged that Western Governments were complicit partners as they had failed to take measures to help prevent the flight of capital from Russia.  Others argued that incremental progress was possible and could over time amount to more fundamental change.  At the moment it suited Putin to have a “grey zone” over property rights for oil and gas exploitation which gave him a measure of control over the oligarchs. 
Not surprisingly we devoted a lot of attention to the energy sector which formed some 70% of GNP.  Some argued that the chances of reform were slim.  Unlike the electricity sector which had been broken into a number of independent companies, no-one thought the same would happen to Gazprom or Transneft.  The desire to retain state control dictated the need to keep gas and oil transmission in the public sector.  Upstream and downstream activities might be privatised but not the pipelines.  This would, however, lead to problems of investment with Gazprom, in time, almost certainly reducing its promised supply of 300m cubic metres of gas to Western Europe, to something more like 30m cubic metres.  This failure would affect Russia’s reputation as a reliable supplier and highlighted the central dilemma of finding the right balance between control and liberalisation.  There would, we thought, also be a growing problem in the inequality in wealth distribution with a small number of oligarchs becoming even more wealthy, fuelling popular resentment at what was widely seen as a deeply flawed privatisation.  While the argument was advanced that Russia’s main economic advantage lay in its natural resources it was pointed out that from a similar starting point Canada now had a diversified economy where natural resources only accounted for 20% of GNP.  Currently Russia remained vulnerable to a sudden large fall in energy prices which could have severe economic and political repercussions.  In arguing for a modern financial and banking system, it was hoped that this would move the authorities away from administrative stimuli for the economy towards financial incentives.
In looking at other parts of the economy we acknowledged that one of the great problems for  outsiders was that we knew very little about the real figures for agriculture or SMEs whose problems of access to capital were also highlighted.   There was, however, consensus that Putin’s reform programme for his first term had been a success and had brought much needed stability.  How far he would be able to go in reforming pensions, welfare, municipal services etc remained to be seen.  One participant claimed that Putin did have a liberal vision of reconstruction and modernisation but rapid results could not be expected and some parts would be controversial.  Another added, however, that Putin fundamentally underestimated the importance of democratic institutions for economic and other reform.  One of the weaknesses pointed up was the lack of managerial talent outside the oil and gas sector.  We thought that Russia stood a good chance of accession to the WTO in the second half of the decade, if an accommodation could be found with the EU, but were less confident that Russia would be able to implement any agreement reached.  There would also be a price to pay for WTO membership by Russia’s SMEs, many of which might not survive competition from more advanced countries.
We speculated about the outlook for growth, with consensus around an annual figure of 4-6% but this depended on oil prices staying high.  However, suggested one participant, if GDP growth averaged 7.5%, then over 15 years per capita income could average $10,000 a head which was in the OECD range and would mean that Russia’s economy would be of global significance.  In a final comment on corruption which was thought to be endemic, the thought was expressed that as long as paternalism existed corruption was inevitable.
In looking at Russia’s foreign and security interests there was general agreement that they coincided fairly closely with those of the West, with non-proliferation and terrorism as high priorities.  Concern was expressed by some, however, that the language of partnership was not necessarily translated into real cooperation.  Brought up on a tradition of confrontation, partnership was proving difficult.  In discussion of policy options for coping with emergencies Russia had more often been an opponent than a proponent of constructive solutions.  Russia had few friends in international circles.  Russia’s recent veto of a Security Council Resolution on Cyprus was seen as damaging to Russia’s credibility as a partner.  In the UN context, it was claimed that Russia’s reputation was still strong but its practical contributions were small.  It had not adjusted to the new realities.  There still seemed to be an underlying problem with the US’s role and standing.  This led us into a discussion of Iraq.  Some thought that Russia had missed an opportunity to make a serious contribution in Iraq and thus enhance its relevance and importance to the USA.  Others disagreed.  If the invasion of Iraq was a strategic error, then Russia and others were correct not to participate in it.  Russia’s first priority was, we thought, to re-establish its influence and standing with its neighbours, of whom Ukraine was the key.  One of Russia’s problems, however, was that it was not well equipped to provide stability in neighbouring countries. This might depend on an internal transformation in Russia itself.  Russia as a state had little experience of nation building.
Russia’s military capabilities were thought not to be conducive to joint operations with its Western partners.  Defence of the home territory appeared to be the main priority without mobile highly trained intervention forces with which western countries could connect.  Such forces might, in addition, be potentially useful for use along Russia’s lengthy frontiers.  Nuclear weapons were discussed with a view expressed that they were no longer really relevant to Russia’s essential security needs.  Others thought that possession of a strong strategic nuclear force helped with Russia’s self image and acted as a substitute for conventional weapons.  And argued others, both tactical and strategic nuclear weapons might prove a useful deterrent against any threat of Chinese incursions in the relatively sparsely populated Russian lands in the Far East.
In general, some argued that a clearer and more public definition of Russia’s objectives would help both internally and externally in creating confidence in Russia’s intentions.  Russia’s preoccupation with territorial defence was thought to lead to misunderstandings over the use by the US and some of its allies of facilities in neighbouring countries like Tajikstan.  These were seen as staging posts by the West and not as attempts to exercise influence on Russia.  This pointed up a general lack of dialogue with the Russian military below the highest level and not enough dialogue between civilian and military advisers within the Russian system, commented another.  In looking at Russia’s neighbours we paid particular attention to China which absorbed 50% of Russia’s arms exports and which was heavily dependent on energy supplies from Russia.  It did not seem, however, that Russia was really exploiting the economic and other possibilities in its relations with China.
One of the main reasons for the present relatively cool relationship between Russia and the West was thought to be a feeling of marginalisation in Russia at being pushed to one side by the double enlargements of NATO and the EU.  Disappointment at the lack of a real partnership with Russia was mirrored by a similar disillusion in Russia with the West which was, in any case, disunited both within the EU and across the Atlantic.  Some experienced observers thought the US had been unrealistic in its expectations of Russia while Russia had been naïve about the USA.  Some western participants, with only mild irony, assured the Russians that there was only one thing more challenging than being an adversary of the USA and that was being an ally.  Some of the Russians present were inclined to see a quite different dynamic in Russia’s relations with the USA and the EU, with the USA first.  To help resolve regional conflicts in the South Caucasus and Moldova it was suggested that a contact group might be set up with representatives from Russia, the US and Western states with a mandate to tackle the legacy or “frozen” conflicts inherited from the break-up of the Soviet Union.  In a much longer perspective, in one participant’s view, it would be necessary for Russia and its Western partners to become more alike one another for a durable partnership.
In looking back at the ground we had covered we asked ourselves why there appeared to be so much anxiety between Russia and the West when we shared so many common interests.  We were advised not to underestimate the function of Iraq in this.  We also asked about the durability of liberal economics combined with illiberal politics and were told that the liberal political project in Russia was in crisis.  Stability in the longer term would depend on properly functioning institutions not on individuals.  We were advised to take a historical perspective and to understand the negative effects of preaching to or lecturing at Russians.  We should not forget the particular importance of history in Russia in shaping contemporary events.  Historically most good things had come from above.  Westerners should bear in mind the importance of thinking in the long-term about Russia, of realising that the influence of outsiders was marginal and that information flows would be critical.  Russians preferred to see examples from other countries and chose for themselves.  Patience was an essential prerequisite for dealing with Russia.  We ended our discussions with a word of appreciation from a Russian participant for the tone and content of the debate.  The willingness to face and explore our differences in an open, honest and friendly way, was an important contribution to the development of trust and understanding between Russia and her partners.
I am grateful to all those who participated in the conference, in particular to our Russian guests.  It is a subject to which Ditchley will no doubt return to see how far our predictions and hopes have been bourne out by events.
This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.
 
 

PARTICIPANTS
 
Chairman  : Sir Rodric Braithwaite GCMG
Managing Director and Senior Adviser, Deutsche Bank AG London;  formerly:  Ambassador to Russia, Georgia and Armenia (1988-92);  Chairman, The Ditchley Foundation Programme Committee;  a Governor, The Ditchley Foundation
 
BELGIUM
HE Baron Thierry de Gruben
Ambassador of Belgium
 
Mr Vincent Mertens de Wilmars
Deputy Chief of Staff, Ministry of Foreign Affairs, Belgium
 
CANADA
Mr Boris Aryev
President, Marhope Systems Inc (1990-);  Member, Board of Directors, Canada-Russia Business Forum
Mr Paul Drager
Chairman, International Trade Law Department, MacLeod Dixon LLP
Mr Matthew Levin
Deputy Head of Mission, Canadian Embassy to the Russian Federation
Professor David Marples
Professor of Russian History, University of Alberta;  author
Mr Don McCutchan
International Policy Advisor, Gowling, Strathy & Henderson;  formerly:  Canadian Department of Finance;  Executive Director, European Bank for Reconstruction and Development
ESTONIA
HE Dr Kaja Tael
Ambassador of Estonia
FRANCE
Professor Anne de Tinguy
Research Fellow, CERI (Centred’Etudes et de Recherches Internationales);  Research Fellow, CNRS (Centre National de la Recherche)
GERMANY
Ms Katinka Barysch
Chief Economist, Centre for European Reform
 
Dr Ernst-Joerg von Studnitz
Chairman, German-Russian Forum;  formerly:  German Ambassador to Russia (1995-2002)
ITALY
Mr Franco Venturini
Foreign Affairs Commentator, Corriere della Sera;  formerly:  Corriere della Sera, Moscow Correspondent      
JAPAN
Mr Kyoji Komachi
Director General, International Peace Cooperation Headquarters, Cabinet Office;  formerly:  Deputy Vice-Minister, Ministry of Foreign Affairs (MOFA)
RUSSIA
Dr Andrei Grachev
Chairman, Scientific Committee, World Political Forum
HE Grigory Karasin
Ambassador of Russia
Ms Nadezhda Kokourina
Torus Investment
Professor Colonel Yuri V Morozov
International Centre for Strategic and Political Studies
Mr Pavel Podvig
Centre for Arms Control Studies, Moscow Institute of Physics and Technology
Dr Ivan Safranchuck
Centre for Defence Information
Professor Victor Supyan
Deputy Director, Institute of USA and Canada Studies;  Head of Department, International Economics, State University for Humanitarian Sciences
Ms Masha Volkenstein
General Director, Validata
Dr Grigory Yavlinskiy
Chairman, Center for Economic and Political Research;  Member, Board of the International Crisis Group;  formerly:  Founder and Head, Russian Democratic Party (YABLOKO);  Elected to State Duma (1993);  Political Advisor to President of the USSR, M Gorbachev (1991);  Deputy Prime Minister of Russia (1990)
 
RUSSIA/UK
Ms Oksana Antonenko
Programme Director, Russia and Eurasia, International Institute for Strategic Studies
 
UNITED KINGDOM
Mr Duncan Allan
Head, Eastern Research Group, Foreign and Commonwealth Office (2003-)
Mr Simon Butt
Head of Eastern Department, Foreign and Commonwealth Office
The Rt Hon Sir Menzies Campbell KCMG CBE QC MP
Member of Parliament, Fife North East (1987-) (Liberal, 1987-88, Liberal Democrat, 1988-);  Frontbench spokesman on foreign affairs and defence (1994-);  a Governor, The Ditchley Foundation
Ms Gloria Craig
Director General, Defence Export Services, Ministry of Defence
Mr Christopher Granville
United Financial Group
Sir Jeremy Greenstock GCMG
Director Designate, The Ditchley Foundation;  formerly:  UK Special Representative for Iraq (2003-04);  Ambassador and UK Permanent Representative to the United Nations, New York (1998-2003)
Ms Janet Gunn
Research Counsellor, Eastern Research Group, Foreign and Commonwealth Office (1997-)
Ms Bridget Kendall
BBC Diplomatic Correspondent
Sir Roderic Lyne KBE CMG
British Ambassador to Russia (January 2000-);  formerly:  UK Permanent Representative at Geneva
(1997-2000);  Private Secretary to the Prime Minister (1993-96)
Mr Quentin Peel       
International Affairs Editor, Financial Times (1998-);  formerly Foreign Editor
Dr Alex Pravda
Fellow and Director, Russian and Eurasian Studies, St Antony’s College, Oxford and Lecturer in Russian and East European Politics, Oxford University (1989-)
Mr John Sawers CMG
Political Director, Foreign and Commonwealth Office
Mr Anthony Smith
President, Magdalen College, Oxford
Dr Vlad Sobell
Senior Economist, Daiwa Institute of Research
Mr Simon Webb CBE
Policy Director, Ministry of Defence;  a Governor, the Ditchley Foundation
UNITED STATES OF AMERICA
Mr Joseph Condon
Chairman, J F Condon and Associates;  formerly:  Founder Executive Director, American Chamber of Commerce in Moscow
Professor Mark Kramer
Harvard University:  Senior Fellow, Davis Center for Russian and Eurasian Studies;  Director, Harvard Project on Cold War Studies
Mr Elliott Kulick
Chairman, Pegasus International Inc;  Member of the Board, Center for Democracy;  Board Member, National Democratic Institute;  Board Member, International Crisis Group (ICG)
Dr Sarah Mendelson
Senior Fellow, Center for Strategic and International Studies (CSIS), Russia and Eurasia (2001‑)
Dr Martha Olcott
Co-Director, Carnegie Moscow Center Project on Ethnicity and Politics in the former Soviet Union
Professor Peter Reddaway
George Washington University