Can Putin Put Russia Right?
The new president is a strong man, but he faces daunting problems
A new national leader suddenly and surprisingly emerges from relative obscurity. In months he soars in the polls from 2 percent approval to 53 percent. He swears that he will remove the corrupting role of money from politics. The people are voting for him and not just voting against his opponents. It's not John McCain. It's Vladimir Putin. The difference is that Putin won, and he is now the president of Russia.
Is Putin a new strongman who will rescue Russia from its decadence? A nation that has endured Lenin and Stalin and Khrushchev and Brezhnev may seem entitled to relief from strongmen, but the accelerated descent into chaos under Yeltsin has transformed the mood in Russia. The country cries out for leadership. The intriguing thing is that nobody here really knows just how Putin will deliver it. In a series of interviews with the political establishment, I found agreement on only one point: Everyone is astonished at Putin's rise to the pinnacle of power. The elite, no less than the Russian people who voted for him, do not really know who he is, what he stands for, or whom he will appoint into his government. In their conversations with him, they report, he listens and he asks questions, yet afterward they still do not know what he thinks.
In a relatively closed and complex country like Russia, a leader's character is the best guide to how he will govern. In Putin's case, his biography gives clues, though they may be hard to read accurately in the West. The man who rose from a midlevel intelligence agent in East Germany to become the head of the renamed KGB inevitably carries an aura of clandestine menace. Indeed, one of Putin's strengths, if it can be rightly called that, is that he knows where the bodies are buried and what is in everybody's personnel file.
To be fair, though, it should be noted that Putin came of age in the KGB in the late '70s, when the KGB was pushing for action to address the decline in the Soviet Union. Putin was part of what is probably the best-educated, best-traveled, and most sophisticated group in the old Soviet Union. He is the first Russian leader since Lenin to have lived abroad. He saw firsthand how his country had fallen behind. The KGB knew better than anyone else how corruption, inefficiency, and cynicism had gripped the Soviet Union and then flowered in post-Communist Russia, and it was the KGB that pressed hard to end this national degradation. He also has experience of how hard it is to achieve reform in post-Communist Russia. In an interim period in his security career, he served a number of years as the deputy mayor of St. Petersburg, assisting one of the leading post-Communist reformers, Anatoli Sobchak. Those who dealt with Putin then recall him as an effective executive, more interested in getting things done than in enriching himself, which put him in contrast with many of those who worked with him. His honesty was matched by a capacity for loyalty. He stuck by the side of Sobchak, even after the mayor had fallen from grace. It was Putin's reputation for loyalty and incorruptibility that prompted Yeltsin to select him as a successor last fall.
An enforcer. My interviews with Russian leaders suggest that Putin is a hardworking man, willing to make tough decisions and enforce them, with substantial organizational talent. He seems to be a pragmatist rather than an ideologue. He approaches his jobs in a simple and efficient way, identifying a problem, developing a plan for its solution, and then mobilizing the resources to carry it out. He does not, by Western standards, have charisma or much of a sense of humor, but he uses language and symbols that resonate with the Russian people.
With Putin, there is no whiff of vodka. In this sense, he is the anti-Yeltsin. Yeltsin was the hero of the democratic hour, but it was a short hour before his drunkenness, ill health, and cronyism betrayed the nation. Putin conveys a sense of order to a society that is weary of disorder. One colleague told me he called with congratulations after the election and asked what Putin would like to do. He responded: "What I would like to do is go to sleep." Here is a man who did not grow up thinking of his entire life in terms of politics and who expresses astonishment at his own public position.
Still, it is not easy to read the man. He places tremendous emphasis on the strengthening of the Russian state, but his remarks, particularly about the "dictatorship of the law," have aroused anxiety about what he means by a strong state. Will its strength be manifest in protecting rights or trampling them? His many years in the KGB and the high proportion of his current allies from state security invite a certain skepticism about him even before he starts to govern. But make no mistake about it: The Russian political establishment and many of the Russian people believe that the only institution capable of restoring civic order out of Russia's turmoil is the KGB.
Dismal days. Putin certainly understands the Russian mentality when he emphasizes simple concepts like the strength of the state, authority for the political leadership, and patriotism. Some 75 percent of Russians regret the breakup of the Soviet Union, and 95 percent want Russia to have a world-class army. But they are deeply pessimistic. In a poll taken in 1999 by the Marttila Communications Group, 78 percent said they believe their country is headed in the wrong direction; only 7 percent believe that it is headed in the right direction; 72 percent believe the economy is very bad; 27 percent think it is poor. Remarkably, zero percent believe the economy is good or getting better. A majority think that economic conditions are worsening, that they will experience wage or pension arrears, that either they or a family member will lose their jobs. This is the only poll where zero percent believe the economy is good or getting better. One out of five reports lacking money for food, and nearly one half think there is enough money just for the absolute essentials.
The facts warrant the gloom. About 50 million people, more than a third of the population, live below the official poverty line of about $37 a month, and there has been a social and demographic breakdown unprecedented for a modern country with an educated population. Some 86 percent believe medical service is worse than under communism; 91 percent believe the opportunity to find good work is worse; 96 percent believe that crime is worse; most think that the educational system is breaking down.
The result is a level of anguish and suffering reflected in alcoholism, suicide, and early death rates among men that is simply unimaginable to the average American. Over 70 percent of the Russian people believe that the past two years have been the hardest of their lives.
How could so much have gone wrong? In retrospect the answer seems clear, even to the Russians. The money that was lent to and given to Russia did not generate more production. The capital was simply soaked up in consumption and corruption. The reformers turned into thieves, taking the vast amounts of Western assistance, moving it out of Russia, and investing it in the West. The state institutions, especially the law enforcement agencies, are atrophied. Crime and corruption have engulfed the society. The Interior Ministry has announced that over 53,000 crimes were committed by government officials alone last year, a rise of 36 percent from the preceding year. Russia has degenerated into a country in which the state can't even pay pensions to war veterans and where bribes are paid more routinely than taxes, where workers who were once badly treated by Communist managers are now badly treated by capitalist managers.
Putin has to contend with the horror that criminality has reached the highest levels of government. The ex-Communists used legal and illegal means to turn their power to wealth and then their wealth into power--and neither the police nor the prosecutors go after the corrupt politicians or the business people, or the Mafia-like gangs entrenched in so many cities. At least under communism the Russians felt, "Well, we are all in this together." But now they have to live cheek by jowl with a new class of super-rich. No wonder they have so little faith in the country's democratic political system. According to the Marttila poll, 88 percent believe their government doesn't care what happens to them; 85 percent believe most Russian officials are corrupt; 89 percent believe that a small handful of rich people are ruling Russia for all practical purposes. Russia's long tradition of suffering, at the hands of the communist state and the czars before them, has helped defer a social explosion.
Putin knows that the key to Russia's future is reviving the economy. He has to stanch the flow of billions of dollars of capital fleeing every year to convince Russians that money is secure and to convince them to pay taxes. In the '90s, an estimated $180 billion flowed out of the country and only $10 billion came in, a net capital flight that exceeded all lending from financial institutions and other countries. Now funds are flowing out at the rate of about $2.5 billion a month. Those who keep money at home hoard it in dollars and report as little of their income as they can. Overall, capital investment has dropped by as much as 90 percent. Foreign capital is scared: More foreign investment flows into Peru than into Russia.
Russia, in short, is not just facing an economic catastrophe; it is living it. How can Putin redirect what capital is generated into meaningful economic activity? How can Putin create an environment in which capital stays in the country for investment? To attract investment he has first to promote a reliable banking system and the rule of law. Contracts have to be made binding, and corruption has to be eliminated. Paradoxically, since it is the politically connected oligarchs who control the vast majority of the $30 billion generated annually, most of it in hard currency from the sale of natural resources abroad, Putin must deal with the oligarchs very carefully, lest he frighten them into permanently withdrawing their profits and capital.
Rule of law. Putin is going to have to strengthen the state and make sure that there is rule-based and law-based economic behavior. That is what he says he means by his intention to enforce a "dictatorship of the law." It is a welcome statement. It is the only way he can remonetize with a sound ruble an economy that is now functioning primarily through barter and a confiscatory tax system. He believes a strong state is indispensable to the functioning of a market economy and to the transformation of robber capitalism into legitimate capitalism. Only a strong state, he maintains, can support an honest civil service and a judiciary.
His immediate nightmare is that Russia has a huge external debt of about $160 billion that requires about $1 billion a month in principal to be repaid. That doesn't take into account that he will have to pay to buy as much as 10 million metric tons of grain to feed his population. Given that foreign loans are no longer available, he may have to spend his limited hard-currency reserves--but that will further undermine the ruble and increase inflation.
The Russia that Putin takes over is rich in natural resources, but its people are poor, the country is dispirited, and physical plants in industry and agriculture are worn out. The entire national revenues for the central government amount to about $25 billion today, only about two thirds the budget of New York City. And out of this he has to support the military, social services, and law and order.
It is no longer appropriate for the West to fund flawed economic policies. It is Russia that has to reform itself. In the enigmatic and intriguing Putin, it seems it may have the best hope since the collapse of communism.
This story appears in the April 17, 2000 print edition of U.S. News & World Report.