The change in direction was signalled in an article entitled ‘Go, Russia!’, published by Medvedev in an online (of course) journal on 10 September 2009. It took him just four lines to get to the point, condemning Russia as ‘a primitive economy based on raw materials and endemic corruption’. The more cynical Russian commentators refuse to see even a glimmer of difference between Medvedev and Putin, but the fact is that Putin never uttered such words about the economy. The article reminded me a little of some of Mikhail Gorbachev’s reformist tracts in the late 1980s: he too would be accused of being better on analysis than solutions, and he too found that many of his reforms were either smothered by the Old Guard or withered in the unyielding ground of the Soviet system.
Medvedev declared that ‘20 years of tumultuous change has not spared our country from its humiliating dependence on raw materials. Our current economy still reflects the major flaw of the Soviet system: it largely ignores individual needs. With a few exceptions domestic business does not invent or create the necessary things and technology that people need.’ Referring, it seems to his predecessor’s reforms, Medvedev said: ‘All this proves that we did not do all we should have done in previous years. And far from all the things were done correctly.’ He promised ‘modernisation’ in almost everything: the country would hire the best specialists from around the world; there would be inward investment, modern information technologies and even political reform – whereby parliamentary parties would periodically replace each other in power, ‘as in most democratic states’.
It read like an election manifesto – the one he might have published before the election rather than a year after, had there been a free election. This was the first of many such liberal-sounding prospectuses Medvedev would deliver during his presidency, but very few of the ideas found their way into real life. Analysts argue over why. Is it because Medvedev is simply a Putin puppet, dancing his liberal dance to entertain the West, while the puppeteer keeps a tight control of everything behind the scenes? Or is it because a real would-be reformer is thwarted at every turn by his master? Or is the task of reforming Russia simply too great, and the system – the corruption, the sheer enormity of the task – fights back and kills every initiative?
Like Gorbachev, Medvedev’s first visible measures were top–down initiatives designed to bring about what the market achieved, with very little help from governments, in the West. In March 2010 he chose the town of Skolkovo, in Moscow region, as the site for what he hoped would become Russia’s ‘Silicon Valley’. But was it not a contradiction in terms for a government to be establishing by decree an ‘innovation centre’? Not if the Kremlin ideologue Vladislav Surkov was to be believed. He advocated what he called ‘authoritarian modernisation’ (sic) and said political liberalisation was not needed for economic reform. According to Surkov ‘spontaneous modernisation’ only worked in Anglo-Saxon countries, whereas France, Japan and South Korea (and by implication, Russia) relied on ‘dirigiste methods’.
The following month Medvedev announced another ‘reform from above’: Moscow was to be turned into a leading global financial centre. But how? It smacked of Medvedev’s earlier attempt to ‘establish’ the rouble as an international reserve currency (this was announced in the same ill-conceived speech at Evian in which he called for a new security treaty in the wake of the Georgia war). There seemed little understanding of the psychology of markets, with their unfathomable mixture of gambling, guesswork, experience and foresight. Alexander Voloshin, former chief of staff to both Yeltsin and Putin, was put in charge of the project. He is a renowned wheeler-dealer, but this seemed a task too great even for him. A year later Medvedev announced that the project was ‘half-complete’. So apparently if such progress keeps up, Moscow will be an international financial capital by mid-2012.
Medvedev became obsessed with Russia’s inability to become integrated into the world economy. In 2009 foreign capital investment fell by 41 per cent. In February 2010 the president put deputy prime minister Igor Shuvalov personally in charge of improving Russia’s investment image, with a ‘special structure in the ministry to analyse obstacles that hinder it’. Shuvalov is a clean-cut, crew-cut, smart young politician much admired by Western businessmen. He personally contributes to Russia’s international links by renting a 400-square-metre apartment in London and a 1,500-square-metre villa in Austria. Shuvalov has led Russia’s efforts (crucial for integration into the world economy) to join the World Trade Organisation – an on-off process hampered both by American obstacles and by Putin’s apparently lukewarm approach. In June 2009, for example, two days after the US and EU trade representatives successfully completed a round of talks with Shuvalov that would lead to WTO membership ‘by the end of the year’, Putin announced out of the blue that Russia would only join together with Belarus and Kazakhstan, as a ‘single customs union’, even though both countries were miles behind Russia in their negotiations with the WTO. The announcement appeared to take Medvedev and Shuvalov by surprise and put off Russian membership indefinitely.
When he returned from his eye-opening trip to California in July 2010, President Medvedev called in Russia’s foreign ambassadors for a private talk in which he hauled them over the coals for their antediluvian approach to their work. (It reminded me of the foreign ministry official who told us, when asked to explain why it took so long to organise interviews with deputy ministers, that ‘we still work in the nineteenth century here’.) Medvedev sternly told his diplomats to stop sending him pointless dispatches about world events. ‘I can read about them perfectly well on the internet,’ he said, ‘and a lot sooner than you tell me about them.’ In future, the foreign service was to devote itself to Medvedev’s Big Idea – modernisation – by advancing Russia’s cause and attracting investment, especially from key countries, which he named as Germany, France, Italy, the EU in general and the USA. A Kremlin official who was present summed up the president’s lecture as ‘either change your views and your brains, or get out of the diplomatic profession’.5
But a question remained unanswered – one that has bothered me over many years since the fall of communism in Russia. Why is it that Russia did not – could not – turn itself into a thriving manufacturing country like China or many other developing economies? It has the brains and skills, an educated but relatively cheap workforce, limitless natural resources, all the space you could want for the construction of new facilities, a market desperate for Western goods… and yet when do you ever look at the label on an article of clothing and read ‘Made in Russia’, or buy a computer or camera or piece of furniture imported from Russia?
There are many explanations. But by far the biggest obstacle to foreign investment (or the creation of an international financial centre in Russia) can be summed up in one word – corruption – a word so complex that one leading Russian businessman told me I would never, as a Westerner, ever, understand it. ‘Theft,’ he said, ‘is not theft as you know it. It is the entire system – the political system, the business establishment, the police, the judiciary, the government, from top to bottom, all intertwined and inseparable.’
Crooks and thieves
In Chapter 3 I described how IKEA became one of the first stores to open up outlets in Putin’s Russia. There are now 12 stores around the country, where millions of Russians love to spend their weekends buying affordable and fashionable furniture. IKEA has done more than any other institution to enhance the look and comfort of Soviet-built apartments. Yet the Russian machine – local mayors, bureaucrats, judges, police – did everything in their power to stop it from happening. Not because they objected to the Swedish business moving in, but because, being part of the Russian machine, they could not even imagine letting that happen without reaping fabulous profits for themselves – and IKEA righteously refused to pay the bribes that would have smoothed the way. The company even sacked two senior executives who were discovered, not even to have paid bribes themselves, but to have turned a blind eye to a corrupt transaction between one of IKEA’s subcontractors and a power-supply company. But its ethical stance caused unimaginable problems that might easily have prevented one of the world’s most ubiquitous and successful stores from penetrating the Russian market.