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FOREIGN POLICY, September/October 2004

Russia's Peripheral Liberalism
Review of Grigory Yavlinsky's "Peripheral Capitalism"

By Lilia Shevtsova
Periferiiny Kapitalizm (Peripheral Capitalism)
By Grigory Yavlinsky
159 pages, Moscow: Integral-Inform, 2003 (in Russian)

In Russia, the pro-market economic determinism of the 1990s created the illusion that capitalism's benefits would eventually produce a country of staunch democrats. Instead, Russia's experience proved that economic growth can trigger nationalist nostalgia for a long-past superpower role. Derailed en route to democracy, Russia now sits idle in a way station where strength mingles with impotence, powerful bureaucracies constrain authoritarian leadership, and thriving private businesses uneasily coexist with state-run enterprises.

Of course, most transitional societies are hybrids of some kind. (Just look at China.) But precisely what kind of hybrid is Russia? What path does President Vladimir Putin envision for the country in his second term? Will he find the courage to undo the bonds between power and business, between those who make the decisions and those who influence them? And what fate awaits Russia if he does not?

Grigory Yavlinsky attempts to answer those questions in his book Periferiiny Kapitalizm (Peripheral Capitalism). As a professional economist and one of Russia's most prominent opposition leaders, he has both the smarts and the street credentials to tackle these issues. Yavlinsky first emerged as a promising young deputy prime minister in Russia's first post-Soviet government in 1990, under then President Boris Yeltsin. In a bold and rare move, he later left the government voluntarily and led his pro-democratic opposition Yabloko party into the Duma (Russian parliament), where he spent a decade storming the barricades of Russia's soft authoritarian rule. First, he presented the "500 Days" plan to transform the Soviet economy in 1990. In 1991, he crafted the "Grand Bargain," which aimed to incorporate Russia into global markets. And then came the "Nizhni Novgorod Prologue" in 1992, which sought to implement bottom-up economic reforms in Russia's regions without waiting for decisions from the Kremlin. In addition to these large-scale initiatives, Yavlinsky authored a series of reformist laws, including an oil-production sharing agreement that won the praise of Western oil companies by insulating their investments from fluctuating exchange rates and shifting tax regimes.

Indeed, Yavlinsky is popular among Western entrepreneurs, intellectuals, and nongovernmental organizations. While much of Russia's political class still speaks a statist dialect rooted in the belief that Russia is a unique country destined to move in its own semiauthoritarian orbit, Yavlinsky is one of the few who talks openly about the rule of law and the need to integrate Russia into the global economy. Yet popularity abroad has not translated into political success at home. Yavlinsky and his Yabloko party failed to win a single seat in the December 2003 parliamentary elections. They owed their defeat in part to Putin's power of incumbency. Opposition parties get short shrift in the media because television and radio stations are stacked with ostensibly neutral commentators who serve as little more than mouthpieces for the Kremlin. Yet Yabloko also suffered from a popular backlash against liberalism, which is forever linked in the minds of Russian voters with the chaos and corruption of Yeltsin's quasi-reform era. In effect, the Russian people blamed Yabloko for policies that the party never implemented. "Our party's main problem is that we failed to convince Russians that we are not these business-democrats who acted exclusively in their own interests," acknowledged Yabloko Deputy Chairman Sergei Ivanenko following the defeat.

Peripheral Capitalism appeared just before the elections and doubled as the author's campaign manifesto. Its key argument rests upon a Lewis Carroll-like conundrum that "Russian reality is capitalism and not exactly capitalism and not capitalism at all." Unlike its Soviet predecessor, the Russian economy is tied to world markets, but in Yavlinsky's view it survives only on the most distant margins of the global economy. Despite Putin's first-term pledge to dismantle the oligarchic economic system, entire swaths of the Russian economy remain monopolized by tycoons, many with insider ties to powerful bureaucrats who dominate sectors such as agriculture, defense, oil, and natural gas. Little has changed since the Stalinist era, Yavlinsky observes. Instead of planning the economy, the government now manages business.

Likewise, Yavlinsky is unimpressed with Russia's economic growth, which now hovers at around 5 percent of gross domestic product (GDP) per year. Those gains, he notes, have less to do with Putin's policies than with rising oil prices. In fact, while Russia's State Statistics Committee claims that the energy sector comprises only 9 percent of the country's GDP, a recent World Bank report estimates the figure is closer to 25 percent. And although oil revenues and Central Bank reserves may be at record highs, few resources are directed toward building a middle class or a high-tech sector that would reduce dependence on commodity markets. Russia's economy today displays "growth without development," Yavlinsky contends. Only one fourth of the population enjoys an average, modern standard of living.

Can Russia's capitalism be brought in from the periphery? Yavlinsky insists that economic reforms will continue to fail until "fundamental political and institutional problems" are resolved. He proposes rolling back public servants' reach into the economy and divorcing judges from prosecutors; an independent judiciary is the only guarantee of property rights, the critical underpinning of a market economy. But any reform effort will be doomed, Yavlinsky argues, without a party government that is more accountable to the parliament and the people. He does not suggest a super-empowered Duma; Russia has bad memories of the gridlock that prevailed when Communist and leftist parties banded together to oppose reform efforts in the early 1990s. Instead, he envisions checks and balances similar to those in France, where elected parties form the government, and executive power is divided between a president and a prime minister.

Yavlinsky hardly lacks for good ideas. Yet, as all economists know, there is little future for a product that has abundant supply but little demand. Russian society is suffering from chronic reform fatigue after enduring countless initiatives that produced many losers and just a handful of winners. Among Russians, stability and order are the preferred options, suggesting the possibility of yet another reformist experiment in Russia-this time, with harsh authoritarianism. Without institutional reforms, Russia is destined to remain on the periphery, growing more disenchanted and hostile toward the West. In that sense, Yavlinsky's book is not just a blueprint for reform, but a warning of the dangers of inaction.

Lilia Shevtsova cochairs the Russian Domestic Politics and Political Institutions Project at the Carnegie Endowment Moscow Center. She is the author of Putin's Russia (Washington: Carnegie Endowment for International Peace, 2003).

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FOREIGN POLICY, September/October 2004

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