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Grigory Yavlinsky

Russia's Fork in the Road


Russia today stands at a fork in its road. The vital question is: which turn will Russia take given that communism is no longer an option - that issue was irreversibly decided in the 1996 election. Russia either stays on its current path to become a corporatist, criminalist, oligarchic, old Latin American-style democracy and society; or alternatively, Russia will take the fork in the road and turn up the more difficult, painful road toward a normal Western style democracy and market economy.
(The reader should note that these terms can only loosely apply to the Russian situation. The Russian democracy that ultimately emerges will certainly be very different from either Western or old Latin American paths of democracy. It shall be reflecting our culture and history. When I mention two paths of democracy, I mean that the one Russia ultimately chooses could be based on twocompletely different values - it can become a democracy based upon a market economyor become an oligarchic system based on monopolistic ownership and criminal behavior.)

Russians will make this fateful choice, and we will be the principal victims or beneficiaries of it. However, contrary to the new conventional wisdom in the United States that sees Russia as essentially "irrelevant," in fact, the onsequences of our choice for Americans, Europeans, and others with whom we share this shrinking globe, should not be underestimated.

The purpose of this essay is to summarize for a Western audience my view of where Russian markets and democracy stand and where we are going. The essay begins by clarifying the question with which I began. I then go on to explore the specific shape of the choice we face about Russia's economy. The section that follows assesses the current state of our democratic institutions. I then turn to the question of the West and its impact upon our choices. A concluding section addresses the classic Russian question: "What is to be done?"

When I am asked by Westerners to assess the status of the Russian market and democracy my answer is: "In one word - good", in two words - "no good." Characterizing the Russian fork in the road as a choice between criminal oligarchy on the one hand, and normal democracy on the other, will sound to many in the West an exaggeration. But those who know Russia first hand will feel this question's bite.
As at several prior junctures in the past decade, Russia must once again make an important choice about its future. However, unlike those previous choices, this fork in the road will not be decided in a single day with a cataclysmic event like a coup or election. No, the decision about which road Russia will take is being made through decisions by millions of people over the course of the coming years. Nevertheless, which path we choose is no less important than choices made earlier in the decade and will similarly affect the society in which our children and grandchildren live.

I use the term Latin American or corporatist-, criminalist-style democracy and Western style democracies to describe two systems, both of which are, on the surface, democracies and market economies, but which underneath share less in common than most observers recognize. Most Latin America countries of the 1970's and 1980's had markets driven by oligarchs who had personal wealth as their highest cause, average citizens had limited economic opportunities. These countries kept press and other civil freedoms in check. Civilian rule of government was prone to suspension with laws and constitutions obeyed only when convenient. Society, from the street to the halls of power, was rife with corruption. Personalities, contacts, and clans counted for more than institutions and laws.

Alternatively, in Western-style democracies markets are driven by the consumer, and government economic polices are conducted for the betterment of the nation, not the individual in power. Through hard work citizens can get ahead. Civilian freedoms are universally respected, even if the opinions expressed differ from those of the government. Civilian rule is unchallenged and corruption is minimal. Laws and constitutions are universally accepted and both government leaders and citizens abide by them. It is almost universally accepted that Western-style democracy as well is far from being ideal. However, we have to admit that up to now that mankind has not invented anything better.

Over the past year, the Yabloko party, of which I am the leader, has been making the argument that Russia is at the fork in the road looking at the Latin American vs. Western option. Increasingly, our diagnosis is coming to be shared by others and even by some members of the Russian government. More and more Russians are coming to appreciate that we now stand at a fork in the road.

In today's Russian economy, one can find signs of evolution toward more Western-style capitalism on the one hand and evidence that points toward consolidation of the corporatist-, criminalist-style capitalism on the one hand and other.
Most Western conventional wisdom on the Russian economy holds that Russia is making steady progress toward creating a normal market economy.

On the positive side, the Russian economy has achieved success in overcoming inflation, in keeping its currency reasonably stable. Moscow is clearly a boomtown with numerous economic success stories. Some of the newly established or privatised corporations with international mentality and ambitions are making their way to the top with different degree of success. Certain Russian regions have received favorable international credit ratings, and a handful of Russian companies have held successful international bond issues. Young people are now ready to adapt themselvese to the new market system and seek to remain clean as the country develops new rules. The International Monetary Fund, while occasionally delaying tranches of its $10 billion loan because of poor tax collection, always seems to reinstate the tranche after promises by senior Russian officials to do better. All of this would seem to point toward a normalized market economy on the Western path.

But while the Russian economy has success stories, there are clearly many aspects of the economy pointing toward a corporatist, criminalist-style market. The most important of these trends is the rise of the Russian oligarchs, who have created robber-baron capitalism. Far from creating an open market economy, Russia has formed and consolidated a semi-criminal oligarchy that was already largely in place under the old Communist system. After Communism's collapse it merely changed its appearance, just as a snake sheds its skin.

The new ruling elite is neither democratic, or Communist, neither conservative nor liberal, neither red nor green. It is merely selfish, greedy, and rapacious. In a famous interview with the Financial Times in November 1996, one of the new russian tycoons claimed Russia's seven largest bankers, who became the core of President Yeltsin's reelection campaign headquoters, controlled over 50% of the Russian economy. No one doubts that these robber-barons are nomenklatura capitalists, and have had a profound impact on the Russian economy, but the market of insider deals and political connections that they are creating stands in the way of an open economy that would benefit all Russian citizens. The robber-baron market cannot tackle important social and economic questions, it only addresses those issues which affect its masters' own short-term power and prosperity.

At the recent debates at Harvard University's U.S.-Russian Investment Symposium and later at Davos even Western investors started to sharply criticize the robber-baron mentality of many Russian business leaders and the process of privatization program under Anatoly Chubais, in which, "First, the assets of the state were stolen, and then when the state itself became valuable as a source of legitimacy, it too was stolen."

Last summer's Svyazinvest auction is an example of how these tycoons operate. This auction was to be the first where competitive bids were held for a privatizing company. Unlike earlier auctions, where connections and agreements among the tycoons were enough to gain huge shares of industry for a fraction of their actual worth, during the Svyazinvest auction the leaders of the financial industrial groups could not agree on who would get the company and were therefore forced to bid against each other, resulting in a "banker's war." A war fought not with bullets, but through allegations of corruption aired by their media outlets, resulting in the removal of some of them from government and corruption charges against Anatoly Chubais and his team. Such a chaotic, personal, and scathing auction does not connote a healthy capitalist system. As I write, the players are positioning themselves for a second round in this war, the Rosneft Oil auction.

There are many reasons why a country with nuclear, chemical and biological weapons should not be allowed at the begining of the XXI century to slip into the chaos of semi-criminal, corporate, oligarchic rule of rubber-barons. Unfortunately those who believe that capitalism of the robber-barons will eventually give way to a market economy that benefits all in society, as occurred in the United States at the turn of the century, are mistaken. America had an established middle class with a work ethic and a government that remained largely free of robber-baron infiltration. The American robber-barons were still investing in their own country. Russian robber-barons are stealing in Russia and investing abroad. This activity will never bring economic grouth to our country. In Russia in the late 1990's, no emerging middle class exists and the robber-barons who are deeply involved in the government , are capable of altering policy for their private benefit.

In the meantime, while the big boys (they are all men) fight over an ever larger controlling stake in the Russian economic pie, the government has been unable to create the necessary economic conditions in which the majority of Russians can thrive. The issue is not only that the majority of Russians remain worse off than before the economic transition began, but it is also the fact that they cannot become better off. Economy is stagnating at half of its pre-crisis level, real incomes have fallen by third and living standards in most regions deteriorated to the level of several decades ago. The government policy to curb inflation resulted not only in tremendous wage and pension arrears, but also in not paying the governmentТs bills for goods and services it consumed. This resulted in total disarray in payments, when up to 75% of goods and services in the economy are paid in kind or by promissory notes that could not be cashed, or transacted through illegal channels with no! taxes paid on them. Pensions and wages of government employees were cut to 40% or less of their former value in real terms, and the government still can not collect enough taxes to cover these expences. Tax receipts have fallen to less than 20% of the country's GDP while external debt grew manifold, and domestic debt which was next to nil just a decade ago has reached almost 15% of the country's yearly product. Debt-servicing expenditure, pushed by exorbitant interest paid out to local bankers and foreign speculators, will take no less than 25% of the total government expenditure in 1998. The current Russian market economy has created a handful of super-wealthy, while leaving the rest behind to struggle. It is no wonder these economic policies resulted in 250 Communists and 50 Zhirinovsky-ites being elected to the State Duma in 1995.

Furthermore, corruption reminiscent of Latin American in the 1970's and 80's also bedevils our economy. The EBRD ranks Russia as the most corrupt major economy in the world. Corruption permeates our economy from street crime, to mafia hits, to inappropriate book deals in the corridors of the Kremlin, to bids for stakes of privatized companies. Recent polls by the Public Opinion Foundation show that Russians believe the best way to get ahead in Russia is through contacts and corruption. When asked to select from a list of criteria what was needed to become wealthy in today's Russia, 88% saw connections as a source of wealth and 76% chose dishonesty, while only 39% said hard work. Anyone who attempts to start a small business in Russia will encounter a Mafia-extortion demand, so there is no incentive for entrepreneurship. Better to stay at home and grow potatoes at your dacha. A crime-ridden market cannot be effective - there is no certainty of tomorrow, which means that wi! th or without inflation, nobody will invest. Such a market can support the level of consumption (semi-pauper for the majority of the population) for some time, but it does not and cannot provide any progress.

With such challenges, despite the good news about the Russian economy over the last year, it is clear that the Russian market is still leaning toward the corporatist, criminalist, oligarchic path.

Russia's current democratic institutions also deserve a mixed review. Certainly there are reasons for optimism. Russians are freer than at any time in their history. They are free to read what they like, freer to travel, talk, worship, and assemble. Our citizens have quickly become used to these freedoms. Technological advances such as the internet, fax machines, and mobile phones will make it impossible for any one source to ever monopolize information in Russia again. Through this continuous contact with and exposure to the world, with each passing day, Russia becomes a more normalized society.
Perhaps the most cited examples of successful Russian democracy are the Russian elections. Over the past three years, elections have become an accepted way of life for Russians. In 1996, for the first time in their 1000 year history, Russians elected their national leader. Russians now accept that the correct and appropriate way for a leader to gain office is through an election. This was not always the case. A mere three years ago, debate raged in Russia as to whether the ruling authorities would even allow elections to occur. However, from the Duma elections in December 1995, to the presidential elections in June of 1996, to the subsequent gubernatorial and regional legislature elections, again and again elections have been successfully held in the Russian Federation. In many of those elections, notably in the Duma election and some regional governors races, opposition candidates from the Communist and other parties have won and taken office. With minor exceptions, voti! ng and vote counting have been peaceful and comparatively free. Voter turnout has been higher than that of the United States.

Although the recent elections have been a positive development in the creation of Russian democratic institutions, some disturbing trends exist that point to trouble in future elections. While international observers have cited Russian elections as free and fair, the campaigns preceding the elections, most notably the presidential election, have been notoriously unfair. Financial restrictions on campaigns are routinely ignored. By some estimates, the 1996 Yeltsin presidential campaign cost well into the hundreds of millions of dollars (by comparison, the 1996 Clinton campaign, both primary and general election, cost $113 million). Officially, Russian presidential campaigns could only spend $2.9 million. No major outcry or judicial proceedings resulted from this overspending.

Perhaps even more disturbing is the often cited European Institute on the Media (EIM) survey which documents the flagrant biases of the media in favor of Yeltsin. First, according to EIM, Yeltsin enjoyed 53% of all media coverage, while his closest competitor received only 18%. Yeltsin, therefore, appeared on TV more than all other candidates combined. Second, EIM found media coverage extremely biased. Giving candidates a point for each positive story and subtracting a point for each negative one, prior to the first round of the election, Yeltsin scored a +492, while his competitor earned -313. In the second round, Yeltsin had a +247 to his competitor's -240 despite the fact Yeltsin disappeared from the public eye a week before the election!

Elections, like much of Russia are also at a fork in the road. As Russian consultants learn more "tricks of the trade," the possibility becomes more realistic that together with the oligarchs they might try to turn future elections in Russia into nothing but window dressing as a cover for irremovable oligarchic rule, as was the case in the Soviet Union, where results were predetermined and the people an afterthought.

In the governing process, Russia's democratic institutions have not developed as fully as its elections. Russia's system of checks and balances is underdeveloped and often the rule of law is not respected. The judicial branch of government remains overly influenced by the executive branch. While the lower house of parliament has indeed made some headway in becoming more than just a talking chamber where the occasional fight breaks out among deputies, and the Executive Branch now lobbies the Duma to pass the budget, the START II treaty, and other issues, Yeltsin and his teem still reserve the option of bypassing the Duma altogether and ignoring the Constitutional process when the Duma disagrees with an executive initiative or is unwilling to be coopted by promises of some new monthly leadership meeting with the President and Prime Minister. One example of such a strategy is the budget, where compromises are made to ensure passage, and are essentially ignored throughout the! year. Another example of such actions is the persistent rumor that Yeltsin will seek an unconstitutional third term as President.

No successful democracy in the world today functions without some kind of political party system. The development of a functioning political party system in Russia has been an unambiguous disappointment.

Although political factions exist within the Duma, and those factions boast varying degrees of regional activities, a functioning political party system in Russia has yet to develop. A number of reasons exist for this. First, after 70 years of "party rule," Russians are understandably skeptical of political parties. Second, the President's actions have actively undermined the development of a political party system. By choosing to remain above parties and rejecting any party affiliation, President Yeltsin has promoted the concept that parties and party development are an afterthought in Russia's democratic development. Yeltsin accepts assistance of like-minded parties when it is politically convenient and distances himself from them when inconvenient. Because of his lack of affiliation, no party is the true party of the government, and Yeltsin cannot be held accountable to the people short of a general election. Third, for political reasons, Yeltsin in the past ! has attempted to limit the development of parties by seeking to abolish the party-list system that elects half of the Duma seats. The party-list system allows parties clearing a 5% hurdle to enter the Duma. In 1995, only 4 parties did so and over half of the Duma seats were won by parties in opposition to the Yeltsin Administration. Having the list system ensures that parties will exist in some part of Russian society. In 1998, Yeltsin renewed his call to change the election law. In order to have better control of the Duma, Yeltsin advocates having the entire chamber elected from regional districts, similar to the system used in the United States. With more control over local leaders, Yeltsin believes he can influence who wins these Duma seats. (In reality, organized crime would buy many of the seats.) If he succeeds in abolishing the list system, Yeltsin will destroy the only arena in Russian society where parties currently exist, but would not minimize a major source of op! position. Such a strategy is politically disadvantageous for Yeltsin. But even more than that, it is damaging for Russian democracy, which needs a functioning party system to allow people to express their views to the government.

The Russian media also earns a mixed review. Clearly Russians have a variety of sources from which to gain news. Opposition newspapers exist. Journalists are free to conduct investigative reporting and to write their own opinions. The November book payment scandal, where senior members of Yeltsin's economic team were revealed to have accepted $500,000 in exchange for writing a book on privatization, first broke in the Russian press. Political leaders appear on programs like Hero of the Day and Itogi to explain their views to the people. Yet the media, especially in the last two years has become entirely controlled by the oligarchs, who are part of thwe government and use their editorial boards and programmers to promote their own selfish agendas. Nowhere was this more evident than in the Svyazinvest bid in August, where the resulting "banker's war" played out in the media. A Russian citizen by reading a certain paper or watching a certain television station get ! either one or another group of oligarchs' version of the truth, which directly contradicted each other. The media fracas eventually had serious implications for government personnel.

At the meetings last fall in Washington , I explained how important the Russian service of Radio Free Europe/Radio Liberty remains in Russia. Unfortunately, at a time in Russia where newspapers and television stations are required to serve their masters, where journalists and articles can be purchased, RFE/RL, as in Soviet times, remains RussiaТs main impartial news supplier.

In sum, Russian society shows some signs of developing democratic institutions. Elections are held, freedoms are allowed, parties do exist, the media expresses diverging views, but such minimum democratic institutions exist in both Latin-America- and Western-type democracies. True, Russia is better off with these institutions than without them. But the quality of each of these institutions is what will determine which path Russia takes. It is not enough only to have them, they must function appropriately to reflect the people's needs and will.

Any action Russia takes in today's world, Russia is taking for its own vital interests, not to please anybody or to make other countries happy. Russian problems should be tackled primarily by our own selves because they are absolutely crucial for the Russian people, for the future of Russia. That is why, as the Cold War fades into history, it is understandable that Russia does not play the primary role it once did in U.S. policy considerations. However, the choice of which fork Russia takes will affect America, Europe, and the rest of the world. Moreover, Western actions will help determine which path Russia takes. Up to this point, the West's policy choices have not been helpful enough.

What are some of the main problems which Russia faces and which are at the same time, from my point of view, relevant for the West ? Russia and the West face similar challenges in the post-Cold War world: The most serious threat to all players is the loss of control of nuclear, biological, and chemical weapons. Indications of the increasing risk of massive loss of control are evident in the troubles aboard the Mir space station, the suicide of Vladimir Nechai, (not Neachi, please!) (Director of the Chelyabinsk Nuclear complex who killed himself because a lack of money meant he could no longer ensure the safety of the operations or pay his staff), and the recurring examples and rumors of nuclear smuggling. Russia has literally thousands of tons material that could be used in weapons of mass destruction. Under the rule of corrupted oligarchy and without proper control, this material could become a black market commodity available to the highest bidder. The control of Russia! 's nuclear, biological, and chemical arsenal is an issue of world safety and cannot be ignored by either Russia or the West.

A second reason Russia is still relevant to the West is stability. Russia borders some of the most unstable regions in the world. For centuries, it has acted as a wall between those instabilities and Europe. Today this wall is of no less importance when drugs trafficking, terrorism spreading, arms smuggling becomes more and more rampant. If that wall has holes in it, it will be dangerous for Europe.

Furthermore, Russia and the West share a desire for stability in order to promote economic development. In recent months, the West has focused on developing the Caspian region's oil resources. Russia is a key player in the area, and finding a peaceful resolution to the Chechen issue will play a large role in determining how oil leaves the region. Furthermore Russia is arguably the greatest untapped economic market in the world. The development of Russia's economy presents a great opportunity for Western companies and economies.

Why is the path Russia chooses so important for the West? The choice will determine what type of Russia the West will work with as it confronts the challenges of the 21st century. A Western-style democracy in Russia would produce a partner with the West in confronting these challenges. Russia and the West would work together in maintaining control over weapons of mass destruction and would be more likely to cooperate in containing regional conflict in areas like the Caucasus and Middle East. Finally the rule of law would govern business relations and allow for economic development and growth beneficial for both societies.

A corporatist-style Russian government on the other hand, would be more challenging and less stable. One scenario for a corporatist-style government, sees Russia's leaders valuing stability and therefore cooperating and working with the West to ensure the status quo. Such a system, although stable on the surface would be built on false foundations, as in Indonesia at the moment, where any change of leadership would threaten to undermine the entire order. Another scenario for this style of government suggests a contentious Russia, where Western actions and goals are seen as circumspect. Cooperation on important global issues would be less forthcoming, and the rules and laws would change to fit personalities, hindering economic development.

As Russia is making its choice, the West's actions have played a role in the decision, and unfortunately up to now, they have not promoted the correct path. Nowhere is this more evident than in the NATO expansion debate.

I personally believe that the main reason behind NATO enlargement is that NATO is a huge bureaucracy, and like any bureaucracy which does not know what to do, it expands as a rule. Furthermore, NATO expansion at the moment is not a military threat for Russia. Nevertheless it is bad for Russia because it demonstrates the ultimate collapse of the overall foreign policy of Russia over the last five years. For any country in the world, if a military alliance moves closer to its borders without incorporating that country, this means that the foreign policy of that country has dismally failed. The talk this is a different NATO and that it is no longer a military alliance is ridiculous. It is like saying that the thing advancing toward your garden is not a tank, or rather, it is a tank, but it is painted pink and carries flowers and plays music. The people say, "But it is still a tank, isn't it?" "Well, yes, it is a tank, but it will act more like a tractor."! It does not matter how you dress it up, a tank closer to your garden is still a tank.

The most important message of NATO expansion to Russians, however, is that despite all the rhetoric about Russia's democratic and market victories, and a partnership with Russia, the political leaders of Western Europe and the United States do not really believe that Russia can become a Western-style democratic country within the next decade or so. In their eyes, Russia, due to its history, is considered a second class democracy. Perhaps this is understandable, ample evidence exists to support this view. The combination of Chechnya (an arbitrary war in which Russia killed 100,000 people unnecessarily), the collapse of the armed forces, failed economic reforms, a semi-criminal government, and Yeltsin's unpredictability has given the West enough justification for them to conclude that Russia for the time being cannot be a dependable partner and therefore they should continue to expand their military alliance.

Ironically, if the U.S. explained its push for NATO expansion honestly in those terms to the Russian people, the Russian citizens, while finding the conclusion distasteful, would at least understand why NATO is expanding and respect the West for telling the truth. But when the West says to Russians: "Russian democracy is fine, Russian markets are fine, Russia's relationship with the West is fine, and therefore NATO is expanding to RussiaТs borders," the logic does not work, and it leaves the Russian people and leaders bewildered and resentful. Furthermore, this resentment will only be exacerbated if the West continues this doubleface policy.

I am afraid that the above arguments might be used in public to explain NATO expansion in case the relations between Russia and US seriously deteriorate. However I would prefer to hear them voiced in a friendly and clear, althought in diplomatic way, without waiting for the partnership to fals to pieces. (this is an explanation of the thought, so please edit it into acceptable English)

Finally, the West's insistence on promoting personalities in Russia over institutions also hinders Russia from choosing the right path. The West plays favorites, and I recognize that I am one of them, even though I am not in power. However, the danger comes when the West, while promoting the rhetoric of democracy and capitalism, backs Yeltsin, Chubais, Chernomyrdin, Nemtsov, Gaidar, even when they embark on actions that do not promote democracy or markets. However when Yeltsin ordered tanks to fire at the parliament the West supported him. When he ordered the army to start the war in Chechnya the West still supported him. That leads us to believe that had Yeltsin canceled the presidential election in 1996, the West would have supported his choice despite the fact that the decision would have ended Russia's nascent democratic experiment.

Decisions made in Russia and the West will affect the environment in which Russians will determine which fork Russia is destined to take. What must be done to ensure that Russia takes the real democracy path?
On the economic side first of all the present system of economic management, when most large enterprises are run by insiders in disrespect of the owners' rights, should be radically reformed. "Collective" enterprises which look more like Soviet-style "kolkhozes" in terms of management and responsibilities should be gone. Instead the government must encourage responsible management based on the notion of private property; ensure and protect owner's rights. The bankruptcy law should be fully enforced to help eliminate incompetent managers, crooks and old-style "Soviet" directors, who are unable to adapt to market realities. Enterprises that hold workers to produce nothing but debts should be closed or sold out.

Second, a new set of "rules of the game" should be established. The most important step is to separate business from political power in order to fight corruption. There must be a decisive break with the legacy of the past when administrative power stood above the law or public control. The action must be clearly made, unambiguously announced and implemented forthwith. Individual businesses should be regulated by clear-cut and duly adopted laws, not by government officials or local barons, often not too easily distinguished from gang leaders. The power of oil and gas tycoons who generate huge profits using the country's natural resources must be curtailed. They should be made accountable to parliamentary bodies, their activities transparent and subject to public control.

Corruption also prevents an entrepreneurial middle class from emerging. If one knows that one's purse may be stolen at any moment, all of one's energy is devoted to protecting oneself from this threat. Similarly, if a would-be businessman knows that everything he works for is likely to be stolen, he will produce only for himself and his family. Therefore, a massive government effort to stamp out corruption must be pursued. In these efforts, we can actually learn from the Latin America of today to see how they converted corruption within the country into legitimate business. Open accounting that meets international standards is a key prerequisite. Also, a strong, independent, and incorruptible judiciary which will hold corrupt officials accountable is required. Senior government officials must agree to have a three-part declaration drawn up for themselves and their closest relatives. The declaration would cover income, property, and expenses, and would be filled out twice ! a year and reviewed by the independent judiciary. Another thing that can be accomplished immediately is repealing the law that makes Duma members immune from prosecution. The large number of corrupt individuals running for Duma seats to gain immunity is repulsive. How can a legislature fight corruption when its members have their own deals on the side?

Third, free competition must be supported by encouraging small - and medium - sized business activities, removing red tape and excessive regulation standing in their way. Former Soviet monopolies should be destroyed in order not put up with monopolistic domination by a small group of large companies which account for 50% of the country's GDP while employing only 3% of the country's labour force.

Fourth, land reform should be implemented. There can be no stable development of agricultural sector until major part of the country's land is taken from hands of oligarchic landlords who "inherited" it from the state. Without real private property of land it is impossible to speak of real privatisation.

Fifth, law-enforcing power should be strengthened to reduce criminal pressures on the economy. As I mentioned above, the judicial system must be reformed and necessary provisions made to ensure its independence and effectiveness. Activities of regional authorities and regional legislators should also be closely monitored to ensure their conformity with the law.

And finally, there is a need to decentralise power and financial resources of the country. Russia will be doomed to instability and underdevelopment if 85% of the nation's money will still concentrate in its capital, as it is now. Local initiative and entrepreneurship should be encouraged and fostered if we want fruits of economic growth to be shared between Russia's numerous regions, social and ethnic groups.

To ensure an established middle class emerges, an open market conomy must emerge based on private property and competition. Unregulated prices, low inflation, and a stable currency are absolutely necessary but, in Russia, not sufficient set of conditions for a competitive economy. Perhaps more than anything else, a growing economy in Russia can help create a middle class where people know that hard work and not connections are the best way to get ahead. To do this it is necessary to cut taxes and sharply reduce regulation of private business to allow maximum freedom for entrepreneurship.

The immediate task before us is to reform the country's totally unrealistic tax system. Unable to put larger sectors of profitable buisnrsses under control by tax authorities the government invents still new ways to tax those businesses which do not want or are unable to cheat and conceal their profits. Currently, Russian enterprises are taxed at up to 80%. Faced with hard competition stemming from black or semi-black marketeers, they find themselves unable to survive and grow without relying on criminal support or "goodwill" of corrupt officials. As a result with all the high tax rates public revenue falls billions of dollars short, causing wage and pension arrears and a barter economy.

I am proposing that the complicated and unimplementable tax system should be substituted with a simple and clearly defined set of fiscal rules with no more than five federal taxes and one or two local ones that can amount to only 20% of an enterprise's profits. At the same time during at least the current transition period more weight should be given to taxing the the use of natural resources. Imported luxuries and large overseas expences should be also subject to higher taxation. This simplified plan will allow a steady stream of revenue for the Russian government and will free economic development from strangling regulations. Our analyses shows that low taxes combined with the control on incomes from the use of natural resourses would support Russia's budget much better than high taxes which nobody is ready to pay.

On democratic institutions, Russia must allow the judicial branch of government to become equal and independent. Russian laws must be passed and followed in accordance with the Constitution. Elections will continue, although the playing fields for the campaigns must be leveled. The attempt to abolish the party-lists elections testify that the ruling elite fear that civil society would present an unwanted alternative to the corporative society which benefits the present authorities.

Russian media remains free from direct political censorship as before but is now controlled by the robber-barons, who, in fact, are part of the government. An independent and trust-worthy source of news is needed. The government should relax its editorial control over Russion television and allow it to operate in the same manor as, for example, the BBC. Also an objective newspaper that is not beholden to its funders, where Russians can trust that they are getting imparcial news , must be created.

For the West, four ideas. First, do not exacerbate tensions in ways that divert Russians from their priority challenges at home. Expanding NATO was a mistake, expanding NATO further would be even more than that. I understand the domestic and historical pressure to do so, but such a move will significantly scar relations for the foreseeable future and lessen the likelihood for genuine Russian-Western cooperation. Promise to assist those who seek security guarantees, hold joint exercises with them, but do not incorporate countrees on the Russian borders into NATO and do not station NATO troops there for at least the next decade. It is not in your interest.

Second, tell the truth. The West needs to regain the respect of the Russian populace by speaking honestly to the Russian people. In the Soviet era, the West was respected by the Russian people because they knew that it spoke the truth when their own leaders would not. This has changed as your policies have emphasized personalities over actions and institutions. Depersonalize your relations with Russia. While you must certainly deal with those who serve in the government, recognize that those individuals can do wrong and can be diplomatically criticized and held accountable for undemocratic actions. You criticize each other and the likes of Netanyahu for pursuing policies you disagree with, so why should Yeltsin and your other favorites be above the fray? With the 1996 presidential election the last chance for a Communist resurgence ended. The West should now promote the development of democratic institutions and hold Russia's leaders accountable for their policies.

Third. Do not treat us as a second class democracy. Apply to Russia the same criteria of democracy and market economy that you would like to have applied to your own countries. Be honest in assesing Russian elections, Russian freedoms, Russian laws, and Russian human rights situation. Do not suggest that we should elect a President you would not wish for yourselves. Never give us advice you would also not be willing take. This holds true because although we have different histories, we belong to one civilisation. And next century will be the century when not separate countries but the civilisations will compete.

Finally, the West can also promote and help develop the free market economy by investing in Russia and making sure that investment benefits the people, not just the robber-barons. Building factories in Russia, hiring Russian citizens, offering training, exposing Russian workers to Western business practices, all help. Hold Russian business partners accountable and demand open record keeping. Refuse to pay bribes. Such tough actions from the West will help steer Russia in the correct direction.

True, the choice of which path Russia takes to the next century is primarily Russia's but the decision will affect us all. The decisions made by both Russia and the West will determine which fork. I am against Russia spending the next century like those Latin American countries that have struggled to move from a criminal to a civilized capitalism, with varying degreesof success. Our goal is civil society, real democracy, observance of human rights and freedoms, with a competitive market and a strict anti-monopoly policy. I do not accept the emerging dictatorship of crime and corruption that holds my countrymen in check. I have absolutely no doubts that a free, democratic, and dignified country can be built in Russia. It may not emerge as the greatest or strongest power in the world, but it will be far better than what it was or what it is today. It will be a Russia that works for its citizens and is a constructive player in world politics. This can and must be achieved. A! nd I am working to create that Russia.