I recently interviewed Sergei Markov, who is a key spin-doctor to the Kremlin. He told me that the West had completely underestimated the extent to which things will change under Russia’s new president, Dmitry Medvedev.
He said: “Most western observers expect no change because Medvedev is the new president. On the contrary, Putin chose Medvedev precisely because he believes Russia needs to change. He has decided that Russia has now completed the previous stage, the stage of stabilization. For that stage, you needed a KGB guy to consolidate state structures and to consolidate the state’s control over the oil and gas sector. Now, Russia has come to a new stage, the stage of development. The country needs to develop new sectors of the economy, such as the hi-tech sector, and this form of development needs a new type of leadership, run by technocrats rather than KGB guys, with less state control and more innovation.”
Medvedev himself stated this new direction in his key speech in Krasnoyarsk in February, when he made an implicit criticism of the state-driven economic policy of Putin’s second term. He said: “We have to admit that we have been running the economy in manual over these last years. The time for this kind of hands-on decision-making in the economy is over. The new economy calls for a completely new approach: incentives for innovation and not directives from above. It is private initiative…that must be the foundation for the new economy.”
Medvedev has called for a number of liberal reforms to create this new hi-tech, entrepreneur-friendly and innovative economy: less red-tape for new businesses, fewer civil servants, less bureaucrats in charge of state corporations, more independence for the judiciary, more protection for small businesses from corporate raiders, lower VAT.
He has also called for more people with private sector experience in the top echelons of the government. The only time I’ve spoken to him, at a press conference in 2006, he said: “I would like to see more people with a background in business working in the government.” We shouldn’t forget he is the first ever leader of Russia to have experience of working in the private sector.
But this programme is setting Medvedev on a collision course with the Siloviki, or security services, who as a group have seen their interests furthered more than any other group during the Putin years.
Professor Stephen White of the University of Glasgow and Olga Kyrshtanovskaya of the Centre for the Study of Political Elites estimate that Siloviki account for around 23% of the political elite under Putin, compared to around 11% under Yeltsin and around 4% under Gorbachev. So they’re actually more powerful now than they were in the USSR.
Markov says he believes Medvedev can pursue his new direction without upsetting the Siloviki: “I don’t think the KGB will resist too much. They will accept Putin’s decision, not Medvedev’s. The old guard will not lose their positions. New people will come in and take new positions and new government structures, such as an agency to promote small businesses.”
But this doesn’t sound like a genuinely new direction or genuine administrative reform, but instead like the proliferation of more government, more civil servants, more agencies. You can’t make an omelette without breaking some eggs, and you can’t reduce the role of the state in the economy without upsetting some interest groups.
Professor White tells me: “The security services are at the moment in control of both the political structures of society, and the commanding heights of the economy, and the reports are that they have used this position for enormous personal enrichment. They’re not going to give that position up without a struggle. So there’s alot of room for instability in the mid term.”
Even as Russia supposedly changes direction in its development of the hi-tech economy, we see the FSB looking to get involved and get enriched. For example, Putin has outlined the development of nano-technology as a key priority for the economy. But the person he has put in charge of this project is the scientist Mikhail Kovalchuk, who just happens to be a childhood friend of his from St Petersburg, and the brother of one of the leading Siloviki in the country, Yuri Kovalchuk, who controls much of the nation’s media through his Bank Rossiya.
And one of the main ‘private investors’ in the development of nano-technology is the private equity fund, the Finans Group, run by Oleg Shvartsman, who in a remarkably candid interview with Kommersant said that his company was owned by people close to the FSB. This is not de-regulated entrepreneurship, but FSB cronyism.
So there’s a lot of potential for conflict and instability if Medvedev is serious about changing the direction of Russia. And it all depends, really, on how serious Putin is about changing the direction of Russia, because he is the one with all the political capital to spend, and he is the one that upset interest groups will come sobbing to if Medvedev’s reforms disempower them. How loyal will he be to his protege, and how loyal will he be to the KGB?
Some analysts have said that Putin sees Medvedev as the son he never had. But being the son of a Tsar can be a dangerous business in Russia – both Ivan the Terrible and Peter the Great murdered their own sons, out of the paranoid belief they were plotting against them. Hopefully this new father-son team will fare better.
