Russia deserves more than stability from Putin’s last year

By Jonathan Steele (THE GUARDIAN, 14/09/06):

On the seventh floor of a skyscraper that towers over southern Moscow an entire wall is covered by screens of electronic data. At computer terminals, operators monitor the flow of Russia’s most lucrative export product. This is mission control for Gazprom, Russia’s state-owned energy conglomerate – the place from which, if you are Dick Cheney or a Russophobe of his ilk, the Kremlin intends to run Europe, if not the world. Pressing a button here can bring a country to its knees, so the nightmare has it, or at least cause its citizens to shiver by cutting off their gas.

About 40 experts on Russia – journalists, academics and policy analysts from Europe and the US – were granted rare access to Gazprom’s inner sanctum last week. It was the third year Russia has invited the so-called Valdai Discussion Club for meetings that culminate in a three-hour question-and-answer session with Vladimir Putin.

The message the Russians wanted to give us was that blackmail is not on the agenda. Energy producers need customers willing to sign long-term purchasing contracts just as much as energy consumers want guarantees of supply. Putin even rejected the description of Russia as an «energy superpower», telling the group that the label was «deliberately fed to the media in order to bring about an association with the terrible Soviet Union».

Watching the screens in Gazprom’s control room, you certainly have an impression of a Gulliver rather than a Goliath. The web of pipelines ties Russia to Europe. Almost none go east. Fears that Russia could dump Europe and switch gas sales to Asia are absurd. Although Putin said Russia plans to increase energy exports to Asia by a factor of 10 by 2020, this would total only 30%; 70% will still go to Europe.

The second message to our group was that Russia’s transition to western capitalism is a long way from completion. The current hybrid of state ownership and regulated prices for energy will not end soon, nor will the government’s determination to keep control of strategic assets. Pipelines will not be sold to foreigners, which would only give them windfall profits, Putin says. Appointing Kremlin managers to the boards of gas and oil companies is a step towards good corporate governance, not away from it, since the oligarchs who seized control of former Soviet assets in the 1990s evaded taxpaying on a massive scale.

At the same time the Kremlin wants to move as quickly as politically possible towards charging market prices for the energy it sells inside Russia and to former Soviet republics. It finds it ironic that the west calls on Moscow to charge more, only to complain of Russian intimidation when Ukraine refused to sign a new contract last year and Russia stopped sending gas after the old contract had run out.

Within Russia, Gazprom is not yet raising prices for fear of a social explosion. Russian consumers have had to accept several shocks in the past 15 years, from the hyperinflation of the early 90s and the bank collapses of 1998 to sharp increases in housing costs and fares for domestic flights and urban transport.

Putin’s restoration of a strong Russian state and his calm defence of national interests after the often demeaning pro-westernism of the Yeltsin years are the key to his high poll ratings. The concerns stem from other trends.

He is continuing to re-exert central control over politics at all levels, apparently so that he can suppress protest rather than respond to it. The Russian parliament was emasculated in 2004 by «reforms» that created high hurdles to small parties and independents trying to enter the Duma. The largest opposition party, the Communists, lost much of its support after Putin stole its «national-patriotic» agenda six years ago. Now, with parliamentary elections due next year, the Kremlin is trying to manipulate the three smaller parties that raise social-protection issues.

It engineered leadership purges to put Putin supporters in charge of the Party of Life, the Pensioners’ party and the party known as Motherland, and encouraged the three to merge. The new creation has yet to choose a name, but the Moscow joke is that to call it «the life of pensioners in the motherland» would be too stark since everyone knows there is no feel-good factor there.

Equally worrying is the accelerating trend towards the marketisation of Russia’s education and health systems. Universal provision, free at the point of delivery, has collapsed. The health sector in particular is severely affected. Imposing charges for consultations with doctors, operations and private hospital rooms has split the system in two. The Soviet practice of small «presents» to doctors has become one of virtually mandatory payment at high rates. The World Health Organisation ranks Russia at 127th out of its 192 member nations, and at 75th according to the amount the government spends on healthcare.

Putin recognises a health crisis, particularly in the country’s declining birth rate and the reduced life expectancy for adults. He has made education and health two of his four «national projects». The trouble is the stinginess of his response and the way that government money is spent.

Flush with energy revenue, Putin has set up a stabilisation fund for the economy, but his advisers insist it will not be used for short-term injections of cash into social services. A system of «childhood certificates» not only provides higher maternity allowances once a baby is born but earmarks money for pregnant women to pay delivery fees, thereby subsidising the new market system in health. «Why do we need to break the old Soviet system instead of making it better?» asks Leonid Roshal, who chairs the president’s newly formed commission on public health.

As Putin moves nearer to his final year in office, he deserves credit for restoring stability after the chaotic capitalism of the Yeltsin era. But he has done little to reduce the greedy culture of rent-seeking that emerged in the early 90s, in which the owners of every asset, whether natural resources, property, skills or a job in the police or other government sectors, look to extract an unfair profit.

«In 1990 only three or four of my fellow economic graduates at Moscow University went into government. The rest wanted to make money in business,» a banker told me last week. «Now 70% go into government. You can make more money there.» Putin’s legacy needs to be better than that.