AFTER one of the best years Russians have known for almost a century,
their economy is growing by leaps and bounds. But President Putin has set
himself a daunting task for the coming year: the taming of Russia’s savage
capitalism and the recreation of a welfare state amid the ruins of the
communist system.
His plans are as ambitious as they are costly, and demand huge investment
in all the sectors of the economy that were virtually destroyed in the
early wild years of “bandit capitalism”.
Using the vast sums Russia is now earning from oil exports, Putin is
attempting to give Russians “capitalism with a human face”, showing them
that private enterprise does not mean simply the creation of a small corrupt
class of super-rich “oligarchs” and the impoverishment of millions. He
has no time to lose.
For unless Russia can quickly renew vital infrastructure, repair its
crumbling hospitals and leaking schools, legalise the sale of land, reform
its courts and clarify its laws, guarantee its old people a proper pension
and give workers the social protection they have in the West, he will never
win public acceptance for the change to capitalism nor vital foreign investment.
He has made astonishing progress in the past year. The Duma has passed
more laws than were ever introduced during the Yeltsin Administration.
The tax system has been simplified and made fairer, with a flat rate of
13 per cent that has eliminated a swath of corruption and produced a substantial
increase in revenue.
A free market has been introduced in non-agricultural land. Business
has been deregulated, with miles of red tape scrapped, while corporate
governance has been forced on fly-by-night companies, giving shareholders
more control over management and introducing safeguards for minority shareholders.
Pensions have been reformed, moving from a pay-as-you-go to a savings-based
system. Industrial relations have been freed from communist ideology, allowing
employers to hire and fire while defining the rights of workers and making
it easier for enterprises to restructure. Housing subsidies have been reduced,
while those in genuine need have been targeted.
A corporate governance code has also been introduced. All this has begun
to lay the basis for a normal free market system that guarantees its citizens
a minimum of social protection. The worst elements of the Yeltsin years
— the corrupt use of political influence to steer business into the hands
of cronies, monopolists and those with connections to organised crime —
are gradually fading, though the state monopolies have been slow to change.
Putin last year had virtually to demand the sacking of the head of Gazprom,
Rem Vyakhirev, from Russia’s largest company and almost a state within
the state, to show the world that Gazprom would no longer be run as a club
to enrich the wealthy.
Last week he sacked the powerful Minister of Railways, Nikolai Aksyonenko,
a former Deputy Prime Minister under Yeltsin, who was accused of embezzling
millions. And in an extraordinary move, he took to the airwaves for more
than two hours before Christmas to answer an unprecedented live phone-in
on the state of the nation. No Russian leader has ever before allowed himself
to be cross-examined by the voters, or fielded such a range of complaints,
or laid out such an ambitious programme of reform, backed up with statistics,
to callers from Vladivostok to Kaliningrad.
What emerged from the broadcast is that Putin’s priority now is not
the further liberalisation of the markets and prices or privatisation of
old Soviet enterprises: that has largely already happened. What he will
now concentrate on is the network of laws, regulations, payments and reforms
that are needed to make the market system work. The top priority is higher
wages for pensioners and state employees.
Russian pensions are a scandal. Runaway inflation in the 1990s reduced
pensioners’ fixed earnings to almost nothing. But the past year has seen
rises of 23 per cent, and in some cases up to 40 per cent. Putin also has
scrapped the very complicated system by which they are calculated, and
ordered a new contributory scheme. The salaries of state employees — teachers,
doctors, civil servants — still about ten million people, have fallen way
behind the 60 million employed in the private sector. They are to get pay
rises of 20 per cent as from this month. And salaries for miners, people
living in distant parts of Russia, the military and many others were not
paid for months on end. That has now changed.
Housing is another area of urgent social need. Putin promised central
government help for repairs and new housing, as well as for local education
budgets which have been severely squeezed. He praised tenants’ co-operatives
as the way forward, and said state help would be directed only to those
who really needed it.
Other areas vital to an industrialised economy that have fallen behind
are science, research, medicine, health and social services. On research
Putin said there would be a 50 per cent rise in funding as this was an
area vital to Russian competitiveness and prosperity. But he told industry
that it must shoulder more responsibility for applied science that would
serve its needs. The health service is in dire straits. Hospitals are ill-equipped,
doctors pitifully paid and medicines hard to find. Male mortality is extraordinarily
high and Russia has lost population at an alarming rate.
Money has been promised to alleviate the worst problems. But Putin again
told callers that self-help and private enterprise must replace the old
Soviet conception of a state-funded welfare system. Private medicine, he
said, should be developed as much as possible. Crime, drugs, vandalism
and drunkenness are also on the increase. Putin promised more money to
tackle crime, an independent judiciary free of political influence and
better paid, a crackdown on bribe-taking and cities will be given money
to help the homeless, especially children.
Russia’s southern border will be reinforced to stop the flood of heroin
from Afghanistan, and alcoholism — still an epidemic — will be tackled
by education and persuasion rather than by prohibition, as was attempted
so disastrously under Gorbachev. In all, he ranged over the areas of life
where the change from communism has made life worse for millions.
Many callers worried about where the money will come from. Putin admitted
that the oil revenues are vital, but suggested that once Russia had got
itself on a stable footing, industry would function better, investment
will flow in and the virtuous spiral upwards would begin. Russians are
sceptical, largely because of experience of many promises and few results.
But Putin’s determination to tackle corruption, clean up the courts
and set up a new legal framework will have repercussions far beyond daily
life here. It is what foreign investors have been demanding for years.
And those big Russian companies, such as the oil giant Yukos, that have
begun to operate on Western lines, paying proper dividends and doing business
honestly, have shown that clean business can be profitable business.
Russians joke that “everything that Marx told us about communism is
wrong, and everything that he told us about capitalism is right”. Putin
is determined to prove the second part of the joke wrong.
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