Interview by Dmitri Medvedev, Chief of Staff of the Presidential Executive Office, with Expert Magazine

Expert Magazine, No 13, April 4 – 10, 2005

 

 

Last year, the President announced a whole series of major changes to the state’s political organisation. It was the new system for electing regional heads that sparked the greatest debate. This new system is already being applied in practice. What are the principles for selecting candidates for the post of regional governor? Does preference go to civil servants or to people from other backgrounds? How difficult is it to consolidate the regional elites and how will the regional governors look as a group in several years time?

The idea behind introducing this new system of electing regional heads was not at all to give the governors a shake up as a group. On the whole, they are a qualified and competent group. The question was one of unity at the national level, a question of how effectively the country is working. The new procedures aim at strengthening the power system’s unity, consolidating the regional authorities and creating the conditions for more effective implementation of decisions taken. 

The main selection criteria for candidates for the post of governor are clear. Above all, they must show a professional ability to fulfil their responsibilities. Everything else – education, having their own team, even their experience – is all very important, but is nonetheless secondary. You know, the country used to have a sort of reserve personnel pool it could draw on. Today we are feeling very acutely the absence of such a reserve pool. This reserve pool could cover all different posts, everything from regional governors to village mayors and state ministers. It would be good to see some new blood. I think it is absolutely normal when a career civil servant, a business manager or a federal politician can all become regional governors. So long as they are ready to work effectively and communicate in a normal way with the regional elites and the federal authorities. This social development should be an ongoing process. I hope that in several years time what we will see is a synthesis of the experience built up by today’s governors and modern approaches brought by new people.  

 

What sorts of new approaches has the new system brought so far? Some new governors have already taken office, after all. How effective is the interaction with the regional parliaments? How responsible are the local parliaments and the political elite? 

I think the results have been positive. All the examples of electing new governors to office have proven that the system does work. The new people who become regional governors are known in their regions and are not finding it difficult to establish contact with the regional elite.

As for the responsibility of the regional parliaments and politicians, I think there is no doubt that they will follow a reasonable political course. In cases when consultations are required, they take place. The plenipotentiary presidential representatives, following their own responsibilities, meet with the leaders of the different political factions in the regional parliaments, have talks with the regional elite, and help reach a consensus. These consultations take place openly and, in my view, show that the new system for electing regional governors is working very well.

 

Could we say that the new system is drawing active citizens, the regional elite, at least, into the democratic process? In a sense, is this system more democratic than the previous system in that more people are actually taking part in this selection process?

Paradoxical though it may seem at first glance, the consultations on new candidates do involve a large number of people. The procedures used in the old system are well known and did not always make it possible to seriously analyse the views of the candidate for the post of governor. Now this possibility does exist and the regional parliaments provide the forum at which it happens in practice.

 

Responding to criticism from the West, President Putin often says that the Russian people made its own choice in favour of freedom and no one is now going to go back on that choice. At the same time, however, when we look at the different political parties’ programmes, there is not really a single party that actively defends freedom, private life and, intrinsically linked to these concepts, property rights. The Presidential Executive Office is known for taking an active part in developing the political environment in Russia. Will it make efforts to help form a genuine liberal party?

One of Russia’s historic misfortunes is a disregard for the values of private life and private property. Various political forces, from the monarchists to the Bolsheviks, have used this subconscious collectivist urge in the Russian people to their own advantage and we can still see the consequences today. Many parties are simply afraid to proclaim the need to provide as much protection for private property as for state property. The platform objectives of many of our political parties are vague and unclear. The lack of any normal liberal right-wing ideology leads to surrogates and prejudices emerging. Our political elite is unstructured. Sometimes ostensibly right-wing politicians say (or do) things that even radical left-wingers wouldn’t dream of. Just look at the reaction of many of those who consider themselves to be on the right during the replacement of social benefits by cash payments. None of them said that introducing cash benefits rather than benefits in kind is one of the very first conditions for a market economy to emerge and develop.

A normal right-wing party is one of the pillars holding up the system. If there is no normal right-wing party, there won’t be a centrist or a left-wing party either. But this kind of party will only emerge if it is created by people who are united by genuine liberal right-wing values and not just by an ambition to get a seat in the Duma. It is possible that a corresponding faction within United Russia could serve as the platform for developing this kind of right-wing ideology.

 

The media like to talk about the struggles between different elite groups including within the Presidential Executive Office. But at the same time, it seems today that the country is not yet strong enough to allow such struggles within the elite. Is it possible that the Russian elite will consolidate over the coming years, and if yes, then on the basis of what platform?

If we do not manage to consolidate the elite, Russia could cease to exist as a unified state. Entire empires have been wiped from the map of the world because their elites lost hold of the ideas that united them and engaged instead in fatal battles amongst themselves. There is only one idea that can consolidate the Russian elite, and that is the preservation of our state within its existing borders. All other ideas and ideological platforms are secondary. We have managed to strengthen the state’s unity and to ensure enough stability for economic growth over recent years. But if we relax now and let ourselves be carried whichever way the waves go, the consequences would be disastrous. The collapse of the Soviet Union would look like a kindergarten picnic compared to what would happen if the modern Russian state collapsed. It would be a disaster for everyone, including for our neighbours both near and far. 

This idea of conflicting groups within the Presidential Executive Office is a political cliche. There has been just one group in the presidential apparatus over the last five years, and that is the team of people who help the President exercise his constitutional powers. Of course, we have people from all paths in life, people of various backgrounds and different circles. Their views can differ on specific issues. This is a good thing, we are not the Communist Party Central Committee, after all, and we do not seek to impose a single way of thinking. The main thing is to maintain a spirit of self-criticism and not end up simply following primitive management schemes and losing sight of the real objectives of the state’s work.

 

Since the end of the 1980s  discussion has been going on about the principles on which Russia’s federal system should be based. Above all, this concerns the idea of merging regions, which would also enable them to eventually achieve greater independence. How do you view this idea of merging regions? 

We should think in general about how our federation looks. What will we hand down to our children? A harmoniously functioning federation or a collection of bits of the country varying greatly in size and economic potential? The idea of merging regions is a way to develop the federation within the framework of the current Constitution. The main thing is for these mergers to take place peacefully, without hasty moves, and in accordance with the proper legal procedures. Of course, these mergers should also be voluntary and based on the legally expressed will of the regions concerned. 

 

Just before the presidential elections in 2000, analysts were writing that every election in Russia is fraught with the risk of a complete review of the country’s social and political foundations. Will this risk still be present in 2008, when the next presidential elections are due? What other serious political risks do you see in 2008? 

Despite the stable development our country has undergone over the last five years, the risk of a change in the country’s development vector is still present, although I do not think there is any serious threat to the state’s political foundations. This risk is, of course, considerably lower than during the 1996 elections. The question remains, however, that there are still serious problems that could cause public upheaval and lead to social cataclysms. These are the problems of terrorism, poverty and crime. Furthermore, the legal handover of power has in itself never been an easy process. During the tsarist era it was based on blood ties, and during the Soviet era it was based on the decisions of the elite, masked as an act of the people’s will. Today we have the chance to start a tradition of legal handover of power based on genuine democracy. Repeating this tradition over and over will help create a solid foundation for democracy in this country and will give new quality to the state’s development. The main risk, therefore, is destabilisation of public life caused by terrorism or by primitive economic mistakes and accompanied by wide-scale infighting among the elite. The consequences would be redistribution of property, the emergence of regional barriers and separatism in the public and economic life. 

 

Many people think that Western pressure on Russia has reached an unprecedented scale. In particular, there is talk of Western intervention in the affairs of neighbouring countries. Is this an exaggeration or is our position in the world really changing?

Let’s think back to the early 1990s. No matter what problems our country was going through, what contradictions were eating away at us and what mistakes were made both on the home and international fronts, our partners remained completely indifferent to us. That was understandable. A weak country is vulnerable and not a threat of any kind. Today Russia has built up its strength and has once again begun to take its place as a major player on the international stage. Not everyone likes this; it irritates some people and messes up the way the geopolitical cards were all laid out. No matter that these fears aroused by Russia are irrational and not based on reality, in some cases they lead to bursts of political activity. The main question is painfully familiar – where is Russia heading? Have we not turned down the road to authoritarianism (totalitarianism, nationalism and so on)? We should take all this with calm and not lose ourselves in justifications and attempts to prove that we are still the same, still just as committed to common global values, still uphold human rights and property rights as primary and fundamental and still want to be a full member of the European family. At the same time, we should provide our arguments and take our stand on the main questions. Time will put everything in its place. In the end, a strong Russia should be good not just for us but also for our neighbours and partners.  

 

Replacing benefits by cash payments was something that caused a real stir in the country’s political life. Do you think that the demonstrations by people whose benefits are concerned were a normal reaction by civil society, or did they show an absence of normal mechanisms for interaction between the authorities and the public.

The demonstrations on the streets were the normal reaction of angry people and, if you like, direct and not always very pleasant proof that civil society does indeed exist. There is nothing so unusual in this. It is another matter that these demonstrations sent a serious signal to the authorities that the mechanism set out in the law was not working properly and that not all the problems had been properly foreseen. The government has to be up to its task when drafting laws and when correcting mistakes that have been made. Of course, it is better for discussions on necessary measures to take place through socially effective procedures rather than on the streets, and for this to happen we need to have working mechanisms for communication between the public and the authorities, the Public Council, for example.

 

The Kremlin is often accused of clamping down on freedom of speech in Russia, especially by the Western media. How do you view the situation for Russian media, including for the regional media?

The state of the Russian media corresponds to the level of state and social development that we have reached today, no higher and no lower. I think that media under the control of a single group, whether it be state, oligarchic or sectarian, have the least freedom. The extent of control in these cases goes beyond the limits of the usual corporate procedures in a commercial organisation. If the authorities decide who sits on the board of directors of a state television channel, that is natural because it is part of the procedures for running joint-stock companies. But if someone decides to feed some information to a media outlet in the interests of competition, this is manipulation of the public. If the authorities become tightly bound up with some business organisation or other in the information field, then we end up with the kind of oligarch-controlled television we had in the second half of the 1990s, and there isn’t any freedom of speech here, either. 

 

The current year did not get off to the best start, economically. The results for January show industrial output growth of only 2 percent, and annual inflation will probably go beyond the planned limits. Judging by recent government meetings, the authorities are getting a bit nervous about this situation. How critical is the situation, in your opinion, and what ideas is the Kremlin discussing at the moment to overcome possible economic stagnation? 

The economic situation is not critical but it should at least give us some cause for concern. Growth rates have indeed slowed somewhat and there is a risk of rising inflation. We do not yet have complete data, however, for fully analysing the slowdown in growth. Maintaining a relatively high GDP growth rate (at least 7 percent) should be based above all on financial stability (keeping to macroeconomicbalamce of currency and inflation rates). Just as important is the business climate, which includes rational tax administration, competent anti-monopoly policy and stable property relations. It won’t be anything new to say that in the medium term, efforts to develop small and medium-sized businesses, increase labour productivity, attract large-scale investment and carry out major national projects are all also very important. To rein in inflation, we need to support competition, encourage the reduction of monopoly costs, limit tariffs and make the stock market more attractive.

 

The Yukos affair gave rise to a lot of discussion about the illegitimacy of major industrial holdings that were privatised in the 1990s, on the one hand, and also to talk of insufficient protection of property rights in Russia, on the other hand. Do you think there is  a  problem with the legitimacy of assets that were privatised in the 1990s, and should some particular efforts be made to settle this problem? And how can we resolve the undeniable problem of providing adequate protection for property rights?

I don’t know what legitimacy of property means. There is no such concept in law. What’s more, contrary to the widely held belief, I don’t think we can say that Russian law provides inadequate protection of property rights. Our Civil Code and other civil laws are among the most modern in the world. The problem, clearly, lies elsewhere. For a start, there is not enough stability in our property relations. We have the laws, but the stability is lacking. This is the root of our problems. To be fair, this problem of lack of respect for property is one of Russia’s historic woes.  The 1990s privatisations were revolutionary, they took place very fast and the rules were not always thought through. This is why concerns arise that someone will then come and take assets away again under some pretext or other. We need to put an end to these concerns through legally correct means. There is also obvious dissatisfaction with the way the court system works. The Soviet system for defending property rights in court was one-sided and under-developed, while the Russian system is still in the process of formation. Certain commercial disputes in which all possible resources, from official clout to money – let’s be frank about it – were mobilised to protect the interests of rival business groups also had a negative impact on the new Russian system’s development. We need to put an end to all this. We cannot allow any “justice market”. Everyone who was involved in forming it understands this today. A public consensus has now emerged regarding the value of the court system being for everyone. The main thing now is to abide by the rules of decency and not attempt to influence the outcome and decisions. We all need an independent court system – the authorities, business and individual citizens.

 

Can we bring up the regional aspect? Everyone knows, after all, that local officials often use their influence to intervene in business affairs. Bureaucrats, civil servants, often act ostensibly for the state when in reality they are acting as private players in the economy. How can we separate the local authorities, local bureaucrats, and business?

It is a very serious issue when a civil servant acts, as you put it, as a private player. Of course, the more officials there are, the bigger the problem becomes, even going so far as to set a trend in society. Where is the state heading – towards development of an effective market, or is it becoming a badly managed and corrupt country with a system of administrative capitalism? This is an issue of public choice and how effectively the state functions. It is also an issue of how business treats its own responsibilities. There is mutual responsibility here. I would like to hope that business and the state will soon reach a mutual understanding of what are public benefits and that this will have a real positive impact on the situation.

 

In other words, you hope the business and political elite will finally reach an agreement on some sort of clear basis, and that basis, as you said before, is the objective of preserving the country intact.

Of course. The near future offers no other basis for Russia. We really do need to preserve this vast state we have inherited – a state that has a great many problems, but also enormous potential.

 

Coming back to the question of an effective market, state officials have said on a number of occasions that Russia will not take the road of state capitalism because it is not effective enough as a system. But at the same time, we see, for example, that the state has considerably strengthened its presence in the oil sector and is creating a new aircraft manufacturing holding dominated by state capital. Maybe this is only a temporary stage. But if we look at the long term, ten years, say, will the state still be present in strategically important sectors, and how will the transition from state-owned companies to private companies take place?

I still hold firm to the belief that traditional state capitalism is a dead-end road for economic development. It is not a problem of the state being an objectively worse manager than private business. Indeed, the experience of a number of countries, Norway, for example, shows that even very big state-owned companies can be effective. I think that in Russia, too, state-owned companies still have some potential. Moreover, given the scale of Russia, private companies have always had a difficult time when left on their own. There are some sectors, the defence industry and the country’s transport networks, for example, where I am sure the state will be present for a long time to come. But the issue lies elsewhere. Looking at Russia as a collection of large state companies is dangerous for other reasons. Above all, a private business environment cannot, and in some cases should not, develop around state–owned companies. State-owned companies do not in themselves ensure the development of small and medium-sized business, but it is precisely these small and medium-sized companies that are the foundation of any economy and also the foundation of civil society. Furthermore, state-owned companies cannot fully compete against each other, after all, they all share the same owner and the owner cannot compete against himself. State capitalism, then, is a road to total monopoly and economic stagnation. The role of state-owned companies today is to support necessary production levels in strategically vital sectors and also to provide public services in areas vital for public life (transport services, some communications services and so on). In the future we could envisage partially privatising these companies. What is important in this area is not to make any hasty moves and to carefully calculate all the consequences that would result from transferring state assets to private hands. In other words, we should not let things come to a standstill, but nor should we rush blindly ahead. 

 

Last year saw a real danger of Western capital expanding into Russia. Many companies, for various reasons, whether it be the risk of having their assets taken away from them or a lack of finance for rapid development, have thought it better to sell their assets to Western companies rather than try to pursue their business independently. But Russia cannot ensure its sovereignty unless it has capital in the country comparable to what the West has. This concerns not just the strategically important sectors. Is the Kremlin aware of this problem and if so, then what solutions do you propose?

I wouldn’t exaggerate the expansion of Western capital into Russia. On the contrary, investment in Russia is terribly insufficient at the moment. Certainly national capital must form the foundation for Russia’s independence, and it should be just as strong as foreign capital. National capital should dominate in a number of sectors, in resource companies, transport, financial and a few other enterprises. What is a lot more worrying is the outflow of capital into foreign companies or massive asset-shedding by Russian companies. There may exist some objective reasons for this, such as a favourable situation on foreign stock markets, for example, as well as some psychological reasons, such as personal fears for oneself and one’s business. But simple decisions by the Kremlin and the government alone cannot resolve this problem. It is a problem that requires constant and methodical work to improve the investment climate here in Russia, and this work is one of the authorities’ main missions.

 

A strong and independent financial system is a prerequisite for ensuring a country’s sovereignty. But Russia does not have such a financial system and this is seriously holding back the development of private business and is creating additional risks for macroeconomic stability. Are the authorities discussing this issue of creating an independent financial system? This matter is all the more important as Russia is planning to join the World Trade Organisation soon and this will require us to open up our economy to foreign financial institutions.

A strong financial system is a very important part of the country’s infrastructure. Development of Russia’s financial system has been uneven, from the time when banking and financial groups had a hand in every area of economic life in the early 1990s, to the serious crisis of 1998 that led to the collapse of the banking system. Now the financial system is showing slow and not always confident growth, and even slight ripples on the markets are enough to cause trouble for even very respectable banks. The conclusion we make is that the financial system is weak and does need serious strengthening, especially given Russia’s plans to join the WTO. Opening our economy to foreign financial capital should not lead to the destruction of our national financial system. We need a set of measures to protect our financial institutions, but these must be measures that do not encourage Russian financial institutions to simply indulge in primitive speculation on our national interests, something that would only lead to stagnation in this market. A strong financial system is necessary for the development of national capital. Our financial institutions should be able to cover a major share of the credit and insurance resources needs of Russian companies. It would also be good to see Russian financial institutions establish their presence in neighbouring countries.

 

Several statements were made at the beginning of the year, saying that construction of the eastern oil pipeline would begin this year. This is a huge project and one obvious medicine to help prevent economic stagnation. In this respect, two questions arise: first, how likely is it that work on this project really will begin soon, and second, does this project mean that Russia will actively develop and pursue economic expansion in the east? And more generally, how important is this eastern vector for Russia?   

To begin from the end, the eastern vector is of critical importance for Russia. If we do not develop our eastern regions, Russia wll not survive as a single whole. This is a simple truth. But developing these regions is a very difficult and costly project. There are not just economic problems such as the high transport costs and under-developed economic and financial infrastructure in Siberia and the Far East, there is also a very obvious and complex demographic problem. We absolutely must do something to boost the population in these regions. This is an issue of carefully thought-through demographic and immigration policies. Otherwise, the Far East will be a cold, empty and neglected place, or someone else will develop it instead.

The construction of an oil pipeline from Taishet to Perevoznaya Bay with annual capacity of up to 80 million tons is a mega-project that could have a real impact on the development of Siberia and the Far East, like the BAM railway line did. Defining the project’s stages, settling marine territory issues and a number of other steps will be completed by May 1. This oil pipeline project must not simply become a black hole for money. The project is obviously an expensive one and we need to be very clear first about the economic effectiveness of its construction. We don’t want another never-ending project of the century like the BAM turned out to be. We need to synthesise two not very compatible things – very large-scale construction and an effective project. This is a difficult challenge, but we can find a solution. Once we have got all this clear, then the project can get underway.  

 

The last six months have seen a number of decisions concerning the development of particular economic sectors. The Housing Code has been radically changed, there have been discussions on creating technology parks, and the plans to create a unified aircraft manufacturing holding finally got off the ground recently. Is all this a way of setting the main economic development priorities?

Of course these are all economic development priorities, but the list certainly does not end there. I would add to our priorities developing our health and education infrastructure. They are also among our national projects.

 

Last year, the authorities spoke a lot about the need to increase the social role and responsibility of business in the interests of getting rid of poverty more rapidly. But any pressure from the state on business limits its natural development and creativity. As Fernand Brodel wrote, “capitalism needs a certain tolerance by the state in order to develop.” Would it not be more effective for our society if private business concentrates on developing private markets and the state concentrates on fighting poverty?

You could also put it a different way: capitalism is what you get when the government leaves people alone. But the separation of responsibilities you suggest is over-simplified. Private business gets to develop private sector markets, while the state gets the hard task of fighting poverty. For a start, private markets are formed also through the state sector’s work, otherwise there is a serious danger of falling back into a two-sector economy. Secondly, we have to admit that the state cannot deal with poverty single-handed. Furthermore, this approach only serves to reinforce harmful paternalist thinking in people’s minds – this idea that if I’m poor and miserable, let the state help me because business is not for me anyway, but only for bloodsucking entrepreneurs. We have to combat this kind of thinking. What we need is for the state and business to take mutual responsibility for what happens in the country.   

 

Thank you