Monday, January 11, 2016

Vladimir Putin's first paper as president: 'Russia at the Turn of the Millennium' - A Strategy for Russia's Revival

Comment: The following essay by Vladimir Putin first appeared on the website of the Government of the Russian Federation on December 31st, 1999, when Putin was prime minister and had just been named acting president of Russia by the departing Boris Yeltsin.

While it was obviously too early to specify the steps Russia would take to come back from the brink of collapse, it did recognise where Russia was at that point, and outlined the broad strokes of what might be considered Putin's 'strategy' - pragmatic reform, selectively assessed and implemented, and based on the world as it is, not on 'the world according to ideology'.

At that point, Putin had had relatively little experience in politics, much less as an administrator or civil servant. It is remarkable for someone without the maturity earned from decades of experience in government to produce such a document immediately after landing a job he was neither anticipating nor wanted.

Remarkably, Putin estimated back then that it would take Russia 15 years to get back on its feet...

Humankind is witnessing two major events: the new millennium and the 2000th anniversary of Christianity. I think that the general interest and attention paid to these two events is more profound than the usual celebration of red-letter dates. 

New Possibilities, New Problems 

It may be a coincidence - but then again, it may not be - that the beginning of the new millennium coincides with the dramatic turn in world developments in the past 20-30 years. I mean the deep and rapid changes in humankind's whole way of life related to the formation of what we call the post-industrial society. Here are its main features:
  • Changes in the economic structure of society, with the diminishing importance of material production and the growing importance of secondary and tertiary sectors.
  • Consistent renewal and quick introduction of novel technologies and the growing output of science-intensive production.
  • Landslide developments in information science and telecommunications.
  • Priority attention to management and the improvement systems of organisation and guidance in all spheres of human endeavour.
  • And lastly, human leadership. It is the individual and his or her high standards of education, professional training, business and social activity that are becoming the guiding force of progress today.
A new type of society develops slowly enough for careful politicians, statesmen, scientists, and all those who use their brains, to notice two issues of concern. 

The first is that changes bring not only new possibilities to improve life, but also new problems and dangers. These problems and dangers became obvious in the ecological sphere first. But other acute problems could soon be detected in all other areas of social life. Even the most economically advanced states are not free from organised crime, growing cruelty and violence, alcoholism and drug addiction, and experienced a weakening of the family and its educational role, and the like. 

The second alarming issue is that many countries do not benefit from the booming modern economy and general prosperity. The quick progress of science, technology, and advanced economy is underway in only a small number of nations, populated by the so-called 'golden billion'. 

Quite a few countries achieved new economic and social development standards in the 20th century. But they did not join in the process of creating a post-industrial society. Most of them are still far from it. And there are grounds to believe that this gap between pre- and post-industrial societies will persist for quite some time yet. 

This is probably why, at the turn of the new millennium, humankind is peering into the future not only with hope, but also with fear. 

The Modern Situation in Russia 

It would be no exaggeration to say that Russia feels this mixture of hope and fear particularly strongly. There are few nations in the world which have faced as many trials as Russia in the 20th century. 

First, Russia does not rank among the countries with the highest levels of economic and social development. And second, our Fatherland is facing difficult economic and social problems. 

Russia's GDP nearly halved in the 1990s, and its GNP is ten times smaller than the US, and five times smaller than China. After the 1998 crisis, the per capita GDP dropped to roughly $3,500 dollars, which is roughly five times smaller than the average for the G7 states. 

The structure of the Russian economy has changed. Now the fuel industry, power engineering, and ferrous and non-ferrous metallurgy occupy the key positions in the national economy. They account for some 15% of Russia's GDP, 50% of our overall industrial output, and over 70% of exports. 

Labour productivity and real wages in the economy are extremely low. While our production of raw materials and electricity is about equal to the world average, our productivity in other industries is 20-24% of the US average. 

The technical and technological standards of manufactured commodities largely depend on the share of equipment that is less than five years old. In Russia, that share dwindled from 29% in 1990 to 4.5% in 1998. Over 70% of our machinery and equipment is over ten years old, which is more than double the figure in economically developed countries. 

This is the result of the consistently dwindling national investments, above all to the real economy sector. And foreign investors are not in a hurry to contribute to the development of Russian industries. The overall volume of direct foreign investments in Russia amounts to barely 11.5 billion dollars. China received as much as 43 billion dollars in foreign investments. 

Russia has been reducing allocations on research and development (R&D), while the 300 largest transnational companies provided 216 billion dollars on R&D in 1997, and some 240 billion dollars in 1998. Only 5% of Russian enterprises are engaged in innovative production, and the output is on an extremely low scale. 

The lack of capital investments and the wrong attitude toward innovation resulted in a dramatic fall in the production of commodities that are world competitive in terms of price-quality ratio. Foreign rivals have pushed Russia especially far back in the market of science-intensive civilian commodities. Russia accounts for less than 1% of such commodities on the world market, while the US provides 36%, and Japan 30%, of them. 

The real incomes of the Russian population have been falling since the beginning of the reforms. The greatest plummet was registered after the August 1998 crisis, and it will be impossible to restore the pre-crisis living standards this year. The overall monetary incomes of the population, calculated by UN methods, add up to less than 10% of the US figure. Health and the average life span - the indices that determine the quality of life - deteriorated, too. 

The current dramatic economic and social situation in our country is the price we have to pay for the economy we inherited from the Soviet Union. But then, what else could we inherit? We had to install market elements into a bulky and distorted system based on completely different standards. And this was bound to affect the progress of the reforms. 

We had to pay for the Soviet economy's excessive focus on the development of the raw materials and defence industries, which negatively affected the development of consumer production and services. We are paying for the Soviet neglect of such key sectors as information science, electronics and communications. We are paying for the absence of competition between producers and industries, which hindered scientific and technological progress and prevented the Russian economy from being competitive in the world markets. This is the cost of the brakes and the bans put on Russian initiatives and enterprises and their personnel. Today we are reaping the bitter fruit, both material and mental, of the past decades. 

On the other hand, we are responsible for certain problems in this current renewal process. They are the result of our own mistakes, miscalculation and lack of experience. And yet, we could not have avoided the main problems facing Russian society. The path to the market and democracy was difficult for all nations that searched for it in the 1990s. They all shared roughly the same problems, although in varying degrees. 

Russia is completing the first, transition stage of economic and political reforms. Despite problems and mistakes, it has embarked upon the highway that the whole of humanity is travelling. As global economic experience convincingly shows, only this path offers the possibility of dynamic economic growth and higher living standards. There is no alternative to it. 

The question for Russia now is what to do next. How can we make the new, market mechanisms work to full capacity? How can we overcome the still deep ideological and political split in society? What strategic goals can consolidate Russian society? What place can Russia occupy in the international community in the 21st century? What economic, social and cultural frontiers do we want to attain in 10-15 years? What are our strong and weak points? And what material and spiritual resources do we now have? 

These are the questions put forward by life itself. Unless we find clear answers that all people can understand, we will be unable to quickly move forward to the goals, which are worthy of our great country. 

The Lessons to Learn 

Our very future depends on the lessons we learn from our past and present. This is a long-term job for society as a whole, but some of these lessons are already clear. 

1. For most of the 20th century, Russia lived under the communist doctrine. It would be a mistake not to recognise the unquestionable achievements of those times. But it would be an even bigger mistake not to realise the outrageous price our country and its people had to pay for that Bolshevist social experiment. 

What is more, it would be a mistake not to understand its historic futility. Communism and the power of Soviets did not make Russia a prosperous country with a dynamically developing society and free people. Communism vividly demonstrated its inability to foster sound self-development, dooming our country to lagging steady behind economically advanced countries. It was a blind alley, far away from the mainstream of civilisation

2. Russia has reached its limit for political and socio-economic upheavals, cataclysms and radical reforms. Only fanatics or political forces which are absolutely apathetic and indifferent to Russia and its people can make calls for a new revolution. Be it under communist, national-patriotic or radical-liberal slogans, our country and our people will not withstand a new radical break-up. The nation's patience and its ability to survive, as well as its capacity work constructively, has reached the limit. Society will simply collapse economically, politically, psychologically and morally. 

Responsible socio-political forces ought to offer the nation a strategy of revival and prosperity based on all the positive elements of the period of market and democratic reforms, and implemented only by gradual, prudent methods. This strategy should be carried out in a situation of political stability and should not lead to deterioration in the lives of any sections or groups of the Russian people. This indisputable condition stems from the present situation of our country. 

3. The experience of the 90s demonstrates vividly that merely experimenting with abstract models and schemes taken from foreign textbooks cannot assure that our country will achieve genuine renewal without any excessive costs. The mechanical copying of other nations' experience will not guarantee success, either. 

Every country, Russia included, has to search for its own path to renewal. We have not been very successful in this respect thus far. We have only started groping for our path and our model of transformation in the past year or two. Our future depends on combining the universal principles of a market economy and democracy with Russian realities. Our scientists, analysts, experts, public servants, and political and public organisations should work with this goal in mind. 

A Chance for a Worthy Future 

Such are the main lessons of the 20th century. They make it possible to outline the contours of a long-term strategy which will enable us, within a relatively short time, to overcome the present protracted crisis and create conditions for our country's fast and stable economic and social improvement. The paramount word is 'fast'. We have no time for a slow start. 

I want to quote the calculations made by experts. It will take us approximately 15 years and an 8 percent annual growth of our GDP to reach the per capita GDP level of present-day Portugal or Spain, which are not among the world's industrialised leaders. If during the same 15 years we manage to annually increase our GDP by 10 percent, we will then catch up with Britain or France


Comment: In terms of GDP derived from purchasing power parity (PPP) calculations, the World Bank today lists Russia as having not only overtaken Britain and France, but also Germany, making it the 5th largest economy in the world.

Even if we suppose that these tallies are not quite accurate, our current economic lag is not that serious and we can overcome it faster, but it will still require many years of work. That is why we should formulate our long-term strategy and start pursuing it as soon as possible. 

We have already made the first step in this direction. The Strategic Research Centre, which was created with the most active participation of the government, began its work at the end of December. This Centre will bring together the best minds of our country to draft recommendations and proposals to the government for both theoretical and applied projects. It will devise both the strategy itself and will find the most effective means to tackle the tasks, which will come up in the course of implementing the strategy. 

I am convinced that ensuring the necessary growth dynamics is not only an economic problem. It is also a political and, in a certain sense - I am not afraid to use this word - ideological problem. To be more precise, it is an ideological, spiritual and moral problem. It seems to me that the latter is of particular importance in our current efforts to ensure the unity of Russian society. 

The Russian Idea 

The fruitful and creative work, which our country needs so badly, is impossible in a split and internally disintegrated society, a society where the main social sections and political forces do not share basic values and fundamental ideological orientations. 

Twice in the outgoing century has Russia found itself in such a state: after October 1917 and in the 1990s. 

In the first case, civil accord and social unity were forged not so much by what was then called 'ideological-educational' work as by brute force. Those who disagreed with the ideology and policy of the regime were subjected to different forms of persecution and oppression. 

As a matter of fact, this is why I think that the term 'state ideology' advocated by some politicians, publicists and scholars is not quite appropriate. It creates certain associations with our recent Soviet past. A strict state ideology allows practically no room for intellectual and spiritual freedom, ideological pluralism and freedom of the press. In other words, there is no political freedom. 

I am against the restoration of an official Russian state ideology in any form. There should be no forced civil accord in a democratic Russia. Social accord can only be voluntary. 

That is why it is so important to achieve social accord on such basic issues as the aims, values and orientations of development, which would be desirable for and attractive to the overwhelming majority of Russians. The absence of civil accord and unity is one of the reasons why our reforms are so slow and painful. Most of our energy is spent on political squabbling, instead of handling the concrete steps toward Russia's renewal. 

Nonetheless, some positive changes have appeared in this sphere in the past year or so. The majority of Russians demonstrate more wisdom and responsibility than many politicians. Russians want stability, confidence in the future and the ability to plan for themselves and for their children - not for a month, but for years and even decades to come. They want to work in peace, security and a sound, law-based order. They want to use the opportunities opened by various forms of ownership, free enterprise and market relations. 

It is on this basis that our people have begun to perceive and accept supra-national universal values, which are above social, group or ethnic interests. Our people have accepted such values as freedom of expression, freedom to travel abroad, and other fundamental political rights and human liberties. People value the fact that they can own property, be engaged in free enterprise, and build up their own wealth, and so on and so forth. 

Another foothold for the unity of Russian society is our traditional values. These values are clearly seen today: 

Patriotism 

This term is sometimes used ironically and even derogatorily. But for the majority of Russians it retains its original, positive meaning. Patriotism is a feeling of pride in one's country, its history and accomplishments. It is the striving to make one's country better, richer, stronger and happier. When these sentiments are free from the tints of nationalist conceit and imperial ambitions, there is nothing reprehensible or bigoted about them. Patriotism is the source of our people's courage, staunchness and strength. If we lose patriotism and the national pride and dignity that are connected with it, we will no longer be a nation capable of great achievements. 

The Greatness of Russia 

Russia was and will remain a great power. It is preconditioned by the inseparable characteristics of its geopolitical, economic and cultural existence. They determined the mentality of Russians and the policy of the government throughout our history, and they cannot help but do so now. 

But Russian mentality should be expanded by new ideas. In today's world, a country's power is manifested more in its ability to develop and use advanced technologies, ensuring a high level of general well-being, protecting its security, and upholding its national interests in the international arena, than in its military strength. 

Statism 

Russia will not become a second edition of, say, the US or Britain, where liberal values have deep historic traditions. Our state and its institutions and structures have always played an exceptionally important role in the life of the country and its people. For Russians a strong state is not an anomaly to be gotten rid of. Quite the contrary, it is a source of order and the main driving force of any change. 

Modern Russia does not identify a strong and effective state with a totalitarian state. We have come to value the benefits of democracy, a law-based state, and personal and political freedom. At the same time, people are alarmed by the obvious weakening of state power. The public looks forward to a certain restoration of the guiding and regulating role of the state, proceeding from Russia's traditions as well as the current state of the country. 

Social Solidarity 

It is a fact that a striving for corporative forms of activity has always prevailed over individualism. Paternalistic sentiments have deep roots in Russian society. The majority of Russians are used to depending more on the state for improvements in their own condition than with their own efforts, initiatives, and flair for business. And it will take a long time for this habit to die. 

Let's not dwell on whether it is good or bad. The important thing is that such sentiments exist. In fact, they still prevail. That is why they cannot be ignored. This should be taken into consideration in the social policy, first and foremost. 

I suppose that the new Russian idea will come about as an organic unification of universal general humanitarian values with the traditional Russian values which have stood the test of time, including the turbulent 20th century. 

This vitally important process must not be accelerated, discontinued and destroyed. It is important to prevent the first shoots of civil accord from being crushed underfoot in the heat of political campaigns and elections. 

The results of the recent elections to the State Duma inspire great optimism in this respect. They reflect a turn towards a growing stability and civil accord. The overwhelming majority of Russians said 'No' to radicalism, extremism and revolutionary opposition. It is probably the first time since the reforms began that such favourable conditions for constructive cooperation between the executive and legislative branches of power have been created. 

Serious politicians, whose parties and movements are represented in the new State Duma, are advised to draw conclusions from this fact. I am sure that their sense of responsibility for the nation will prevail, and that Russia's parties, organizations and movements, and their leaders, will not sacrifice Russia's interests, which call for a solidary effort of all sane forces to narrow partisanship and opportunism. 

Strong State 

We are at a stage where even the most correct economic and social policies can start misfiring because of the weakness of the state and the managerial bodies. A key to Russia's recovery and growth is in the state-policy sphere. 

Russia needs a strong state power. I am not calling for totalitarianism. History proves all dictatorships, all authoritarian forms of government, are transient. Only democratic systems are lasting. Whatever our shortcomings, humankind has not devised anything superior. A strong state power in Russia is a democratic, law-based, workable federal state. 

I see the following steps in its formation:
  • streamlining state agencies and improving governance; increasing professionalism, discipline and responsibility amongst civil servants; intensifying the struggle against corruption
  • reforming state personnel policy through selection of the best staffs
  • creating conditions that will help develop a full-blooded civil society to balance out and monitor the authorities
  • increasing the role and authority of the judicial branch of government
  • improving federative relations (including budgetary and financial)
  • launching an active and aggressive campaign against crime
Amending the constitution does not seem to be an urgent, priority task. What we have is a good constitution. Its provisions for individual rights and freedoms are regarded as the best constitutional instrument of its kind in the world. Rather than drafting a new code of law for the country, a serious task indeed is to enforce the existing constitution and the laws passed under it, to apply the constitution for the state, society and each individual. 

Russia currently has more than a thousand federal laws and several thousand laws of the republics, territories, regions and autonomous areas. Not all of them correspond to the above criterion. If the justice ministry, the prosecutor's office and the judiciary continue to be as slow in dealing with this matter as they are today, the mass of questionable or simply unconstitutional laws may become critical. The constitutional security of the state, the federal centre's capabilities, the country's manageability and Russia's integrity would then be in jeopardy. 

Another serious problem is inherent in government authority. Global experience leads us to conclude that the main threat to human rights and freedoms - to democracy as such - emanates from the executive authority. Of course, a legislature that makes bad laws also does its bit. But the main threat emanates from the executive. It organises the country's life, applies laws and can objectively distort these laws rather substantially - although not always deliberately - by making executive orders. 

The global trend is that of a stronger executive authority. Not surprisingly, society endeavours to better control itself in order to preclude arbitrariness and misuses of office. This is why I, personally, am paying priority attention to building partner relations between the executive authority and civil society, to developing the institutes and structures of the latter, and to waging a tough war against corruption. 

Efficient Economy 

I have already said that the reform years have generated a heap of problems in the national economy and social sphere. The situation is complex, indeed. But it is too early to bury Russia a great power. Troubles notwithstanding, we have preserved our intellectual strength and human resources. A number of R&D advances and technologies have not been wasted. We still have our natural resources. So the country has a worthy future in store. 

At the same time, we must learn the lessons of the 1990s and ponder the experience of market reform. 

1. Throughout these years we have been groping in the dark without having a clear sense of national objectives and advances which would ensure Russia's standing as a developed, prosperous and great country of the world. Our lack of long-range development strategies for the next 15-20 years hurts our economy. 

The government firmly intends to act on the principle of unified strategy and tactics. Without it, we are doomed to just patching up holes and responding to emergencies like the fire department. Serious politics and big business are done differently. The country needs a long-term national strategy of development. I have already said that the government has launched a program to design it. 

2. Another important lesson of the 1990s is that Russia needs to form a system for the state to regulate the economy and social sphere. I do not mean to return to a system of planning and managing the economy by fiat, where the all-pervasive state was regulating all aspects of any factory's work from top to bottom. I mean to make the Russian state an efficient coordinator of the country's economic and social forces, balancing out their interests, optimising the aims and parameters of social development, and creating conditions and mechanisms for their attainment. 

Of course, this notion goes beyond the bounds of the standard formula, which limits the role of the state in the economy to establishing the rules of the game and then monitoring their enforcement. In time, we are likely to evolve to this formula. But today's situation necessitates deeper state involvement in social and economic processes. While establishing the dimensions and planning mechanisms for the system of state regulation, we must be guided by the following principle: the state must act where and when it is needed; freedom must exist where and when it is required. 

3. The third lesson is the transition to a reform strategy that is best suited to our conditions. It should proceed in the following directions: 

3.1. To encourage dynamic economic growth 

Primarily, to encourage investment. We have not yet resolved this problem. Investment in the real economy fell by 5 times in the 1990s, including by 3.5 times in fixed assets. The material foundations of the Russian economy are being undermined. 

We call for pursuing an investment policy that would combine pure market mechanisms with measures of state guidance. 

At the same time, we will continue working to create an investment climate attractive to foreign investors. Frankly speaking, without foreign capital, our country's road back to recovery will be long and hard. We don't have time for slow growth. Consequently, we must do our best to attract foreign capital to the country. 

3.2. To pursue an energetic industrial policy 

The future of the country and the quality of the Russian economy in the 21st century will depend above all on progress in the high technologies and science-intensive commodities. 90% of economic growth today depends on new achievements and technologies. 

The government is prepared to pursue an economic policy of priority development of the leading industries in research and technology. The requisite measures include:
  • assisting the development of extra-budgetary internal demand for advanced technologies and science-intensive production, and supporting export-oriented high-tech production
  • supporting non-raw materials industries working mostly to satisfy internal demand
  • buttressing the export possibilities of the fuel and energy and raw-materials complexes
We should use specific mechanisms to mobilise the funds necessary for pursuing this policy. The most important of them are the target-oriented loan and tax instruments and the provision of privileges against state guarantees. 

3.3. To carry out a rational structural policy 

The government thinks that, as in other industrialised countries, there is a place in the Russian economy for the financial-industrial groups, corporations, and small and medium businesses. Any attempts to slow down the development of some economic entities, and artificially encourage the development of others, would only hinder the rise of the national economy. The government will create a structure that would ensure an optimal balance of all forms of economic management. 

Another major issue is the rational regulation of natural monopolies. This is a key question, as they largely determine the structure of production and consumer prices. They therefore influence both economic and financial processes, as well as people's incomes. 

3.4. To create an effective financial system 

This is a challenging task, which includes the following directions:
  • improving the effectiveness of the budget as a major instrument of the economic policy of the state
  • carrying out tax reform
  • getting rid of non-payments, barter and other pseudo-monetary forms of settlement
  • maintaining a low inflation rate and stable rouble
  • creating civilised financial and stock markets, and turning them into a means of accumulating investment resources
  • restructuring the banking system
3.5. To combat the shadow economy and organised crime in the economic and financial-credit sphere 

All countries have shadow economies. But in industrialised countries their share of GDP does not exceed 15-20%, while in Russia they control 40% of GDP. To resolve this painful problem, we should not just raise the effectiveness of the law-enforcement agencies, but also strengthen the license, tax, hard currency and export controls. 

3.6. To consistently integrate the Russian economy into world economic structures 

Otherwise we will not rise to the high level of economic and social progress attained in the industrialised countries. The main directions of this work are:
  • to ensure the state's active support of Russian enterprises, companies and corporations operating in foreign economies. In particular, we must create a federal agency to support exports, which would guarantee the export contracts of Russian producers
  • to resolutely combat discrimination against Russia in the global commodity, service and investment markets, and to approve and apply national anti-dumping legislation
  • to incorporate Russia into the international system of regulating foreign economic operation, above all the WTO
3.7. To pursue a modern farming policy 

The revival of Russia will be impossible without the revival of the countryside and agriculture. We need a farming policy that will organically combine measures of state assistance and state regulation with the market reforms in the countryside and in land-ownership relations. 

4. We must insist that virtually all changes and measures entailing a fall in the living conditions of the people are inadmissible in Russia. We have come to a line beyond which we must not go. 

Poverty has reached a mind-boggling scale in Russia. In early 1998, the average world per capita income amounted to some 5,000 dollars a year, but it was only 2,200 dollars in Russia. And it dropped still lower after the August 1998 crisis. The share of wages in the GDP dropped from 50% to 30% since the beginning of reforms. 

This is our most acute social problem. The government is elaborating a new income policy designed to ensure stable growth in the real disposable incomes of the people. 

Despite these difficulties, the government is resolved to take new measures to support science, education, culture and health care. A country where the people are not physically and psychologically healthy, are poorly educated and illiterate, will never rise to the summits of world civilisation. 

Russia is in the midst of one of the most difficult periods in its history. For the first time in the past 200-300 years, it is facing a real danger of sliding to the second, and possibly even third, echelon of world states. We are running of time to avoid this. We must strain all intellectual, physical and moral forces of the nation. We need coordinated, creative work. Nobody will do it for us. 

Everything depends on us, and us alone - on our ability to see the size of the threat, to consolidate forces, and set our minds to prolonged and difficult work.
This translation of Putin's document was published as an appendix titled 'Russia at the turn of the Millennium' in First Person: An Astonishingly Frank Self-Portrait by Russia's President (2000), a series of translated transcripts of interviews with Putin by Russian journalists during his first two months as acting president.

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