Assessing the prospects of Russia’s modernization
Baltic Rim Economies

“Modernization” appears to be the most
important catchword in Moscow these days – similar to glasnost and
perestroika twenty five years back. However, the mixed – if not outright
confusing – signals concerning Russia’s societal transformation coming
from the country’s top echelons of power suggest that the prospects of
Russian reform are dim.

There seems to be a consensus among analysts that the Kremlin started
making noises about the need of a thorough modernization of Russia’s
economic system having been seriously alarmed by the impact of the
global crisis. No wonder – as the world-wide economic downturn has hit
Russia particularly hard: by the end of 2008 Russia looked more like a
fragile and unstable petro-state rather than a mighty energy superpower
as its rulers chose to cast it during the pre-crisis “fat years” of the
sky-rocketing fuel prices.

It was these new drastic economic circumstances that prompted some
forward-looking economists and liberal minded members of Russian
political class to ponder the best possible ways out of the crisis
situation – whereby the ad hoc
anti-crisis measures would be combined with the comprehensive
modernization strategy. Out of that intellectual milieu came President
Dmitry Medvedev’s now famous essay “Go, Russia!” which some commentators
labeled as Russia’s “modernization manifesto.”

Remarkably, though, Medvedev’s piece clearly reflected – in both what it
did say about the Russian situation and what it ignored – the
formidable obstacles that any thorough transformation of Russia’s
socio-economic system is likely to be faced with.

Analyzing the current state of Russia’s economy, Medvedev did admit in
no uncertain terms that the “emperor has no clothes” – Russia’s outdated
resource-based economic model, he said, is unsustainable and should be
replaced by the modern knowledge-based innovative economic system.
Missing from his analysis, however, are two key aspects – 1) the
discussion of how the resource based economy feeds the rent-based social
system and authoritarian political regime and 2) the idea that there is
a vital link between successful economic modernization and the reform
of key state institutions.

I would argue that it is precisely the so-called “resource curse” that
makes Russia a country that is particularly difficult to “modernize.”

As some perceptive analysts have long argued, already since the 1970s,
that is, even before the collapse of the Soviet Union, a new and
troubling trend has been on the rise whereby the country came to be
increasingly dependent on the export of natural resources. The proceeds
from the trade in commodities have in no way been connected with either
the labor productivity or the country’s general economic development.
This trend appears to have reached its pinnacle during the so-called
“Putin decade” which was blessed with the super-high prices for
hydrocarbons – a fact that is reflected in the Kremlin’s pet concept of
“Russia as an energy superpower.”

This same “Putin decade,” however, has clearly demonstrated that the
political risks of the resource-based economy are too high as one of its
most debilitating results is the degradation of most social
institutions. Russia’s current political regime – the proverbial
vertical of power – with its rubber-stamp parliament, phony party
system, subservient judiciary and controlled media is intimately
interconnected with Russia’s economic resource-based model resting, as
it is, on three main foundations: rentseeking, corruption, and monopoly.

Symptomatically, the global crisis seems to have made the resource-based
nature of the Russian economy even more pronounced. As some
commentators note, most measures adopted by the Russian government in
2009 led to the aggravation of the “resource curse” – Russia’s
extracting industries have found themselves in even more privileged
situation than they were in prior to the global slump.

So we appear to be witnessing the classic case of a vicious circle: the
abundance of “cheap money” originating in the oil and gas sector spawns
corruption, rent redistribution and patronage networks eventually
leading to the degeneration of social institutions – which are vital to
the progressive development of other (non-resource-based) industries.

Now, the big question of course is this: are there within Russia’s
political class the forces which are capable to act as the agents of
change? So far, the answer to this question is unclear. There are two
reasons why Russian elite seems reluctant to initiate a comprehensive
transformation of the country’s socio-economic system.

First, Russia’s current leaders belong to the generation who lived
through the collapse of the Soviet Union. Although they might be
ignorant of Alexis de Tocqueville’s famous dictum that the “worst times
for a bad regime come when it makes attempt to improve itself,” but the
experience of the erratic reforms of the late 1980s that led to the
disintegration of the great state undoubtedly left an indelible mark in
their psyche. Second, the Russian rulers presiding over the current
authoritarian regime are perfectly aware that any modernization that
would encompass the wholesale reform of the state will eventually bring
about their own redundancy – like other authoritarian modernizers before
them they will have to leave the political stage.

On the other hand, though, the most perceptive members of Russia’s
political class seem to understand that the only alternative to the
country’s modernization is its further degradation and geopolitical

The mixed signals coming from the Kremlin appear to reflect the
confusion of Russia’s leaders about the tough choices they are currently