Volume 9 Numbers 1/2

Winter/Spring 2000

Feature

Putin's Russia
     Why Economic Reform Requires Political Support
     Reflections on US Policy Toward Russia
     Thomas E. Graham, Jr.

Does Russia matter any longer? This is the first and fundamental question we must ask, as we contemplate US policy toward Russia in the post-Yeltsin era. It is a mark of how much the world has changed over the past generation that this question now has to be posed. Twenty years ago, no one asked because the answer was axiomatic. Russia, in the guise of the Soviet Union, was the other superpower, the ideological rival; US-Soviet relations defined the international system. Quite rightly, the Soviet Union was the central focus of US foreign policy, the prism through which all other issues were viewed. The rivalry was pursued around the globe: Europe was the key battlefield; the Middle East, with its vast energy resources, was a close second. Nuclear deterrence made each side wary of letting competition escalate into violent confrontations, although each side engaged in violent conflicts with the other's proxies- outside the regions of core strategic interest to both-primarily in Africa and Southeast Asia. The breakup of the Soviet Union eight years ago did little to change our perception that Russia was central to our own security and well-being, although the nature of its importance and the character of the US-Russian relationship itself had changed dramati-cally. Russia was no longer the United States' strategic adversary; indeed, it was not an adversary at all. Rather, the Clinton administration came to office calling for a "strategic alliance with Russian reform." The goal was, as Deputy Secretary of State Strobe Talbott repeatedly reminded us, to help Russia's reformers transform their country into "a normal, modern state-democratic in its governance, abiding by its own constitution and by its own laws, market-oriented and prosperous in its economic development, at peace with itself and with the rest of the world" ("The End of the Beginning: The Emergence of a New Russia," an address delivered at Stanford University, September 19, 1997; text available at www.state.gov/www/regions/nis/97091ptalbott.html). Such a Russia could be a near-equal partner with the United States in building peace and ensuring stability around the globe, but primarily in Eurasia. How distant those objectives seem today after the sharp deterioration in US-Russian relations and the mutual disillusionment of the past two years. The financial crisis of August 1998 marked the end of the grand project of rapidly turning Russia into a stable democracy with a market economy, a goal that had been the focus of so much effort, at least on the part of the US administration (whether the Russian government shared our aims is now an open question, given the revelations of the past year regarding the extent of high-level corruption in Russia). Although the Clinton administration continues to talk of Russia as a major power, it has clearly downgraded relations. America's policies on NATO expansion, Iraq, Kosovo, and national missile defense all demonstrate that the administration is prepared to give precedence to many other matters over Russia. These policies, along with the Bank of New York scandal and the war in Chechnya, have strained the relationship. Indeed, US-Russian relations today are arguably at their lowest point since the demise of the Soviet Union. Moreover, Russia itself at the end of the Yeltsin era looks like a failed or failing state. Russia's socio-economic collapse, largely unanticipated, has been unprecedented for a Great Power, let alone a super-power, not defeated in a major war. In a little more than a decade, the economy controlled by Moscow has fallen in absolute GNP from third in the world (behind the United States and Japan) to sixteenth (behind India, Mexico, and South Korea, and just ahead of Argentina). Russian GNP is now roughly a third of Soviet GNP at its peak (1989); since the breakup of the Soviet Union, Russia's economy has plummeted by nearly half. At the same time, Russia has been transformed from a misindustrialized economy (the result of the Soviet leadership's near-exclusive focus on the military-industrial complex) into a deindustrialized economy (the unintended consequence of misguided reform policies). Between 1990 and 1996, the share of the natural-resources sector in industrial production rose from 24 percent to 51 percent, while the share of the machine-building sector fell from 31 percent to 16 percent and that of light industry from 12 percent to 2 percent. (The situ-ation has improved little, even with the rapid growth in industrial production since the August 1998 finan-cial crisis.) (Data on GNP has been drawn from the World Bank's World Development Indicators, update July 1, 1999, and A. Illarionov, ed., Rossiya v menyayushchemsya mire [Moscow: Institute of Economic Analysis, 1997], Tables 4.3.1 and 4.5.1. See also Vladimir Popov, "Vyvoz syr'ya-eto ne stydno," Ekspert 41 [November 2, 1998], available at www.expert.ru. Vladimir Putin lays out the basic parameters of Russia's economic decline in his "Russia on the Threshold of the Millennium." The text may be found in English at www.pravitelstvo.gov.ru/ english/statVP_engl_1.html.) Russia's fate over the past decade has diverged radically from that of the United States, which is expe-riencing its longest economic expansion in history. We are now the world's preeminent power, with no plau-sible rival on the horizon; the administration is fond of speaking of the United States as the "indispensable nation." The power asymmetries between the United States and Russia are enormous, and, by most esti-mates, will only grow over the next few years. Again, economic data illustrate the point: in 1987, Soviet GNP was about 30 percent of US GNP; today, Russia's GNP is roughly 5 percent of the United States'. The gap is still increasing, even though Russia's GNP grew by over 3 percent in 1999, because the US economy grew by just over 4 percent. Why should the United States, at the height of its power, care much about Russia, which has reached its lowest point in centuries in terms of relative power? Many observers, in fact, would argue that the United States need not be concerned. In Congress and in the wider foreign policy community, the "Forget Russia" school has steadily gained adherents over the past few years. This school argues that Russia simply does not matter much in the world any longer and does not merit a lot of our time, money, or effort. The sharp decrease in overall funding for US assistance to the former Soviet Union and the redirection of even those limited funds away from Russia illustrates the low regard with which Russia is held by much of the foreign policy establishment. (Funding for US govern-ment assistance to the NIS under the Freedom Support Act declined from $2.5 billion in FY 1994 to $847 million in FY 1999, according to the FY 1999 Annual Report to Congress of the Coordinator of US Assistance to the NIS.) The meager interest in the congressional hearings on corruption in Russia last fall-committee meetings were poorly attended- provides another illustration.

Nevertheless, such an approach remains misguided, for Russia continues to matter in many of the areas it used to, albeit in different ways, even if it no longer occupies center stage in US priorities and must compete for attention with Europe, China, Japan, and other countries and regions. Most imme-diately, Russia matters because it possesses a vast nuclear arsenal, abundant quantities of fissile material, and the technology and know-how to build weapons of mass destruction. In addition, Russia borders on regions of great strategic interest to the United States: Europe, the Middle East, and East Asia. It retains its veto in the UN Security Council and thus the ability to thwart US initiatives brought before that body. And, finally, Russia is richly endowed with natural resources and a well-educated population, two factors that give it considerable economic potential over the long run, even if Russia's economy is mired in a deep depression at the moment.

But we are no longer concerned so much by Russia's strength as by its weakness. In other words, Russia matters less for what it can do than for what it cannot do. This is the most dramatic change of the last twenty years. A generation ago, we worried about the great military capabilities of the Soviet Union wedded to hostile intentions. Now we are more concerned by the risk of loose nukes-by the deterioration in Russia's capacity to ensure the safety and security of weapons of mass destruction and the proliferation problems that lessened capacity creates. A generation ago, we worried about Soviet aggression in Europe and the Middle East. Now we are far more concerned that instability and a breakdown in governance in Russia could spill over and destabilize its neighbors, many of which are fragile states themselves. A genera-tion ago, we worried that the Soviet Union's veto in the Security Council undermined the effectiveness of the United Nations. Now we are-or at least should be-concerned that Russia's weakness, coupled with growing resentment of the United States, has increas-ingly tempted us to circumvent the Security Council in pursuit of our goals. A generation ago we worried about the implications of the Soviet Union's economic potential for its military might. Now we are more concerned that Russia's decline could reach levels that would transform it into an object of competition among more-advanced economic powers. Paradoxically, for the next decade at least, the weaker Russia grows in absolute terms, the more it will matter to the United States. For that would exac-erbate all the problems arising from what Russia cannot do and, at the extreme, would lead to Russia's becoming a so-called failed or disintegrating state. Few people in Washington would welcome the opportu-nity to contemplate the implications of state collapse in connection with such problems as loose nukes, nonproliferation, and stability in Eurasia. On the other hand, Russia's revival would ease all those concerns. Ideally, of course, we would like to see Russia revive as a friendly power, as a normal country with which we could both cooperate and compete. But even a less-than-friendly Russia would be incapable of resurrecting the global threat to US security that the Soviet Union once posed. It would have neither the economic and conventional military prowess nor the ideological appeal for that. Moreover, even in a revival scenario, Russia is likely to continue to fall behind the world's leading economic powers, and its conventional military forces would prove no match for the United States' in the regions vital to our interests. As a result, Russia would matter less to the United States than several other developed and devel-oping nations in Europe and East Asia. Strangely, then, a key goal of US policy in the post-Yeltsin era should be to make Russia matter less by helping it regain its strength. A second goal should be to rebuild goodwill for the United States among the Russian elites and the broader public to increase the chances that a reviving Russia will also be a friendly Russia. Achieving both these goals will require that the United States rebuild relations with Russia, which have suffered greatly over the past decade in large measure as the result of the Clinton administration's flawed policies. Formulating appro-priate policies will require understanding why those policies fell so far short of their goals. It was not, of course, supposed to turn out that way. The Clinton administration came to office with the best of intentions vis-à-vis Russia, determined to help transform Russia into a robust democracy, based on a prosperous market economy, and a constructive partner for the United States around the globe. The administration may have devoted considerable time to security matters in its first years-ensuring that Russia kept its commitments to withdraw its troops from Central Europe and the Baltics and working with Russia to persuade Ukraine to let the Soviet nuclear weapons on its territory be withdrawn to Russia for dismantling. But the administration's real enthusiasm lay in the grand project of transforming Russia domesti-cally. From the very beginning, it was deeply involved in Russian domestic politics, calibrating the timing of its public statements and announcements of significant initiatives to the domestic political needs of President Yeltsin and a group of "radical reformers." The admin-istration played a leading role in forging the "Washington consensus"-the focus on monetary and "Strangely, then, a key goal of US policy in the post-Yeltsin era should be to make Russia matter less by helping it regain its strength." fiscal measures for the purpose of macroeconomic stabi-lization- that became the West's guide in pressing economic reform in Russia. Those espousing this consensus devised an extensive package of assistance programs to further democratization and marketization. Even in the security realm, the administration packaged issues in ways intended to bolster-or at least not undermine-Russia's reformers. It was more than willing to trade symbolism for substance. Russia, for example, was treated publicly as a major power-note its inclusion in the G-8 or cochairmanship of the Mideast peace process-even though it brought little to the table. President Yeltsin was hailed as a leading world figure, despite his at times embarrassing behavior and increasingly ragged record of delivering on his promises. All this was intended to bolster Yeltsin and the radical reformers at home, even while the United States pursued policies without giving much heed to Russia, for example, on NATO enlargement or Caspian pipelines.

As the Clinton administration draws to the close of its second term, it has little to show for its efforts. Instead of a sustained economic recovery built on market principles and a robust democratic polity, we find Russia mired in a deep socioeconomic depression with its democratic achievements uncon-solidated and at growing risk. While US technical assistance imparted a considerable body of informa-tion on democratic and market structures and institutions to Russians, much of it was inappropriate for Russian traditions and conditions. Some of the policies we strongly backed, such as "cash" privatiza-tion or the issuance of government bonds (GKOs), were in practice corrupted for the benefit of a small elite, which greatly enriched itself while the over-whelming majority of the population endured a sharp deterioration in living standards. Finally, as already noted, a constructive US-Russian partnership now appears a distant dream.

There are many reasons for this failed policy. The United States and its Western partners lacked a coherent strategy for advancing economic and demo-cratic reform and they did not put sufficient effort into coordinating its implementation. The programs, particularly in their initial phases, were too reliant on Western consultants without a deep knowledge of Russia. But most important, the administration did not move energetically enough to build public support in Russia for its policies or for those it was encour-aging the Russian government to pursue, nor-what is truly remarkable for an administration that paid such close attention to public opinion in the United States-did it press its Russian partners to build a solid domestic base. In the end, the administration found itself strongly backing a small unpopular group of radical reformers, pressing ahead with their program against the wishes of the majority in the Duma and without much public support. Not only was the economic program not implemented but the way in which it was pursued cast doubt on American support for the democratization of Russia. In the security realm, the administration was finally undone by its pretense. Trading symbolism for substance, treating Russia publicly as a Great Power and jollying Yeltsin as a leading world figure, worked as long as the Russians thought their country would recover quickly-with Western assistance-and that they would soon be able to insist on substance, in addition to the symbols. This approach produced some undoubted achievements in the Clinton administra-tion's first years in managing the old Soviet nuclear arsenal and Russian troop withdrawals from Central Europe and the Baltics. But as the promised economic recovery retreated into the distance, Russian elites increasingly saw US policies, such as NATO expan-sion, support for multiple pipelines out of the Caspian region, or opposition to Russian-Iranian cooperation in the nuclear field, as efforts to take advantage of Russia's weakness. Over time, these elites became ever less satisfied with symbols and began to demand a real voice, which the US administration was less inclined to give, in part because of the gaping asymmetries in power between the two countries. The growing disjunction between the administration's words about Russia's importance and the treatment it meted out only fueled greater resentment within Russia. The Russians themselves must, of course, bear ultimate responsibility for the failure of the reform effort, with the radical reformers bearing the lion's share: their technocratic approach, deep-seated disdain for public opinion, and callous disregard for the suffering their policies would engender undermined the chances of success from the very beginning. Similarly, the Russian elites' resistance to facing up to the depths of their country's predicament and their own Great Power pretensions have only complicated efforts to keep US-Russian relations on track. But it is remarkable for just how long the Clinton administra-tion refused to acknowledge the obvious failings of the Russian reformers, the obstacles its policies were encountering, and the mounting difficulties plaguing relations with Russia (some would argue it has yet to take that step). The American public was repeatedly assured that relations were on track and that Russia was making steady progress in building a democracy and market economy, despite some inevitable bumps along the way. A little less than a year before the August financial crash, Deputy Secretary Talbott was arguing that Russia was at "the end of the beginning" of its journey toward becoming a "normal, modern state." "It may be," he said, "on the brink of a breakthrough" (address at Stanford University, September 19, 1997). This failure to deal forthrightly with the problems, and to acknowledge their seriousness, was perhaps the fatal flaw in the administration's approach to Russia. This flaw arose from, and was constantly rein-forced by, the administration's overly close relationship with Yeltsin and a small group of radical reformers, which distorted its perception of the real situation in Russia. Management of relations was concentrated in the hands of a small circle of senior officials on both sides and focused on the domestic transformation of Russia. This arrangement required constant interac-tion and a high level of trust to function effectively. The result was that administration officials relied heavily on their Russian partners for insights as to what was happening in Russia and how to proceed. Moreover, the success of their Russian partners became critical to the progress of the enterprise as a whole, and gradually the political survival of key Russian officials, such as privatization czar Anatoly Chubais, became a substitute for the success of reform as a whole. This ultimately contributed to a serious misreading of the political situation, which resulted in Washington's being caught off guard by the financial collapse of August 17, 1998, and it caused the admin-istration to discount the growing signs of anti-US sentiment among Russian elites. This same misreading, in its aftermath, complicated the develop-ment of good, working relations with Russian governments, once the Clinton administration's reformist partners had been dismissed. In the end, the administration squandered the reservoir of goodwill Russians had for the United States at the time of the Soviet breakup. To be sure, it was inevitable that the reservoir would drain as Russians came to understand that the United States was prepared to deliver much less assistance to Russia's movement away from its Soviet past than they had expected. But the close identification with an increas-ingly feeble Yeltsin, strong support for a team of radical reformers with a thinning popular base, and public insistence on reform programs that most Russians believe led their country to ruin have caused increas-ingly more Russians to question the wisdom, judgment, and benevolence of the United States. The polls of the Department of State's Office of Research have traced a steady decline in favorable opinion of the United States from over 70 percent in 1993 to 65 percent in 1995 to 54 percent in 1999 to 47 percent earlier this year. The transfer of power in Russia from Boris Yeltsin to Vladimir Putin presents an opportunity for a new beginning in US-Russian relations. Putin is clearly more energetic and coherent than the Yeltsin of the last few years. He appears intent on rebuilding the Russian state, in disciplining the government bureau-cracy, and reasserting Russia's role in the world. At the same time, an elite consensus, albeit shallow, has slowly emerged on questions of both domestic and foreign policy. As a result, the United States could find itself dealing with a coherent Russian government-with a sense of where it wants to take the country-for the first time since the early years after the breakup of the Soviet Union. Given the growing anti-US sentiment in the Russian political elites, however, this is not going to be an easy relationship to manage. Taking advantage of this opportunity and managing this relationship to the maximum benefit of the United States will require that we reorder our priorities, change our emphasis, and lower our expec-tations. Logically, given the realities of American politics, these changes can come only when a new administration takes office early next year. This is not the place to delve into details about the full range of policy choices a new administration will face-much in fact will depend on what happens in Russia over the coming year. But some general propositions and guide-lines to order its thinking would not be premature. First, the next administration should start, as the Clinton administration did, from the proposition that Russia is no longer a strategic adversary and that it remains an important country for US interests. But, unlike the Clinton administration, the new president and his advisers should also begin with the assumption that Russia can no longer occupy center stage in our foreign policy, that it will have to compete for our attention with other states and regions, particularly Europe, China, and Japan. The new administration should make clear in its public pronouncements that the intensity of our engagement with Russia will vary from issue to issue. On some issues, such as the strategic nuclear balance and proliferation of weapons of mass destruction, it will be the central focus of our policy. On others, such as European security, it will be one among a number of key players, but by no means the most important. On still others, such as security in East Asia, its role will be even less. And, finally, on a range of global economic matters, it will be a secondary consideration at best. It follows that the next administration should not look at the world through the prism of US-Russian relations. The new administration, however, should still consider Russia's interests when formulating policy on issues where Russia is not the key player, and seek policies that advance US concerns while also benefiting our relations with Russia. That approach is critical to building the trust and confidence needed to work constructively with Russia on those matters of great strategic interest to us where Russia still matters crucially. At times, however, the United States will be forced to choose between its larger interests and its relations with Russia and, of necessity, the choice will have to be made against Russia. Continued NATO expansion might be such a matter. In these cases, the goal should be to lower the cost to US-Russian rela-tions as much as possible. Second, like the Clinton administration, its successor should be predisposed to engaging Russia, but it should approach Russia with fewer demands. It takes two to interact, and the current weakness of the Russian state will limit the extent to which we can engage Russia productively. For this reason, it is imperative that the United States set realistic goals, which take into account Russia's dwindling resources, and focus on issues where Russia remains relevant. To do so will produce the best chances for the success necessary to build both the public support in the United States for continued construc-tive engagement as well as the trust between the two countries required for productive cooperation on the top-priority security issues. Third, in engaging Russia, the new administra-tion should maintain a respectful distance from the Russian leadership, in sharp contrast to the Clinton administration's approach. This should not be difficult; Putin and senior officials in his government are not the type of people the next administration would likely want to embrace. In fact, the harder part might be establishing the level of rapport that is critical to improving relations between the two countries. At the same time, the incoming administration needs to build a broader network of contacts in Moscow and in the regions, both to obtain a fuller and more balanced picture of the situation in Russia and to help rebuild the reservoir of goodwill that has leeched away over the last seven years. Fourth, the future administration's domestic priority in Russia should be rebuilding the goodwill for the United States that the Clinton administration has squandered. Much of what is done in this area will also have the added benefit of encouraging movement toward democracy and a market economy in Russia. To this end, the next administration needs to pursue a much more vigorous, coordinated public-diplomacy effort in Russia, aimed at explaining who we are as a nation and what we are up to in Russia, in particular, and in the world, in general. It should also expand the network of US information centers-now located in seven Russian cities-which offer a range of books and materials on the United States, as well as Internet access, to interested Russians. Finally, the new admin-istration should expand and improve exchange programs, which, by all accounts, have been the most effective programs in imparting American values to Russians and winning goodwill for the United States. Fifth, to the extent that the next administration is engaged in assisting domestic developments in Russia, it should allow the Russians to take the lead and respond to Russian demands. On economic matters, for example, the task is to formulate a rational economic program that enjoys sufficient political support so as to have a reasonable chance of imple-mentation. As a matter of policy, we should be more agnostic than the Clinton administration has been on the details of any such program, even if it is clear in general what issues have to be addressed (for example, tax reform, microeconomic restructuring, commercial codes, and property rights). The US should leave the initiative for developing an appropriate program in the hands of the Russian government, while reassuring it that the United States is prepared to assist if the program makes sense. A similar approach should be taken toward democratic reform, although here the initiative should reside not solely in the Russian government but also with regional authorities and private organizations. Once again, the United States should be prepared to assist programs that make sense and appear to have sufficient local backing for success. Sixth, the next administration needs to be less judgmental about developments in Russia. The point is that, while we know what a democracy and market economy should look like, we have a considerably less-than- complete understanding of how Russia can build them, starting from the current realities. The situation is simply too complex and, in many ways, too novel for it to be otherwise. Moreover, while setbacks are inevitable-something everyone is prepared to admit-they are also probably necessary for further progress in achieving both democracy and free markets. Failures can galvanize both the elites and the public's support for taking the appropriate, but tough, measures required to move forward. In addition, a new US administration needs to appreciate just how much the Russian state has collapsed over the past decade. President Putin is right to focus on rebuilding the state, as a necessary step in Russia's socioeconomic revival. But doing this will almost certainly look authoritarian in its initial phases, as the state begins to reassert its prerogatives in enforcing and interpreting laws. There will necessarily be excesses of zeal in institutionalizing the rule of law. Of course, there are red lines, in the observance of human rights, for example, the violation of which would demand the most forceful protest, but, for the most part, the administration should remain focused on the long term and resist exaggerating the impor-tance of single events. Last, the next administration should seek to build as benign an international environment for Russia as possible so that it can devote its energies primarily to internal reconstruction. This will be exceedingly diffi-cult to do, in part because the Russian political elite is inclined at the moment to see almost anything the United States does with or around Russia as aimed at expanding its influence at the latter's expense. But some steps will surely help. For example, the next administration should continue efforts to integrate Russia into the global economy by facilitating Russia's entry into the World Trade Organization and by lowering trade barriers to US markets for competitive Russian products, especially in the high-tech sector. Similarly, the next administration should step up efforts both to build cooperation between Russia and NATO on the basis of the Permanent Joint Committee and to reduce provocative Partnership for Peace military exercises, especially in Central Asia, a region of much less vital significance to us but one that the Russians consider vital to their interests. That said, it is inevitable that we will pursue certain policies in our own strategic interest that will, at least in the short term, run counter to Russia's inter-ests, as perceived by Russian elites-for example, NATO expansion and national missile defense. We should seek to pursue these goals in ways that do as little damage as possible to relations with Russia, but in no case should we give Russia a veto over our actions. Articulating as clearly as possible to the Russian leadership and, just as important, to the inter-ested public our goals and the reasons for pursuing a given policy should help diminish the damage. The last twenty years have witnessed a dramatic change in the way we think of Russia. From being the other superpower, which commanded our almost undivided attention, Russia has become one of the many other powers, albeit still an important one by reason of its nuclear arsenal and know-how, geographic location, and rich natural and human resources. The hope of turning a once-implacable enemy into a constructive partner building an enduring peace in Eurasia has faded, as Russia plunged into a deep socioeconomic crisis and as it became clear that we shared a common view of the world only in the abstract. On the practical level, the differences are significant, and they have grown over the past decade. Nevertheless, Russia is still as critical to the United States' security and well-being as it was a generation ago, albeit for different reasons, and it will likely remain so for years to come at the very minimum. The sharp deterioration in relations over the past few years serves the interest of neither country, as each seeks to deal with the complexity of interna-tional affairs in the twenty-first century. Fortunately, the advent of new leaderships in Washington and Moscow offers an opportunity to put relations back on track, even if it hardly guarantees a happy outcome. Much will depend on how Russia itself develops, and, specifically, on whether it recovers or continues to decline; on how the Russia elites understand their interests and role in world affairs; and on whether Russia seriously wants to rebuild relations with the United States. But none of this is a reason to hesitate. On the contrary, the next administration should seize the opportunity, but with a clear understanding of Russia's strategic interests, the realities shaping and constraining its capacity to cooperate, and our core interests in Russia. Only in that way can our country hope to obtain the still-great benefits of getting the relationship right.

Thomas E. Graham, Jr., a senior associate at the Carnegie Endowment for International Peace, was the chief political analyst at the US embassy in Moscow from 1994 to 1997. This article draws extensively on the report by a US working group on "US-Russian Relations at the Turn of the Century," coauthored by Thomas Graham and Arnold Horelick. The working group was organized by the Carnegie Endowment for International Peace. The full text of the report is available at the Carnegie Endowment website, www.ceip.org. Mr. Graham, however, is solely responsible for the contents of this article.

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