The presidential address to the Federal Assembly once again posed the question of the direction and pace of the current reforms in Russia. Vladimir Putin clearly set out the main objective for the executive branch: to ensure acceleration of economic growth and try to catch up with the development of the leading western nations.
According to the address, the agenda of the executive branch will not change in the near future. The problem of transforming Russia into a nation with an efficient economy and state apparatus is to be resolved in accordance with the president's contemporary plan, which calls for the creation of conditions which stimulate business and the influx of private investment into Russia. The whole structure of the economy is to be changed: the share of secondary industries is to be increased, and new post-industrial sectors are to expand.
Is this plan realistic? The president hopes to preserve the consensus between basic social and economic groups as the foundation for his regime. However, carrying out large-scale reforms will inevitably destroy this consensus, as it is impossible to reconstruct the entire social-economic system without an impact on the interests of certain elite groups. Putin will be unable to remain the "president for all Russians" if the radical reforms are considerably accelerated, and he will have to make some tough political decisions. At present, it is possible to make out several groups of leading opponents of Putin's liberal reform plan.
First of all, there are a number of professional interest groups, which at present feel comfortable enough in the market. However, the Russian bureaucracy is most unlikely to meekly accept attempts to make state administration more efficient and destroy the system of bribery and the present vicious way of recruitment into state service.
The bureaucracy does not consider the present system of state administration to be an excessive luxury. It is important for the president to optimize budget spending and eliminate the system of excessive interference in the economy by supervisory agencies; on the contrary, it is important to state officials to preserve the existing situation, as this gives them a perfect opportunity to convert their status into financial gain. The military top brass is also a graphic example: it is resisting the military reforms very actively, trying to replace the objective of increasing the combat effectiveness of the Armed Forces with that of increased defense spending.
The natural monopolies are also opposed to Putin's modernizing plans. They view restructuring only through the prism of preserving their own interests. Monopolies aim to privatize the impending reforms, in order to enable them to extract profitable components from the rest of the business, not to form competitive sectors. Besides, the monopolies want the upcoming increases in tariffs, justifying them by the need to replace worn-out infrastructure, and the lack of any supervision over how additional revenue will be used. The natural monopolies has already objected to the president's latest initiatives. For instance, the idea of transferring the function of confirming monopolies' budgets to the Cabinet was viewed as a violation of the law: both Gazprom and Russian Joint Energy Systems are joint stock companies, and the Railroads Ministry is also to be transformed into the Russian Railroads joint stock company.
Business leaders from secondary industry and the processed goods sector are also often opposed to the reforms. Paradoxically, they often object to Putin's modernizing plans, which are mostly aimed at developing secondary industry. But Russian business leaders in this sector of the economy are not focused on improving business conditions in their sector - rather, on consuming the almost-free financial resources provided by the state, artificial support for the domestic market, and state stimulation of consumer demand via an active social policy. The major priority for them is not to improve their product quality and attract private investment for producing goods competitive in the global market, but to strengthen their position in the domestic market with the help of the state.
Producers of processed goods often have an interest not in creating a favorable investment environment, but in state subsidies and import barriers in the form of customs quotas and ruble devaluation, which would make Russian consumers purchase domestically- produced products. They are mostly unprepared for open competition with foreign-made products in the Russian market, and it is no coincidence that they object so strenuously to plans for joining the World Trade Organization.
However, the most dangerous opponent of the liberal economic reforms is the natural resources sector. This sector is to pay for the structural reforms, as liberals in the Cabinet propose to carry out economic restructuring via a differentiated tax policy: taxes for secondary industry will be reduced, while the financial burden on the primary products sector is to grow considerably. As a result, new economic sectors will have the opportunity to invest in development, and raw materials sectors will have to bear the burden of social sector funding and servicing foreign debt.
Economic restructuring poses another strategic threat, even more dangerous for primary goods producers: carrying a heavy tax burden, they will have little chance of strengthening their position in secondary industry. Thus, their expansion into processed products is likely to be limited by lack of money. As a result, plans for expansion into new economic sectors may fail.
At present, primary producers are saying that rejecting raw materials exports is not the main goal for Russia, and rather than putting a lot of pressure on the natural resources sector, it is necessary to increase its potential: for instance, to increase oil production and exports, which will bring in more revenue for the state and increase Russia's political influence around the world.
Primary producers also insist that Russia now has a perfect opportunity to make Western Europe dependent on Russian oil and gas, and that the state should not miss this chance for the sake of some vague prospect of exporting competitive goods to western markets in the distant future. Moreover, there are even some ambitious plans for exporting Russian oil to the United States.
Primary producers present themselves as an influential force which has to be taken into account. And they have a great interest in convincing the president that going on the offensive against this sector will have disastrous consequences. They may use the tactic of predicting social upheaval in order to achieve this purpose, as this could make the president's popularity rating vulnerable. Primary producers may also try to restore the relationship between themselves and the state which existed in the late Yeltsin era: the interests of natural resources exporters and the government were tightly interwoven, and large corporations often saw state resources as their own. Thus, they consider consolidating the state with large industrial corporations, and restoring oligarchy as an institution, as the ideal path for Russia's development. Primary producers are ready to start buying up assets in the secondary sector and forming ever more powerful industrial empires.
However, the government currently has different priorities. It considers it more important to bring in new participants to sectors which are still new for the Russian economy, sectors which need to be stimulated - not through subsidies, but through a liberal tax policy, which entails a higher tax burden on primary producers.
In announcing his serious plans for modernization and reforms, the president should realize that the elites will not accept his ideas unconditionally and implicitly. They are very likely to provoke a rise in social tension in Russia. They are also able to use well-known manipulative techniques, provoking demonstrations and rallies in order to use the people as a screen for their own position and as a tool to put pressure on the government. They are already creating an effective line of defense. But it remains unclear whether Putin is prepared to enter into conflict with influential political and economic players in order to successfully carry out his liberal reforms. (Translated by Arina Yevtikhova)