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. Last Updated: 07/27/2016

Miracle in Russia 2010?

We underestimated the Japan of the 1950s, and we will be sadly mistaken if we underestimate the Russia of the 1990s." With these parting words to the American Chamber of Commerce in Moscow last week, outgoing U.S. Ambassador Thomas Pickering offered a resolutely confident vision of Russia's future. "The Russia I encountered in the summer of 1993 was barely and shakily only just emerging from the ravages of the Soviet period," Ambassador Pickering said. But within a few short years, he predicted, "doing business in Russia will become more structured, more predictable and less risky."


Optimistic words, indeed. They stand in sharp contrast to the gloom of many Western companies over the latest frustrations and uncertainties of doing business in Russia. But is Pickering right? Just how well or badly is Russia doing?


Back in the summer of 1993, just as Ambassador Pickering was taking up his new post at the Moscow Embassy, we were busy writing a book called "Russia 2010." We painted four broad scenarios of the possible future of Russia, ranging from chaos and civil war to an economic miracle, or chudo. At the time, when we talked about chudo, many people looked at us as if we had taken leave of our senses.


Three years later, which of the four scenarios is coming true?


Ironically, the first scenario, which we called "The Russian Bear," threatened to come to pass even as the book was going to press. We had written that the most plausible way a coup might take place would be following a breakdown of civil order in Moscow. On the evening of Oct. 2, 1993, that prediction seemed for a moment to be coming true. But what actually happened next was a rapid restoration of order, under a democratic government. Despite the recent excitement over former security adviser Alexander Lebed's alleged plans to create a "Russian Legion," the prospects of the more extreme scenarios -- chaos, breakup or coup -- seem more remote than they did three years ago.


We also developed two "moderate" scenarios -- "Muddling Down" and "Two-Headed Eagle." "Muddling Down" assumed that the Russian scene would remain indefinitely as it had been from 1991 to 1993: essentially a struggle of each against all for control of power, wealth and property, with no rules and no quarter. Russia is certainly far from that today. The immense transfer of wealth that took place in those years is essentially over. While the battle for control of Russia's privatized enterprises rages on, it has become more like trench warfare than cavalry charge. Powerful financial and industrial lobby groups, with strong and stable ties to politicians and parties, now dominate the scene.


Yet, Russia has not quite made the transition to the more stable scenario of "Two-Headed Eagle," which we visualized as a strong central government of moderate and market-minded technocrats. The technocrats, of course, are very much with us -- the present team of finansisty, led by Prime Minister Viktor Chernomyrdin, is exactly what we had in mind under "Two-Headed Eagle." So is their commitment to sound money and balanced budgets.


But what is missing is the sound government. The present plague of tax evasion, non-payments and unpredictable legislation is more characteristic of "Muddling Down," while the growing power and autonomy of regional governments resemble a variant we called "The Long Goodbye."


Yet, the prospects for an economic turnaround, even more so for a strong takeoff, depend above all on strong and coherent state action. Our last scenario, "Economic Miracle," or "Chudo," echoes Ambassador Pickering's sentiment that "all of us have a tendency to underestimate Russia." An economic miracle is possible in Russia, we wrote then -- and we believe more strongly than ever today. But we posed two preconditions, based on the experience of Germany and Japan in the 1950s: secure property rights and sound money.


Russia has made enormous progress in the last three years in both departments. Yet, both property rights and financial stabilization are still highly fragile. Most of the protection for private property is still "extra-legal"; that is, it comes from protection by politicians and mafiosi. That discourages entrepreneurship and investment -- witness the stagnation of small business and the continued downward plummet of investment in most sectors.


Other forms of property rights -- rights to land, the sanctity of contracts, the security of loans and financial paper, shareholders' rights and the like -- are even less secure in today's Russia, and the government has lagged badly in building the necessary legal and regulatory base to strengthen them. At this rate, an economic miracle will not occur, or at least will be much delayed.


Yet, if anything is clear from Russia's experience in the brief years since 1991, it is that building a market economy will take time. Nevertheless, Russia is still moving in the right direction. Indeed, what is remarkable is how rapidly Russia has moved ahead in the last three years. The market has taken on a momentum of its own that is semi-independent, even autonomous, from the political controversies. Russia is becoming a part of the global economy. A new post-communist generation is now maturing and doing much to drive the market forward. In short, an economic miracle is still possible in Russia. Indeed, it is more likely than it was three years ago.


And so we continue to believe that Russia in 2010 will be a market economy and that it will be back on the road to growth and strength. Ambassador Pickering was right when he said in his valedictory that in the last three years the optimists have been consistently right, the pessimists consistently wrong. Though there will certainly be crises ahead, we believe this will remain true in the future.





Daniel Yergin is president of Cambridge Energy Research Associates. Thane Gustafson is professor of government at Georgetown University. They contributed this comment to The Moscow Times.