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Russia's Courtship of Silicon Valley

Interviewee: Stephen Sestanovich, George F. Kennan Senior Fellow for Russian and Eurasian Studies, CFR
Interviewer: Bernard Gwertzman, Consulting Editor, CFR.org
June 24, 2010

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Russian President Dmitry Medvedev and U.S. President Barack Obama will discuss a host of subjects at a June 2010 Washington summit, including ratification of the new START treaty, the sale of more Boeing planes to Russia, and a new agreement on adoption of children. But Medvedev's meetings, shortly before the summit, with California's political and entrepreneurial leaders represent the "most interesting element" of the trip, says CFR's Russian expert, Stephen Sestanovich. "Here you've got a Russian political leader who has spoken of the need for his country to modernize, and going to Silicon Valley to find out how it's done," he says, noting Americans should stress that strengthening the rule of law is a necessity for attracting new innovation and investment. At the same time, he notes Medvedev's interest in Western-style development could garner political criticism from nationalists at home. On the START treaty, Sestanovich says that Obama and Medvedev are trying to coordinate ratification in their country's legislatures, but Obama may face opposition from Senate Republicans.

President Medvedev and a group of other Russians met with California Governor Arnold Schwarzenegger, had meetings with Silicon Valley leaders, and were hosted at a dinner given by former secretary of State George P. Shultz. What's the thinking on this? This is something new for the Russians, right?

It's the most interesting element of the latest Obama-Medvedev summit. On the one hand, you've got the usual bilateral agenda, everything from getting the new START treaty ratified to Boeing contracts--a $3 billion deal to sell 737s to Russian airlines--to an agreement on adoption.

On the other hand, you've got this interesting theme of remaking Russian society and its economy, symbolized by the trip to Silicon Valley. There's almost a cautious Russian re-embrace of a Western model of Russian development. Here you've got a Russian political leader who has spoken of the need for his country to modernize, and going to Silicon Valley to find out how it's done--and presumably to hear lots of warnings about where Russia has fallen short. They got a lot of avuncular advice from dinner with George Shultz. It put me back fifteen years ago when we used to say that a Russian liberal politician who acted this way would discover that he'd lost his political base at home by being too pro-Western.

What has changed?

Well, presumably Medvedev's calculating that Russia is stronger and more confident and doesn't look as though it's coming to this conversation in a position of great inferiority. He probably also thinks that Prime Minister Vladimir Putin has got his back and that Russia is politically stable enough that he doesn't have to worry about the charges of nationalists that he's just aping the West. All the same, if Medvedev ends up undermining himself by looking like the liberal economic reformers of yore, there will be plenty of people pointing to this trip as a negative factor.

How was this trip set up? Was it a White House idea or did the Russians do this on their own?

There was an interesting trip a few months back, in which a number of high-tech American businessmen, particularly people in the social networking field--Facebook and Twitter and the like--went to Russia to talk about innovation and technological change. There were, as you can expect, a lot of Californians in the group and that inspired the idea of a return visit.

In addition, Medvedev has been talking about creating a center of innovation outside Moscow in the village of Skolkovo that's gotten the nickname "Russia's Silicon Valley." And, in addition, to take it back even a bit further, in January, a number of Medvedev's economic policy advisers and senior officials, right up to the level of minister, met in Cambridge, MA, with a group of American economists and technology specialist management types, put together by MIT, to talk about what innovation really depends on. The Russians have been on this for awhile and they apparently can't get enough of it.

Since the Russians obviously want Western help with their economy, how do they deal with the legal problems that have arisen like the imprisonment and apparent mistreatment of many foreigners?

That's actually an important point. One of the things that Russians hear from Americans when they say, "We want to have a modern economy, we need to encourage innovation," is that they've got to work, more than anything else, on the rule of law.

The Russians need to understand that all the tax breaks they offer and the world-class scientists that they recruit will not make Russia an innovative society unless people's property rights are protected, unless investors think they've got a shot at getting their money out.

There was a delegation of American businessmen, venture capitalists, who met with Medvedev last month and that was a theme that the Americans hit hard. They didn't mention the specifics, but they could've. They could've talked about Mikhail Khodorkovsky (NYT), the billionaire who has been in jail for several years; they could've talked about the death in prison of Sergei Magnitsky (WSJ), who was the lawyer representing William Browder, the major investor who was in effect kicked out of Russia by having his visa taken away and his property seized. Magnitsky died in prison, apparently tortured.

The Russians need to understand that all the tax breaks they offer and the world-class scientists that they recruit will not make Russia an innovative society unless people's property rights are protected, unless investors think they've got a shot at getting their money out.

What about the other subjects you touched on at the beginning? The START treaty, I know the Russian Duma has started considering it, but they'll probably wait for the U.S. Senate right?

The idea has been to try to coordinate ratification in the two legislatures. The presentations have started in the Senate and the administration has been hoping that they'll be able to get ratification before this Congress goes out [of session] in August. That's still unclear because the strategy of the Republicans is a little unclear. Do they actually want to try to stop the treaty, do they want to try to exact concessions from the administration, or do they want to ignore it as not very important? Any one of those will have a big effect on the timing.

Is there anything really controversial in the treaty?

There're small issues that can be turned into big ones, as is often true in ratification debates. The critics have said that the language in the treaty preamble makes it harder for the United States to go ahead with missile defense. They say that some of the verification provisions are weaker than they used to be. They've said that there are constraints on an American effort, which is still down the road, to deploy a conventional warhead.

It's hard for me to imagine that any one of those or even all three of them together will be the basis of a successful opposition to the treaty outright, but it could be the basis for some bargaining with the administration, [such as] assuring the nuclear weapons stockpile into the future. That's an issue that a number of members of Congress have highlighted. They want to be sure that in Obama's drive to abolish nuclear weapons, he doesn't let the current stockpile deteriorate.

I guess we're still talking about getting Russia into the World Trade Organization. Is that likely to come up in advance of the G20 meeting?

It'll surely come up. It's been a subject of discussion with the Russians, at a high level, for several months. The Russians have said they want to nail this process down. They've said that they understand they've got some work to do in terms of their own restraints on American exports and in a number of other, sometimes technical, areas. As always, the Russians have managed to infuriate American pork and chicken exporters, and they'll have to do something to ease up on those restrictions.

On world issues, where does the "reset" in relations stand today?

There're small issues that can be turned into big ones, as is often true in ratification debates. The critics have said that the language in the treaty preamble makes it harder for the United States to go ahead with missile defense.

The administration's top three areas of achievement in talking about the success of the "reset "are the START treaty, the Security Council sanctions on Iran, and the "northern distribution network," which allows supply of our troops in Afghanistan through Russia. Each one of those is a genuine achievement, but they also conceal disagreements that may or may not become more important in the future. With START, the principal disagreement is probably about missile defense, which the Russians say could lead them to withdraw from the treaty in the future if United States goes forward. With respect to Iran, the issue is how much the Russians would be prepared to sacrifice their commercial interests. With Afghanistan, the question is how determined the Russians are to limit American access to Central Asian military bases. Those are all three serious points of disagreement that could complicate cooperation that the two sides have established so far.

On the Central Asian bases, are Russians still unhappy that we're using the base at Manas in Kyrgyzstan?

Some people say that that the base issue was connected to the ouster of President [Kurmanbek] Bakiyev in Kyrgyzstan in April. And just last week President Medvedev said that American presence in Kyrgyzstan cannot continue indefinitely so they haven't reconciled themselves to this, even though there has been a lot of consultation about how to deal with the violence in southern Kyrgyzstan in the past couple weeks. Both the Russians and the Americans are hoping that somehow the Kyrgyz government can slowly restore order and reestablish its authority in the south.

In the last months of the Bush administration, the Russian invasion of Georgia was a major issue. Is it still one?

The administration, in a very unfortunate choice of words, said that the issue of Georgia no longer has to be an obstacle to implementation of the Agreement on Civilian Nuclear Cooperation. The treaty deals with cooperation between the two sides involving the nuclear power industry. It was pulled back by the Bush administration after the Georgia War in August 2008. It was recently returned to the Senate by the Obama administration.

That didn't go over well in Georgia, I suspect.

In Georgia, the question for President [Mikheil] Saakashvili and his government is what kind of relationship they have with the United States. They get regular phone calls from Vice President [Joe] Biden; they're getting a visit from Secretary of State [Hillary] Clinton next month; Saakashvili got invited to the nuclear summit in April, but they sense that the American commitment to help them in other areas is weaker.

They complain that they aren't able to purchase arms to restore their military; they say that's it's clear that the U.S. and other Western governments don't want to have much to do with them. And Mike McFaul, who handles Russia [for the White House National Security Council] said, in public remarks last week, that this has been an area of where the administration has not been able to accomplish very much. It's a part of policy that hasn't gotten a lot of attention. Over time, the administration needs to have a better story to tell, with respect to Georgia.

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