OPERATOR: Excuse me, everyone. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions with instructions given at that time.
I would now like to turn the conference over to Gideon Rose. Sir, please begin.
GIDEON ROSE: Hi, everybody. Welcome to another "Foreign Affairs" conference call. We're very fortunate today to have with us Mike McFaul and Kathryn Stoner-Weiss, both from the Center on Democracy Development and the Rule of Law at Stanford University. Major Russian experts, they're going to be talking with us today about their new -- their article in the new issue of FA, "The Myth of the Authoritarian Model: How Putin's Crackdown Holds Russia Back." It's a very interesting piece. They're both major figures, but we'll pass quickly over that in order to get right to the heart of the matter and the Q and A.
So, Mike and Kathryn, why don't you start out by explaining what the myth of Putin is. What is the argument that people make for why we should give Putin a lot of credit?
KATHRYN STONER-WEISS: Okay, I guess I can start with that one.
Well, the way we start the piece is basically talking about the conventional explanation for why Vladimir Putin is so popular. And the conventional explanation is basically that in the 1990s Boris Yeltsin did a terrible job, under a sort of weak democracy, of governing. The economy shrank and the population suffered, basically.
And the conventional narrative is that since 2000 when Putin became president he has basically performed miracles on the Russian economy. The economy is growing and this has come at the expense of stability -- this has come at the expense of democracy, pardon me.
And so that narrative is very simple. It plainly lays all the credit for Russia's economic success at Putin's feet and all the blame for the disasters in the 1990s at Yeltsin's feet. And we essentially try to take that apart and see whether or not Putin was responsible for what's happened since 2000 or not.
ROSE: And why isn't he? The Wall Street Journal today says that the United Russia Party is being marketed as the country's national leadership party with Putin as the man who ended the chaos of the 1990s and gave Russians higher living standards while reasserting Russia's influence on the world stage and returning lost national pride. Didn't he do all that?
MICHAEL MCFAUL: Well, he was at the right place at the right time, is what I would say. Let's go back to the 1990s. I mean, there was going to be some level of chaos, quote-unquote, no matter what. And throughout the entire post-Communist world, that happened.
I mean, after all, this was a revolutionary moment where you were changing both the political system and the economic system in many countries, including the Soviet Union, the borders of the state, all at the same time. That doesn't happen without some level of economic dislocation and, if you look through the region, every single country went through that. So that would have happened if Putin was president and if Putin was a dictatorship, that would have happened in the 1990s.
Then speed forward to the end of the '90s and, importantly, before Putin becomes president or prime minister. Russia has a giant financial meltdown in August 1998 and, for the first time, does some of the very hard reforms that the government was unable to do in the 1990s because they disagreed, right?
They had real Communists and real liberals in Russia and they disagreed; therefore, they had bad fiscal policy. 1998 comes along, sweeps away the liberals in the government, a left-of-center prime minister, Prime Minister Primakov, takes over and, ironically, puts implements, because he has no other choice, the neo-liberal policies that the Gaidar government from 1992 could not. And with that and the devaluation of the currency, the Russian economy starts to grow for the first time in 1999, well before Putin is prime minister, well before he cracks down on the media. All these autocratic things come well after that.
You kick in then the price of oil, which drops down to about $10 in 1997 and now has skyrocketed up to $90 a barrel, and that is the formula for growth. Putin just happens to be there at the right time while all this is happening.
ROSE: Okay, well, what about, you know, the other stuff aside from economic growth? I mean, isn't Putin the Rudy Giuliani of Russia? Didn't he make people feel safe and secure, and isn't Russia a nice, orderly place now, rather than the chaotic mess it was in the '90s?
STONER-WEISS: Well, actually, that's really one of the things that got us going on this piece was that I had written a piece, an evaluation of Russia for Freedom House. And I started going through some governance indicators and actually trying to look at things like public security and terrorist attacks, and basically indicators and measures of quality of life in Russia now.
And one of the things that really surprised me, and then Mike and I started talking about it in greater depth, was the extent to which many of these things have stayed flat; that is, for example, measures of corruption, or gotten worse since 2000, as compared to the 1990s. Things like life expectancy's just as bad, a little bit worse for men, even. Alcohol consumption.
The HIV/AIDS virus -- Russia has actually the second largest -- or, second fastest-growing epidemic of HIV/AIDS outside of sub-Saharan Africa. And that's really a direct result of both a collapsed health care system -- which did happen in the 1990s but has not been resurrected since 2000 under Putin, despite his proclamations of bringing Russia into the sort of developed group of countries -- and a direct result of neglectful HIV/AIDS policy as well. Things like alcoholism -- actually, alcohol consumption for Russian men is up. The spending on health care as a percentage of GDP per capita is actually down under Putin, relative to what it was in the later half of the 1990s.
And what's so spectacularly striking about this is that the economy has been growing, on average, since 1999, at about 6.5 percent. So even as there's more money being pumped into the economy, a lot of these public policy issues really have not been resolved.
ROSE: Well, surely, talking -- like the murder rate must have gone down under Putin, right?
STONER-WEISS: No. Actually, Gideon, the murder rate has gone up under Putin, as has terrorist attacks. The number of terrorist attacks, and the most bold and biggest, have actually happened on Putin's watch, not on President Yeltsin's watch.
ROSE: Okay, so how can this guy be getting credit for everything getting better when he hasn't been responsible for a lot things people think he has been, and other things that have gotten better have done so in spite of him?
MCFAUL: Well, two things. First, that's the way of politicians around the world, right? President Clinton used to talk about all the fantastic economic growth that happened on his watch, and it did happen on his watch. But living here in the Silicon Valley, I used to go to dinner parties, and they'd say, you know, maybe we had a little something to do with that growth and it wasn't all just the folks in Washington. Doesn't matter; you get credit for that.
And I think we have to understand that Putin is popular in Russia; that's genuine. And because of that, that just direct causal relationship -- when people are getting richer, they're more satisfied.
But there's more to it than that, and the second big factor, of course, is that all the news about the economy and all the lack of news about the murder rates or the terrorist rates or the war in Chechnya is a result of Putin having basically controlled all national television and, increasingly, other forms of media as well. So public opinion polls show that 90 percent of Russians get their news from national television. Well, that's all controlled by the Kremlin today.
ROSE: So he's taken control of everything, but he hasn't in fact made the trains run on time.
MCFAUL: Yeah. That's a good way to put it.
STONER-WEISS: Yeah, and I think not nearly to the extent which he's trying to claim, that's for sure.
ROSE: Now, you guys have a very interesting analogy at the end where you say the Kremlin argued that it's creating another China, this sort of wonderful, authoritarian growth engine, but it's actually really like Angola. Can you expand on that a little bit? What's the Angola parallel that you have in mind?
STONER-WEISS: Basically here we're talking about the effect of oil on developing economies, and so the parallel to oil-cursed economies is, in many ways, quite striking in Russia, that -- and that these sorts of economies can actually last a long, long time. So --
We also really wanted to make a point that Russia's not -- is not China. This is not a new growth model and, you know, autocrats around the world need not point to Russia and say, hey, there's another great example of what we can do in terms of establishing stability and the grounds for growth in our countries.
What we're basically arguing is that oil has a lot to do with this and, actually, some of the decisions made before Russia's authoritarian turn under Putin have a lot to do with why the economy has stabilized and grown.
ROSE: So this is not really a sort of the end of the end history. In other words, people who think that authoritarianism has a future, that there's a Russian model that is valid and emulatable and successful, are kidding themselves.
MCFAUL: I think that's right. And to realize that there are lots of different kinds of autocracies out there in the world, and some produce growth, or some preside over growth and some do not. And that correlation is not causation. And, you know, these are social science terms, jargon
But just because you have the rise of autocracy in Russia at the same time that the economy is growing does not mean that the rising autocracy is generating that growth. And in fact we, in the piece, we want to challenge those that support this idea and say, show us exactly how shutting down NTV, the independent television station, how that somehow triggers economic growth. Tell us the story by -- how arresting Gary Kasparov, that somehow is also stimulating economic development in Russia. We just don't see that causal link between growing autocracy and the economic growth in Russia.
ROSE: Got it. Now, just how vindictive and dictatorial is the Kremlin at this point? By publishing an article like this, are you guys jeopardizing your future access to Russia, your visas and things like that?
STONER-WEISS: I don't think so. I certainly hope not, obviously.
There have been a couple of incidents recently of journalists suffering, but it's mostly investigative journalists. So, you know, we're sort of hopeful that the system remains open enough that things like this can be said. And certainly they are being said by other people, like Andre Soslin (ph), for example, is also writing some pretty provocative things currently about Russia. So I guess we'll wait and see. We don't know for sure.
ROSE: What would --
MCFAUL: You know, one thing I'd add to that is, I just was in Russia a couple of weeks ago, and we, of course, had written this piece earlier, and it's -- the lag time was -- the ideas for the piece were well before the end of the Russian parliamentary campaign.
But I've got to tell you, it was rather striking that, as I listened to President Putin in the last week of the campaign and the message that he was sending out, it increasingly became this message of the '90s being this really evil, awful, chaotic time.
And you've got to remember, for many, many years, Putin didn't touch that, because he was the protege and the appointed successor to Boris Yeltsin. So this was always a taboo subject for him. He never talked about it in these ways until really just, I would say, just in this parliamentary election campaign that just ended on December 2nd.
ROSE: So he's now seeing himself not as the successor to Yeltsin in a positive way, but as a successor -- not in a, you know, I got bequeathed by Yeltsin, but rather he's running against Yeltsin's legacy and touting his own.
STONER-WEISS: Yeah, and definitely trying to separate himself from that past.
ROSE: Now, can you just say a little bit before I sort of turn it over to our audience, say a little bit about Medvedev and what the succession or lack thereof that's coming in the future.
STONER-WEISS: I guess I can start. I know Mike has a lot to say about that, too, but so --
In many ways, it's a quite masterful choice and shows Putin again as, I think, a very -- an excellent strategist and formidable politician. This is somebody who doesn't have a strong base in security service in Russia, who is manipulable by Putin. I think it's also broadly reflective of some internal conflicts going on within different clans, within the Kremlin. Certainly other people have mentioned that as well.
I think the fascinating thing about the choice of Medvedev, and also Medvedev's speech last week was that one of the first things he did, of course, was turn around and invite President Putin to serve as his prime minister, and President Putin has graciously accepted that offer.
But the fascinating thing too in the speech was that he said -- he said this remarkable thing that, if you read the Russian constitution, just is simply not true, which was that in becoming prime minister -- or in having Putin as prime minister, he would be taking over the most authoritative executive office. And of course the president is, in the Russian constitution, if you read it by the letter, a very -- the most authoritative office in the Russian political system.
I think it's a particularly masterful move by Putin, because he doesn't have to -- technically, he's giving up power, but he's not really giving up power. And, you know, a lot of us were focused on whether or not he would change the constitution and how much time he would have to do that, and he'd better do it quickly. But in fact he's made it so that the doesn't have to change the constitution. Getting that almost 65 percent of the popular vote earlier this month in the parliamentary elections means that he'll just take the political authority that he has from being president, and he's just going to take that and move that over now to the prime minister's office.
ROSE: So it's like Lee Quan Yew becoming senior minister in Singapore, or something like that.
STONER-WEISS: I guess there's a potential for that parallel, in the long run.
MCFAUL: I agree with Kathryn that it was masterful, and I most certainly didn't expect it. But throughout Russian history and, I think, in semi-presidential systems generally there's no such thing as a Teflon prime minister. That is, there's always a 20-, sometimes 30-point spread between the popularity of the president and a prime minister.
And, you know, Russia's got a lot of things they've got to do in the next coming years in terms of structural reform, and I just wonder if the brilliance now may, over time -- he may think that that was a headache. I mean, I used to always say, just back, you know, debating with Kremlin guys just a couple of weeks ago, well, why would he want that job? What a headache that job is going to be. You actually have to show up for work every day. You don't get to go to, like, G-8 summits and pretend you're part of international clubs of great leaders. You actually have to, you know, balance the budget and do these kinds of things.
So I'm wondering that in the long term if Putin might regret doing this, which then leads to the conspiracy that it's just an interim arrangement and that he'll someday end up back in the Kremlin once again.
ROSE: Okay. Well, that's a good point to turn things over to our audience. We'll now have Q and A.
OPERATOR: Okay, if you would like to ask a question, please press the star key, followed by the 1 key on your touch-tone phone now. Questions will be taken in the order in which they are received. And if at any time you would like to remove yourself from the questioning queue, press star-2. Again, it's star-1 to ask a question.
And our first question comes from David Griesing, with Chicago Tribune.
QUESTIONER: Yes, hi. There's a passage in your paper where you talk about the oil industry and the inefficiency, et cetera, in the companies that Gazprom has taken charge of. And you also talk about moves against the remaining companies, the remaining somewhat independent companies -- LUKOIL, TNK-BP, and the Sergut, whatever they're called.
What are the prospects for those three to remain in some form independent, or do you think ultimately they'll all be acquired by national companies?
MCFAUL: Well, just two things. I mean, first, just the general idea -- and maybe this is just over-simplistic -- but the general idea that private companies are better at maximizing value, compared to state-owned companies, seems to me like something that in Russia we should take as rather self-evident, right? I mean, been there, done that, with the state companies.
And so when this process took place where you had these private companies, and whether they were privatized legitimately, I don't think so. Let's be clear about that. But they were private companies where their bottom line was simply profit maximization, and I believe that.
Gazprom's bottom, you know, strategic objective is not only profit maximization; sometimes it's to be nasty to the Ukrainian government.
STONER-WEISS: Oh, yeah.
MCFAUL: Sometimes it's geopolitical reasons. And so that's the first point about the argument why we think this is a bad trend.
To your second question, more speculative, I don't think either Kathryn or I could know for sure, but only to report that particularly the Russian side of the TNK-BP deal are quite nervous. Lots of speculation that they're seeking a way to cash out.
The other two, LUKOIL, I think is in better shape, and Sergut, you know, is -- People don't really know who really owns Sergut, and some people speculate that already folks inside the Kremlin and close to the Kremlin already have a controlling share of that company.
OPERATOR: Okay, the next question comes from Shinderka Panchali (ph) with Over India Weekly.
QUESTIONER: Oh, hi. I'm Shinderka Panchali (ph) from Overseas India Weekly. You have mentioned that Russian capitalist model is a fraud. Can you also say that same thing about Chinese PRC model and the Pakistani model?
And also, about democracies, do both of you think the free enterprise system has to be there to be counted as a democracy, or just the people's right to vote freely and form parties? Because we have many types of democracies. We have capitalist democracy here. We have socialist on-and-off democracies in England, in Germany, in Italy, in Israel, in India, and we have Islamic democracies in Iran and Egypt. And, of course, Communist democracies. So what is your opinion about that?
STONER-WEISS: I think we probably have -- we probably both want to chip in on this, but I think we probably have different conceptions of what democracy is, because some of that list I would not include as any form of democracy whatsoever.
But I guess that what we're saying is that, look, growth is real, and it's real in China and it's real in Russia. The question is is regime type, in the conventional narrative that is being told right now about Russia, is it the shift from a more liberal, partly free regime, if you use Freedom House's terms, in the 1990s to a not-free regime, is that what is explaining this growth? And in the Russian case, we're saying it's really not.
It has nothing to do with regime type. It actually has a lot to do with some structural factors in terms of oil and world oil prices. And in the piece itself -- you probably have it in front of you -- there are a number of graphs indicating this. Actually, in a longer version of the piece we had another graph showing the increase in world oil prices and Russia's GDP going up simultaneously with that.
But our point is merely that this is not a new model, based on authoritarianism. It isn't the so-called order, which we think is essentially a sham as well, given that murder rates are going up and life expectancy is going down. So life actually is not that much better in certain ways in Russia than it was in the '90s, but it's actually Putin taking credit for things that he's really not responsible for.
I think that's quite a different model for China, where it was -- you know, there was significant macro- and microeconomic restructuring. There's more to be done, for sure, but that has not been the case in Russia at all. So when oil prices drop, I think we'll see that.
MCFAUL: I guess I'd just add that if you look at all countries all over the world, democracies and autocracies, and I would say that the best data we have so far -- and we have several colleagues of ours here at Stanford that do this as well -- it turns out that it's a wash. That on average, autocracies and democracies grow at about the same pace in the developing world. You have to leave out the OECD countries.
Now, when you disaggregate it and you look at little more specifically, it turns out that some autocracies grow really, really fast -- and China is the most important one -- and then a lot of autocracies -- smaller countries, but many, many more of them -- don't grow at all or have negative growth.
And so they average out to where the democracies are that are kind of -- a slower level than China, but most certainly a much higher level than, say, most of the autocracies in Africa. So if that's an answer to your question -- and then we could break it down regionally, but maybe we should stick to Russia for now.
QUESTIONER: Thank you.
OPERATOR: Okay, our next question comes from Paul Starobin with the Atlantic Monthly.
QUESTIONER: Yes, thanks. I wanted to take issue, I guess, with a couple of things, some small and maybe one large. I mean, I think Putin -- I mean, I was in Russia at the time when he took power from Yeltsin. I think he from the beginning very much was distancing himself from the Yeltsin era, if not from Yeltsin himself. I mean, saying he was going to take on the oligarchs as kind of a criminal class; he was going to wipe out the Chechens. And the (outhouse ?), for which -- he gets a lot of credit for that, by the way. I mean, the perception in Russia I think among people is that the Chechnya is under control, whether it is or isn't. And, you know, taking on the Yeltsin family, with Berezovsky. So I think that was always there.
And the other thing, and this shows up in the polling of Putin's popularity, this idea of a restoration of Russian pride, particularly in the foreign policy area, which you guys haven't talked about. I think that's real; I think there was a sense that Yeltsin was fairly weak and kind of craven to the West, and Putin is not. I mean, I think a lot of these trends are actually organic. I mean, they come from the Russian grassroots itself, and it's reflected in the polling.
I mean, the polling that's been done by the Lavada Institute, for example, and other independent pollsters shows that Russians perceive that there is a kind of different development taking place right now; it's not the same as Western liberal democracy, and they say they like it.
It seems to me that part of your quarrel is that you don't like the way in which the Russians themselves want to go, and you want to suggest an alternative. But they don't necessarily want that alternative.
MCFAUL: Hi, Paul. It's Mike McFaul.
A couple of reactions. I mean, we could quibble about when the distancing from Yeltsin started. I think it was much more gradual. I mean, let's remember, Kasyanov was prime minister for a long, long time. Mr. Voloshyn, the chief of staff, was there till October 2003. That's three years after he was president.
The Chechen war, Boris Yeltsin started the second Chechen war, not Prime Minister Putin. And even Lavrov. I mean, even those guys are people that were very connected to the Yeltsin years.
So I take your point that it started probably earlier than recently, though I have to say I follow what Mr. Putin says rather closely and also was there when he took over, and I think the grand narrative of the '90s being just this totally dark and dismal time is much more pronounced and strategically thought of. I mean, talking to Mr. Pavlovsky a couple of weeks ago, it's very self-conscious.
And you've got to remember Putin has to be very careful with that, because Putin, after all, got his political career, so to speak, as the deputy governor to Mr. Sobchak, who was part of that liberal movement in the 1990s. So I think he himself has also kind of wondered about when to make this move.
On the second part about what Russians believe, I also do polling in Russia. And it's a very complicated question, and I would just say this, that when you ask Russians about the practice of democracy -- not the word democracy, which is a very pejorative term that's associated with corruption and chaos of the 1990s -- but when you ask just simple questions -- do you think your leader should be elected? Overwhelming majority say yes. Should there be competition in those elections? Overwhelming majority say yes. Should there be a free press, independent press? Majority say yes.
The difference is, in terms of their view versus, say, Kathryn and our view, is they don't, one, perceive the regime that they have in place as being non-democratic. And that is a very difference of opinion, right? My qualitative assessment of the health of Russian democracy is very different than your average Russian. So that is a big difference.
The second thing that's really changed over the last 15 years is that the priority assigned to these democratic practices has really fallen down the list. So if you go back to, say, '88, '89, '90, free and fair elections was a really important thing. And the acquiring of a independent Russian television station -- you know, 400,000 people mobilized in a demonstration in 1990 for that outcome. Today, it's 18th, 19th, 22nd -- it's just not a top priority.
So I actually don't think -- you know, if you ask Russians do you want an autocratic system, they say no, and by, like, 80 percent say no. They just don't perceive the system that they live in today as being autocratic in the way that maybe Kathryn and I do.
STONER-WEISS: Well, the other thing, too, I think is that public opinion is manipulated by what you see on television, and Mike mentioned that earlier. That is a dramatic change from the 1990s as well. I mean, you don't -- people, I think, don't worry so much about Chechnya, first of all, because they don't see anything about Chechnya on television. And, you know, basically that the Russian army has run amok there and created tremendous opportunities for human rights abuses, but it's not reported in the Russian media. So I do think that that has a tremendous effect on public opinion as well.
And what they do see is a young, vital president who, as you say, has become more assertive internationally and is attempting to restore Russia's great power status. And I think it's also very difficult to disentangle your personal perception of how the country is doing and whether it's a democracy and whether things are going well when your personal income is rising, right? That's a fact. That is rising.
The question is who is responsible for that, or what is responsible for that. And -- (inaudible) -- is merely it's not necessarily who you think it is and who you're being told you think it is, that it's -- it's a result of some policy decisions that were made in the late 1990s before President Putin was president, and it's also a result of oil prices and, thirdly, it's a result of a natural recovery process.
And if you look in the piece, there's a transitional (U ?) that shows that East European countries also went through this sort of transitional (U ?); that is, where immediately following the collapse of Communism, their economies decline quite sharply and then, by around five, six, seven years out, begin to grow again. And that's exactly what you see in Russia.
But what's really fascinating is that you actually see the recovery being much faster in places like Poland where they've had both the influence of the E.U. and democracy, which I think has created a more stable investment climate, for sure, than in Russia. And that's also reflected in their relative per capita FDI investment numbers. So I do think that's a big difference.
Russia's actually underperforming, relative to those East European democracies, despite the fact that it has all those oil resources.
OPERATOR: Okay, are we ready for our next question?
ROSE: I'll take one. It's Gideon here. Let's turn a little bit from comparative politics to international relations.
You guys are at Stanford. A rather famous Stanford personality is now running U.S. foreign policy. Let's talk a little bit about the so-called new Cold War between the U.S. and Russia, the deterioration of relations recently. How bad is it, and how has been responsible for it, us or them, or both?
MCFAUL: Well, let me just start, because I just got back from Russia. And I have to say, watching the news and listening to Putin himself on the campaign trail, I was rather shocked by the rhetoric, the anti-American rhetoric that you saw just every night and every day. You know, maybe I'm not paying attention, and I'm sure it's been there -- I mean, it always has been there, for several years.
But I think it's really gotten to a point that I can't remember -- I think you have to go back to the early '80s to see the same kind of rhetoric, right? It's Russia is being surrounded by the United States, and yet again they made another move on our southern flank, and the snotty-nosed Westerners are meddling in our internal affairs, plotting with Gary Kasparov for the colored revolution here in Moscow. And they literally mobilized this youth group, Nashi, on the day after the election -- were literally standing on Red Square to defend it against the colored revolutionaries inspired by the West. This is something new, and I think for people not paying attention in a day-to-day way, including myself, by the way, we're not getting this, right?
And who's to blame? That's a hard question. I'm not sure I'd know where to assign it. I do know that the calculation was the wrong one on our side. And the calculation was very simple. When President Bush came in and Condoleezza Rice as his national security adviser and chief Russia expert -- and there's no doubt about it that Condi has been in control of Russia policy in the administration for a long time.
They came in and they said, you know, we're not going to do democracy stuff. This is not what we do. We're hard-core realists. And what we're going to do is we need to build national missile defense; that's -- I know that sounds like ancient history, but before September 11th, that was their number one foreign policy objective. And so they made a calculation.
They said we're going to befriend this guy, Vladimir Putin. I actually met with the president right before he met with Vladimir Putin. And it was very clear, going into that first meeting, he wanted to befriend him, make him comfortable, do a deal, and we'll get our missile defense, and what happens internally doesn't matter and what happens in these other places doesn't matter.
September 11th then came along and, obviously, disrupted their way of thinking and their priorities, but initially had a very positive impact on U.S.-Russian relations because we defined a common enemy, these terrorists. Putin was very cooperative initially, acquiescing to our opening up bases in Kyrgyzstan and Uzbekistan. And in that framework, it looked like we had a new relationship.
And then we basically just tuned out, in terms of the Russian relationship. And Russia gradually got disappointed with this and then got angry with this and has now come to think of their relationship with the West in very antagonistic relationships, right? Antagonistic's too strong -- in zero-sum terms. So what's good for the U.S. is, by definition, bad for Russia and vice versa. And that's where we're at today.
STONER-WEISS: Yeah, I would agree with that. I also think that Putin played a weak hand -- what he was dealt initially -- a weak hand quite strongly by asking some pretty good questions at the beginning that, frankly, I think the Bush administration fumbled.
One was why are you expanding NATO? Who's the enemy, and can I join? Well, there wasn't a good response to that, and I think he did a good job with that. Also, I think we made a strategic mistake under the Clinton administration by giving G-8 membership to President Yeltsin and putting Russia there.
And, you know, we've given President Putin a platform so that he looks like a developed-country leader, and really, he's leading a developing country. So I don't -- I think that was a mistake.
ROSE: So it's a powerful developing country?
STONER-WEISS: Well, I think the fact that we are so incredibly dependent on oil and they are beginning to be -- well, I guess they're second only to Saudi Arabia now in terms of oil exports -- are -- that gives them a tremendous amount of geostrategic authority right now as well. So that's also a considerable problem.
ROSE: I should point out that in the same issue with Mike and Kathryn's piece we have not only a piece on the current state of democratization in China, which is somewhat relevant -- (inaudible) -- but also a piece by Ron Asmus on the future of NATO expansion, which ties into these Russian issues, arguing that what does it mean for the future of NATO expansion, on the southern tier in particular, that we have a new environment with a hostile Russia? And how does that -- what are the implications for any future tranches of NATO expansion?
STONER-WEISS: Yeah, I guess I would say that we haven't always been the great ally that we think we've been. I mean, Kosovo was quite inflammatory for the Russians -- I was there during the bombing. The expansion, the NATO expansion issues, the war in Iraq, all of these things were not necessarily in Russian interests. And, you know, President Putin, I think, one of the things that's different from Yeltsin is that he is much more assertive with Russian interests, which is not an entirely unreasonable thing to do, of course.
MCFAUL: I guess I would just add there is most certainly -- that the -- (inaudible) -- most certainly (rate ?) that we -- to say that all problems in U.S.-Russian relations started with Putin and Bush would be incorrect. There were big disagreements.
But over NATO expansion and Kosovo, which were the really big ones in the 1990s, there was always an implicit assumption in the bilateral relationship -- and, I would say, with Russia's relationship with Europe more generally -- that at the end of the day, the strategic objective of Russian foreign policy throughout that entire period was integration into the West.
And if you look at the way NATO was negotiated, and particularly the way that the bombing campaign in Kosovo ended, it was always with an eye to keep Russia in the tent. And most certainly Yeltsin and Korbachev before him wanted Russia and the Soviet Union before it to be part of that tent. That was the main goal of Russian foreign policy, and that's simply not true today.
That, I think, is really the big shift, that Putin doesn't wake up every morning thinking, okay, how do I get into the WTO? (Chuckles.) That's just not the way that they think about foreign policy. It's a much more traditional way of thinking about foreign policy, where they believe that Russia can go it alone and is strong enough and has the resources to go it alone.
ROSE: Okay. Do we have any more questions?
OPERATOR: Yes, sir. We do.
Our next question comes from Derrick McKowsky (sp) with SOPP.
QUESTIONER: Actually, the question -- congratulations to Kathryn and Mike for such a depth on this discussion. Being a Polish lawyer, and also an American Fordham graduate lawyer, I have different view sometimes regarding the Russian capitalism as based on the fraudulent activities of many of their leaders. One of the projects I was involved -- investigated in the United States was the LUKOIL Corporation. We know all about Anti-Foreign Corruption Act of '90, of '74. We know the Foreign Corrupt Practices Act of 1977. I tried to raise this issue with the State Department, with the Department of Justice. The only thing I'm getting -- it's not a subsidiary of any U.S. companies, that LUKOIL is operating in the United States.
The question is very specific to me, being many times as a student, law student in Russia, now following up some legal cases specifically in Sweden regarding corruption at the corporation called LUKOIL and being and living in New Jersey, I cannot really stand all gas station on Garden State Parkway have logo of LUKOIL.
So my question is more directly or philosophically that, being a son of a solidarity leader in Poland, and also being the first non-Communist lawyer who worked for Polish government in the consulate in New York of Polish government on Madison Avenue, I'm kind of appalled that being in this country, escaping from communism -- obviously, I'm not tanking at the LUKOIL gas, but most of my friends -- they're not even aware of corruption at this corporation being conducted many years ago in Russia.
And this comes to my question to you, Kathryn and Mike, how do you view -- as educated Americans in the United States -- that the majority of New Jersey Turnpike gas station have a corrupted corporation logo? This is basically beyond my imagination and education.
ROSE: We call that a council question where I come from.
STONER-WEISS: Well, having lived in New Jersey for nine years, I can tell you that that's not the only corrupt company that has its sign out on the New Jersey Turnpike.
But you know, I think that we have a lot of companies that have corrupt practices that operate in the United States. It's kind of the nature of having an open economy. So I think we either need to decide that, you know, very firmly, what those standards are. But if you know as a lawyer, it's not that easy all the time. And what you call corruption somebody else might call aggressive business dealing. So I think unless they can be shown to be breaking a U.S. law are, then they are. They have been taken to court, certainly in the U.S., and that's the best way to deal with it, honestly. Otherwise, you risk closing our economy and that's not just the way the American economy is built.
MCFAUL: But your question also raises this more general question we've been discussing about the Russian economy. And why having, you know, publicly traded, transparent companies are better than those that are closed; why having Russia in the WTO, from my point of view, is a good thing rather than a bad thing, precisely because it does add some rules and constraints in terms of Russian economic behavior both inside and abroad.
And you know, you're worried about New Jersey, but the Ukrainians and the Georgians, for instance, are very worried about the implications of having these quasi-governmental, quasi-private market kinds of entities in their economies --
and when they're not motivated just by profit maximization, but by acting as an instrument of Russian foreign policy, it creates real problems for those countries.
ROSE: Okay, do we have any more questions?
OPERATOR: Yes, sir. We do.
Our next question comes from David Sands with The Washington Times.
QUESTIONER: Yeah, hi. Thanks for taking my question.
It's kind of a question of personal style on President Putin himself -- putting aside what he says on the last week of the campaign and taking credit. My sense is that his rhetoric on the economy is actually pretty realistic, that he doesn't make large claims. He says it's 15 years till we're Portugal. We've got big problems. His U.N. conferences -- it's not happy talk. And the president himself, whatever his advisors or his campaign managers are saying, seems to be fairly realistic about Russia's economic performance and how far it has to go.
MCFAUL: Yeah, I'd agree with that -- especially with press conferences and just talking with his government. I think, you know, the real story in Moscow when I was there a couple weeks ago, is all the economic problems coming, not all their great successes. I mean, inflation is back. You know, they very, very timidly tried to restructure social services back in 2005 and, you know, a couple of hundred babushkas came out on the street and they pulled back.
You know, it's really hard, in fact, to point to any major economic reform -- just hesitating for a moment if I can think of one in the second term of Vladimir Putin's presidency. I can't.
STONER-WEISS: Yeah, you can't in the second term. First term you could, but the second term -- you're right.
MCFAUL: And I think that scares them. You know, how are they going to deal with that moving to the future?
OPERATOR: Okay, are we ready for our next question?
OPERATOR: Okay. Our next question's again from David Greising with Chicago Tribune.
QUESTIONER: Yes, hi.
Another question oil related: You mentioned, obviously, the rise in the price of oil and more and more of that money that comes in going into the public sector or at least into the hands of various Russian oligarchs. What -- have you or could anyone else here aware of or been able to track kind of where that oil wealth is going and how it's being used beyond -- you mentioned the political use of the natural resource itself, the shutting off of gas, for example. Where does the money go and how does it support Putin's hold on power?
STONER-WEISS: Some of it goes into a stabilization fund. I mean, you would be wrong to think that goes just to the pockets of Russian oligarchs. And that is an innovation of the first administration -- first Putin administration.
But you know, there's a trickle-down effect in the economy and some of it's definitely going into public spending. I mean, there has been -- in the 1990s there was a tremendous problem with nonpayment of pensions and also public sector wages. That's not happening anymore, so certainly that's part of it and we don't mean to suggest that, you know, there isn't some trickle-down effects. Obviously, people are feeling an increase in living standards. That's very real and that's definitely coming either directly from the oil sector, if you're directly employed there, and also indirectly to supporting industries and service industries as well.
But you know, do Russian -- are Russian people feeling the full effect of that amount of money coming into the economy? I think it's pretty safe to say no. So Mike, I don't know what you want to add.
MCFAUL: Well, it's a very complicated question to figure out what percentage of the Russian growth is just strictly because of rising oil and gas prices versus not. I mean, there are lots of different estimates -- some as high as 65 percent, some as low as 30 percent -- and disaggregating it in terms of growth -- fairly complicated thing.
The second part, then, is to look at the company level and to say, okay, leaving aside the taxes that folks pay, that these companies pay that then go into the stabilization fund and are in the government -- and that's all very well and good. Don't get me wrong. I think that's great. And you know, problems like paying the pensioners and paying schoolteachers that Russia faced in the 1990s is not a problem today and that's fantastic -- as far as I'm concerned.
When you look within the companies, it's also different ones are more transparent than others. But Gazprom, for instance, many people would argue, is not reinvesting the windfall profits it has now in a way that would suggest it's seeking to maximize profits down the long run.
STONER-WEISS: Yeah, they're definitely not doing infrastructural investment to the extent that they should be.
MCFAUL: You know, that's the market speaking, right? They would like to see more of that. And instead, they're buying what they would call nonstrategic entities like a television station, like an oil company, right? I mean, why did they buy an oil company? That was a big mystery. Did that really make economic sense? It's the largest gas company in the world, and one of the largest companies in the world is suddenly getting into the oil business.
And those are the kinds of questions that, you know, a more transparent economy, a more accountable government that would have to say, where are these expenditures going? They would have to answer to that and that's the kinds of stuff that democratic institutions provide, if you think about it, right? How do we know about budget debates in democracies? Well, there's an opposition asking questions about the budget. That doesn't happen in Russia today. How do we know about corruption in democracies? Well, there are things like the independent press that discovers corruption. That's not happening in Russia today.
And that's another part of our argument which we haven't gotten into. We can only speculate -- it's a counter factual, right? But our suggestion at the end of the piece is that Russia could be growing actually much faster than it is today. So we acknowledge that this is fantastic growth and Russians today are richer than they've ever been, but a democratic Russia -- we argue -- would even been richer and Russians would be even wealthier than they are today.
STONER-WEISS: And by attacking things specifically like corruption, which are -- that's a tremendous drag on economic growth -- but without a functioning opposition to root that out and a functioning independent press to root that out, you know, that is a looming problem on the horizon. And you know, when you think of triggering events that could possibly force the liberalization of this regime, I would say watch inflation and watch corruption in Russia. Those are potential triggers.
ROSE: I'll take one --
QUESTIONER: Can I just follow up --
QUESTIONER: -- on a coupe of points there.
First of all, the distribution of the oil wealth, from what you're describing, would it be fair to say that the distribution of the oil wealth is more democratic today than it was before the nationalization of these assets -- given that you're saying pensioners and others are being paid who weren't being paid previously, and previously the money could go into some of the oil barons and investors?
And then the second question is this last point that you made about corruption. How -- of course corruption's bad today, but it wasn't exactly a non-problem back before Yeltsin consolidated his power. And I'm just wondering if you're using that as a proxy. Do we really have a basis on which to say things are any worse today than they were during -- as measured by corruption than they were during his early years?
STONER-WEISS: Oh, yeah.
MCFAUL: Two quick comments on that. First of all, on the payment of the pensions -- is it more democratic? I wouldn't use those words. I think the better way to understand it is that there's just more money, right? When oil was at $10 a barrel, the Russian government had a hard time paying the pensions. When it's at $90 a barrel they have a very easy time in paying it. So the pie has expanded. I don't think there's any evidence to suggest that the distribution of the pie is more democratic today than it was. In fact, the gini coefficient -- you know, the measure of income inequality -- is higher today than it was 10 years ago.
On your second question on corruption, let's be honest: Measuring corruption is a very difficult thing to do. So I think that's an important caveat, before I'm going to say what I'm going to say. But if you look at World Bank indicators and their indices on corruption, it's clear that corruption has risen under Putin compared to the baseline of the Yeltsin years. A very important or famous study by an NGO called "IDEM in Russia" has calculated the rise of corruption has gone up tenfold between 2001 and 2005 -- looking particularly at enterprises, right? Industry, not necessarily government -- that is, the bribes you have to pay to do business in Russia has gone up significantly in the Putin era.
ROSE: Okay. On that note I think we're going to have to leave it, because one of our cardinal rules is that we wrap things up on time.
I do want to thank Mike and Kathryn. I can remind all of you that they're always available for commentary and further discussion. You can reach them at Stanford through their websites and all their contact data are there.
I also want to put in a plug on this recent discussion for another piece on the issue by Bob Kimmitt setting out the Bush administration's position on sovereign wealth funds and their investments, which is a little dry, but deals with the issues of what do you do when foreign governments amass large amounts of capital and then deploy it in your economy -- an interesting related topic.
Thank you all very much; thank you Mike and Kathryn; thank you, the audience and Conference America. And we'll see you all next time.
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