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Don’t underestimate Dmitry Medvedev

15 Apr 2008

Dmitry Medvedev, who will take over as Russia’s president on May 7, is no puppet. He has his own ideas on economic policy, which as Julian Evans reports, are much more favourable to the private sector than his predecessor’s. Some believe Vladimir Putin has deliberately anointed Medvedev to take the Russian economy into a new phase. But the coming years hold great potential for conflict between different interest groups.

The West has been quick to write off Russia’s new president-elect, Dmitry Medvedev, as merely "Putin’s poodle", a puppet sitting on Putin’s knee, the ‘Mini-Me’ to Putin’s Doctor Evil.

Western politicians have readily expressed this view. The front-runners for the US presidency all agreed that their opposite man was little more than a Putin stooge. John McCain said "Putin has just made himself president for life", Barack Obama declared "Putin will have the strongest hand", while Hillary Clinton was so dismissive of Medvedev she couldn’t even remember his name.

She said the new president was "someone who is obviously being installed by Putin, who Putin can control, who has very little independence". When asked what the new president was called, she replied: "Medva...Medev..Medvedda...Whatever."

But this may be as big a mistake as those who said Putin was simply the puppet of Boris Berezovsky when he was elected in 2000. Roland Nash, chief strategist at Renaissance Capital, says: "There’s this understanding that nothing will change with Medvedev. That’s an extreme opinion. I just don’t buy the idea that he’s a puppet."

Medvedev is the new president, in a political system which gives enormous powers to the president — powers of appointment and dismissal, for example, which means he can sack the entire government in one go, as Putin and Yeltsin did before him. He can fire the managers at top national corporations like Gazprom or Rosneft and bring in people loyal to him, as Putin has done. He can expel the controllers of the national TV stations and bring in loyalists, following Putin’s example.

Nash says: "We’re hearing reports from Kremlin sources that this is already a source of tension between Putin and Medvedev — Medvedev wants to make a lot of personnel changes in his first cabinet reshuffle."

It will take years for Medvedev to bring in his own team (if he succeeds in doing so), but this could have as much influence on the course of Russian society as Putin’s promotion of the siloviki (former KGB and FSB men) has had on the last eight years.

Who is in Medvedev’s inner circle? Just as Putin favoured people from the security services, so Medvedev appears to favour people like himself, who have a private sector or legal background. He is, interestingly, the first leader of Russia since revolutionary times who has worked in the private sector, having been a lawyer for Ilim Pulp in the 1990s.

When Medvedev spoke at the World Editors’ Forum in Moscow in 2006, EuroWeek asked him if he was worried about people in government also having their own private business interests. His reply was surprising: "I think too few persons with business backgrounds are working in the government, I would like to see more such people."

Analysts say he is close to presidential aide Igor Shuvalov and minister of economic trade and development Elvira Naibullina, both of whom worked in the private sector before joining government. He may also bring other lawyers into the presidential administration.

Medvedev’s key policy adviser, say Kremlinologists, is Arkady Dvorkovich, the chief economic adviser to Putin. It was Dvorkovich who penned Medvedev’s key speech at the Krasnoyarsk Economic Forum in February, in which he laid out his plans for reform. As Anders Aslund, senior fellow at the Washington-based Peterson Institute for International Economics, says: "What was fascinating about the speech was that it was quite different to the 2020 economic strategy which Putin had laid out 10 days before."

Putin had asserted that the Russian economy had to take a bold step forward beyond its dependence on natural resources, and the main way he suggested doing this was by improving labour productivity. He mentioned shrinking the civil service, which employs one third of the workforce, but also spoke of attracting the best talent into the civil service and of the state attracting more private capital.

Man with a plan

Medvedev and Dvorkovich’s programme was much bolder. Where Putin’s speech heralded the achievements of his eight years in power, Medvedev made several implicit criticisms of the economic strategy of Putin’s second term.

Medvedev criticised, for example, the rise of state-owned corporations in the last few years and the use of these state corporations to drive economic policy. "We have to admit that we have been running the economy in manual over these last years," he said. "The time for this kind of hands-on decision-making in the economy is over. The new economy calls for a completely new approach: incentives for innovation and not directives from above. It is private initiative... that must be the foundation for the new economy."

With this in mind, Medvedev laid out a number of policies to encourage private initiative in the economy: less red tape for setting up new businesses, better protection for entrepreneurs from corporate raiders, lower VAT, fewer civil servants. He also emphasised the "key priority" of achieving a more independent judiciary, so that Russia could move beyond the "legal nihilism" of the past, where the law only favoured "whoever’s teeth were sharper". Medvedev also said he would like to lessen the number of bureaucrats running state corporations and bring in professional managers from the private sector.

Business figures cautiously welcomed this reform programme. Oleg Vyugin, the chairman of MDM Bank and former head of the Federal Financial Markets Service, says: "I believe that the majority of businesses are ready to support many of Medvedev’s theses about the necessity of the rule of law and the independence of courts, the fight against corruption and the necessity to draw a clear line between civil servants’ functions and their participation in the management of state companies. His approach is closer to the interests of business. It could be a solid basis for a new agenda that consolidates the interests of power and business."

Nash, at Renaissance Capital, says: "If Medvedev is going to differentiate himself from Putin, then this is a good direction to move. Instead of the rule of Putin, move to the rule of law."

But how easy will it be for Medvedev to stamp his authority on his presidency? When Putin replaced Yeltsin-era figures with his own loyalists, he had a major advantage: his predecessor was old, sick, drunk, unpopular and off the political stage.

By contrast, Putin will remain active in politics, probably as Medvedev’s prime minister. It is likely that clans or interest groups that feel threatened by Medvedev will congregate towards Putin to try and get their interests furthered. And likewise, other interest groups will gravitate towards Medvedev if they feel he can help them more than Putin.

For example, there are signs that various Yeltsin-era figures who have been sidelined under Putin are regrouping around Medvedev. Tatyana Doudar, director at the Eurasia Heritage Foundation, says: "We understand that the Yeltsin family backed the choice of Medvedev as Putin’s successor, and we could see the return to power of Alexander Voloshin, the former chief of staff under Yeltsin and Putin [before he resigned in protest at the campaign against Yukos and Mikhail Khodorkovsky]. If he does return to power, that’s good news for Yeltsin-era oligarchs like Roman Abramovich or Oleg Deripaska. It could even be good news for Mikhail Khodorkovsky."

Other groups are likely to gather round Putin, notably siloviki clans such as that of Igor Sechin, deputy head of the presidential administration and the chairman of Rosneft, whose interests could be threatened by the planned reforms of the Medvedev presidency.

So there is certainly the potential for a more pluralistic system of power. "For the first time since the Yeltsin era, you have a balance of power," says Nash. "You’ll have two centres of power, and there will be competition for influence." Nash says there could even be "vicious battles for control of assets", as in the early years of the Putin administration.

"There can be only one..."

Medvedev himself has dismissed this notion of multiple centres of power. In an interview with Itogi magazine recently, he said: "There is no such thing as two, three, or five centres. The president controls Russia, and according to the Constitution there can be only one."

But Putin has all the political capital, and Medvedev none. He was elected president purely because Putin supported him. This much was underlined when the two came out on to the stage of a Red Square rock concert on the night Medvedev was elected. The crowd greeted them ecstatically, but it was Putin’s name they chanted.

Thus, the extent to which Russia does start undergoing genuine legal, economic and administrative reforms in the next few years still depends to a great extent on Putin, and the extent to which he supports Medvedev’s agenda and is loyal to and tolerant of his protégé.

Sergei Markov, a key Kremlin foreign policy adviser and deputy of the United Russia Party, says: "Putin picked Medvedev precisely because he believes Russia needs to change direction. Russia has finished the previous stage, the stage of stabilisation, for which you needed a KGB guy to consolidate the state structures, and to consolidate the state’s control of the oil and gas sectors. Now Russia needs the next stage, the stage of development, including the development of the hi-tech sector. To do that, you need technocrats in charge, and you need less government control."

Markov adds: "I don’t think the KGB will resist too much. They will accept Putin’s decision, not Medvedev’s. The old guard will not lose their positions — new people will arrive and take new positions, at new state structures."

But this just sounds like the proliferation of government structures, rather than their reduction. You cannot make an omelette without breaking some eggs, and you cannot reform the civil service and free up the private sector without upsetting some government interest groups.

Even in the attempts to foster a new hi-tech economy, the FSB security service and its cronies have been trying to get involved. For example, the scientist placed in charge of Russia’s attempts to become a leader in nanotechnology is Mikhail Kovalchuk, who just happens to be a childhood friend of Putin’s, and the older brother of Yuri Kovalchuk, a senior St Petersburg silovik who controls much of the country’s media. And one of the main ‘private investors’ in the development of nanotechnology is the private equity fund, the Finans Group, run by Oleg Shvartsman, who in a remarkably candid interview with Kommersant said that his company was owned by people close to the FSB. This is not deregulated entrepreneurship, but FSB cronyism.

So the difficulty of steering Russia in a new direction, and the potential for conflict and power struggles, should not be underestimated.

Professor Stephen White, of the University of Glasgow’s School of Central and Eastern European Studies, says: "The siloviki control both the political and economic structures in Russia, and the reports are that they have used this privileged position for huge personal enrichment. They won’t give up this position without a struggle. So there’s a potential for serious instability in the mid-term."

The most important question is whether Putin and Medvedev can keep their trust in and loyalty to each other, while various interest groups try to drive them apart.

Some analysts have said that Putin sees Medvedev as the son he never had. But being the son of a Tsar can be a dangerous business in Russia. Both Ivan the Terrible and Peter the Great murdered their own sons, out of the paranoid belief that they were plotting against them. It is in everyone’s interests that this new father-son team fares better.
15 Apr 2008