Atlantic Council

Try this as a thought experiment: imagine a dynamic modern Russia with a robust knowledge economy, diversified industry, and reasonably functioning legal system where starting a business –or adjudicating disputes -- is no more difficult than in say, Turkey or Malaysia. Not easy, is it? In fact, in a remarkable article published on Gazeta.ru, a Russian webzine, President Medvedev starkly outlines his country’s challenges and poses the question whether Russia can change enough to “own tomorrow.”

It may be one of the BRICs, but when I think how things are likely to change in coming decades, it is not hard to conjure up impressive scenarios for China, for India or even for Brazil. But when you get to Russia, it is difficult to envision anything like the sort of success many expect for the other BRICs.

To loud indignation in Moscow, Vice President Joe Biden, in an interview with the Wall St. Journal (7-24) offered his assessment of Russia’s predicament. You might have thought that he spewed some truly nasty insults. Yet what stirred the controversy was an unusually blunt assessment of Russia’s situation: “They have a shrinking population base, they have a withering economy, they have a banking sector and structure that is not likely to be able to withstand the next 15 years, they’re in a situation where the world is changing before them and they’re clinging to something in the past that is not sustainable.”

A bit stark.  Perhaps a tad exaggerated. But how many Russia hands would disagree? A generation after the end of the Cold war, it is a good time to ask: Whither Russia?

We are still having summits, and Russia is still in decline, a country with the dubious distinction of the first industrialized nation with a declining mortality rate and a population that has declined by seven million since 1992. Despite its cocky posture as one of the BRICs, the Russian economy had minus 10% growth in the first half of 2009, and is projected to grow at minus 2% for the year. Russia’s banking system is deeply in debt, in the $450 billion range, and even mighty Gazprom is scrounging around for cash, with key gas pipeline projects at risk. And then there is the episodic nastiness in the Caucuses.

With a highly educated populace, a sizable community of scientists, engineers and technicians, many speculated in the early 1990s that the first post-Soviet generation, now come of age, would be agents of change. Wild West capitalism would be tamed by a modern, globalized new Internet  generation and a post-communist system settling down to something like contemporary norms. Russia would become more like the rest of Europe, less like the Sopranos. Yet nearly two decades later, Moscow has failed to substantially diversify its economy and build on its considerable human capital to position itself for the new knowledge economy on the horizon of electrification of transport, biotech, nanotech, new materials, and emerging clean energy technologies. Or for that matter, even diversify its economy much beyond hydrocarbons. Many thought that the post-Soviet generation now in their 30s and 40s would be the architects of a new modern Russia, part of the European landscape. Perhaps eventually. But it doesn’t quite seem so yet.

There are here and there a few glimmers of such a future. But it hasn’t really jelled. The old Soviet-era only-half-joking line was that the USSR was “Nigeria with rockets.” But it does not appear to have moved far beyond being a petro-state. Of course, with its nuclear warheads, permanent seat on the UN Security Council, and enormous oil production and the world’s largest gas reserves, it has a considerable impact and demands attention.

Yet hardly a month goes by with out some atavistic headline underscoring a depressing Russian reality beneath the glitter of its petrowealth. An investigative journalist or human rights worker found dead. All too rarely, it seems, is a culprit brought to justice.  Recently, a Russian police official doing research under the auspices of a George Mason University research center in Vladivostok was arrested for obtaining evidence of high-ranking local officials complicity in criminal takeovers of businesses. According to the Washington Post  cases of mafia-type strong-arm tactics are still commonplace. Then there is the experience of IKEA, trying to open a store outside of Moscow, but told by authorities they would have to pay bribes to get electricity, and a disheartening episode that IKEA went public with to the New York Times. The upshot is that is will be while before IKEA invests in Russia again. This, a generation after the Soviet implosion.

Even Medvedev has bemoaned the state of Russia’s dysfunctional courts and said “legal nihilism” is one of the main obstacles to growth in Russia. A recent Washington Post article  detailed the fate of three prominent Russian attorneys who found themselves targets of prosecution after uncovering a mind-boggling crime: top police and tax authorities managed to seize ownership of the investment firms owned by Hermitage Capital, once one of Russia’s largest foreign investors, and arrange a $230 million tax refund. Seems like same old, same old.

Does this seem like a nation that is an emerging global power? Not exactly. In fact, Russia’s fate in the short run appears at the mercy of oil and gas prices as much as anything else. It has to a considerable degree followed the pattern of other petro-states and failed to parlay its petrodollars into a substantially diversified its economy Yet its nationalist policies in “strategic sectors” have limited its ability to maximize its advantage in the oil and gas sector, plagued by underinvestment, corruption, and as a result of the financial meltdown, large quantities of debt that even its flagship Gazprom has been hampered with.

It is tempting to wonder if, as some argue, there may be a deeply rooted authoritarian sensibility in Russian culture. Certainly Medvedev and Putin’s continued high poll numbers -- even through the economic meltdown – suggest a certain populism is part of the Russian political equation.

But cultures change; societies evolve, particularly in this Information Age. The intriguing question is: what would it take to for Russia to move qualitatively beyond its current mindset and political behavior patterns. I don’t pretend to have an answer. Stranger things have happened, but the past two decades are not terribly encouraging.

Robert Manning is a senior advisor to the Atlantic Council.  The views expressed here are solely his own, not those of any U.S. government agency. AP Photo.