Russian Economic Reform


President Putin and his Prime Minister

Published on March 11 2012
Posted by: jeff

In terms of political and economic reform, the next six years of Vladimir Putin presidency will not be particularly eventful for Russia. The trend will not be “stagnation”, but a slow crawl progress in both political and economic terms. Thus, much of Russia’s huge potential to become a wealthier, smarter and more powerful country will be wasted.

Putin will serve his full 6 years. He will not quit early as it is not in his character, and he will feel that the “majority” who voted for him have vindicated his own belief that Russia needs him. And, there is no-one to tap him on the shoulder and say it is time to go. Moreover, the historical examples of someone in his position — much power over a prolonged period of time — tell us that he will stay while he can.

In some ways Putin reminds me of a CEO of a “business association” that I worked for some years ago. This man – I will call him Peter – had been a prominent sportsman and worked hard to maintain his fitness in his late fifties. He was, in many ways, a well organized and efficient administrator. He had been employed to bring order to an organization that was seen to have under-performed because the previous CEO was a somewhat whimsical man who was more interested in pursuing often unrealistic ideas than in tight administration.

However, it quickly became clear that Peter would be able to do little more than bring a sense of order to the organization. What he lacked was not intelligence, but the necessary personal characteristics that were needed in a leader to take the organization forward once some order was established.

Business associations are by nature service organizations and Peter’s background was in engineering and mining. On the first day he proudly told us about his “marketing experience” – and listed a number of different minerals he had marketed on overseas trips. The idea that marketing “services” might be a different ball-game to simple physical products did not seem to occur to him. Peter’s narrow view of the world and limited experience was accompanied by an antipathy to the free flow of ideas. He could only see a bottom line result that suited him and his ambitions. He had next to no appreciation that prolonged discussion and deliberation based on good principles might in the end give a better result than going straight to identifying the final objectives.

For example, when I organized a round table with a federal government minister to discuss business taxation reform, Peter virtually attempted to pre-script the discussion; and when I organized a round-table to discuss competition law reform with the head of the competition (anti-monopoly) authority, Peter – in contrast to almost everyone else – found the discussion “boring”.

Peter was a net worker par excellence and knew – or had learnt over time or with coaching – how to apply charm when he wanted to. And he knew what to say and what to do in most situations. He had an MBA and employed some fashionable personnel management tricks such as open planning of the office, and monthly informal morning teas (for those employees who had a birthday in that month) so that they could give informal feedback to him in a relaxed atmosphere on issues relevant to the organization.  

However, these were only veneers: it was quickly understood by his underlings not to be too frank at the morning teas; and the open plan arrangement meant that the open space around Peter was about 30 times the open space of anyone else (and for everyone else the space was very small) and was arranged so that Peter could observe all activities on the executive floor. It turned out that Peter was a bit of a control freak without any natural inspirational leadership abilities (even in his chosen sport he had been, and still was, a loner who could not lead a team). His leadership actions were contrived from his studies and were imitation. And when he could not get what he wanted he could become quite angry, lose his temper, and unleash harsh words. 

Vladimir Putin has many similar characteristics to Peter. Like Peter, Putin brought some order to an organization (in this case, the government of a country), but lacks those characteristics needed to move forward.

But, whatever one may think of Putin, he will soon be president and must choose a prime minister.  

Running a country is much more complex than managing a business, and it helps a lot if the top people have skills that complement each other. Things often work best if the boss is an ideas man with a good lieutenant to help execute the strategy.

For example, Stalin benefitted from having Molotov, Hitler benefitted from having Goering (at least in the early years), Kemal Ataturk had Ismet Inonu, and Mao Zedong had Zhou Enlai. Milovan Djilas wrote that while “in view of his greater versatility and penetration, Stalin claims the principle role in transforming a backward Russia into a modern industrial imperial power, it would be wrong to underestimate Molotov’s role, especially as the practical executive”. British Ambassador Sir Neville Henderson wrote of events up until the 1938 Anschluss: “Hitler’s brain might conceive the impossible, but Goering did it.” Falih Rifki Atay explained why Ataturk chose Ismet Inonu as Prime Minister in 1923: “Aside from not feeling any personal competition towards Ataturk … he was a hard-working, serious administration man.” 

And this is why a combination of Medvedev as president and Putin as prime minister (and not looking to return to the presidency) would have been a better combination than Putin as president and Medvedev as prime minister.

Putin is not a sophisticated ideas man – even his statements about economic reform are expressed in terms of specific numerical (bottom-line) targets rather than concepts and processes. Given his interests and personality he will not be able to inspire or generate the needed reform culture in government.  

Medvedev is a good concepts man, but he is unlikely to be able to push these forward as prime minister if he could not do so as president. Medvedev comes across as a nice, respectful and thoughtful person, but also as someone who lacks the strength of character or force of personality to be an effective prime minister with Putin standing over him.

Russia’s former finance minister, Alexei Kudrin, seems to be a darling of foreign investors and may well become prime minister after Medvedev proves to be ineffective in the position. However – just like most financial market people who extol his virtues – Kudrin seems to be a man of limited intellectual range and little imagination.

I think that Kudrin is less intellectually sophisticated than Medvedev. For example, in a recent interview with Moskovskie Novosti, Kudrin reportedly admitted that “the government has been spending funds inefficiently over the past decade”.

“The most important thing, I think, that we have learned, is that money is not the most important thing,” Kudrin said. ‘What are important are institutions that can guarantee the financing of different sectors. We still haven’t learnt how to build such institutions.’ He said that the government’s most pressing task was to implement reform.”

In my view, these are incredible statements. Medvedev could have told Kudrin – and Putin – this stuff years ago!

All this suggests that, no matter who is prime minister, the next 6 years in Russia will be uninspiring and wasted in terms of political and economic reform. Of course there will be bumps along the way, but the trend will be disappointing for most Russians. There will be protests, but not on the scale of those following the Duma elections. And many educated young Russian will continue to seek ways to leave the country.

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