Russia. A History

Western criticism elicited scathing rejoinders from Moscow. In April 2007 Putin complained that such attacks seek to foment internal turmoil ‘in order to plunder once again the nation’s resources with impunity’ and ultimately ‘to deprive our country of its economic and political independence’. He complained that ‘there has been an increasing influx of money from abroad, which is being used to intervene directly in our internal affairs’. He called this intervention ‘colonialism’ in a new guise, with the old mission of ‘civilization’ glossed as ‘democratization’, but with the same goal: to advance the authors’ vested interests. When the British foreign secretary demanded that Russia change its constitution (which blocked the extradition of a Russian citizen who, according to London, had murdered a former KGB officer residing in England), a livid Putin did not mince words: ‘The British officials are making proposals to change our Constitution that are insulting for our nation. London forgets that Great Britain is no longer a colonial power and that Russia has never been its colony.’ Rebuffing such Western intervention, Putin reaffirmed his commitment to ‘the development of a free, democratic country’, but on Russia’s terms: ‘Russia … will decide for itself the pace, terms, and conditions of moving towards democracy.’ He added that the United States—so eager to teach democracy to others—has failed to reform the electoral college (which subverts the will of the majority), to regulate campaign finance (to end the plutocratization of politics), or to avert the voting irregularities that determined the outcome of the 2000 presidential election.

Rebuilding the Russian State

Yeltsin had presided over the demolition of the centralized Russian state. That was partly due to the economic crisis: an impoverished nation could ill afford the subsidies, services, and military establishment of the Soviet era. But the state’s decline was also due to the neoliberal goal of minimizing the government and its budget (deemed unproductive). The ‘failing state’ syndrome in Russia also had political roots—the stalemate between the presidency and parliament, the decentralization that paralysed the centre’s capacity to rule and even collect taxes. Putin undertook to rebuild the state by transforming its tax system, institutions of governance, and the military.

One priority was re-establishing a centralized state administration. The eighty-nine administrative units became virtually autonomous under Yeltsin—issuing their own laws, ignoring directives from Moscow, retaining most tax revenues, and concluding ‘bilateral treaties’ with Moscow. From the outset Putin sought to create ‘a single vertical line of executive power’. He forced provincial units to increase tax transfers to Moscow (from 30 to 70 per cent), gave federal law precedence over local ‘constitutions’ and laws, and demanded strict observance of Moscow’s policies. He also established seven super-districts headed by a polpred

(plenipotentiary), a viceroy charged with overseeing the subordinate administrative units and ensuring compliance with Moscow’s directives. But the polpred failed to control the subordinate regions, especially the popularly elected governors, and Putin then took steps to undercut the governors’ power. He first eliminated their ex officio membership in the Federation Council (the upper house of parliament) and replaced them with locally elected representatives. The key change, however, was to replace the popular election of governors by a new system: from February 2005 all were to be nominated by the president, with confirmation by the invariably pliant local legislatures. The governor henceforth represented Putin, not the local region.

A second focus was taxation. The first step was vigorous tax collection to detect fraud and combat arrears; in 2000, Putin’s first year as president, tax revenues jumped 60 per cent. The Putin government expanded tax audits (examining the filings of 440,000 enterprises and 311,000 individuals in 2001). The government, moreover, simplified taxation such that the government collected 98 per cent of its revenues from four main sources—the value-added tax, excise, profits, and user fees for natural resources. The government also adopted a flat income tax (13 per cent) and merged sundry levies into a single social security tax. Moscow made a concerted effort to combat the misuse of public funds by adopting a new budget code, increasing transparency, closely auditing state procurements, and resisting Duma proposals for a splurge in social expenditures. As a result, the government could cut taxes (for example, lowering the corporate tax rate) yet achieve a budget surplus (first in 2000, with a 6 billion dollar surplus, followed by surpluses every year through 2008).