13.07.2006
The Kremlin at the G8’s Helm: Choosing the Right Steps
№3 2006 July/September
Vlad Ivanenko

PhD in Economics, Ottawa, Canada.

The time
is rapidly approaching for
Russia to chair the G8
Summit in
St.
Petersburg
. This event marks
the first time – at least since 1991 – when the Russian government
has an opportunity to openly promote its national priorities within
a very powerful international forum. The success or failure of the
meeting will have profound implications for
Russia’s
search to find the right place for itself inside the global
architecture.



 

A failure
to advance its priorities is not the outcome that

Russia would welcome. The Kremlin is irritated that the
collective West responds coldly to its global initiatives. To
understand the reasons for the West’s negative attitude, one needs
to consider the image that
Russia projects in the
West. But first, let us discuss why Western recognition is
important for
Russia.

 

To
participate in global policy-making, a country should satisfy two
criteria: first, it must have means to support its position
internationally and, second, it must be able to forge alliances
with other strong participants. While
Russia has obtained
certain «means», as reflected in its relative financial wealth, it
is not viewed as a reliable partner by what is called the «West».
The latter, which is a loose grouping of countries centered on
Euro-Atlantic institutions, dominates world policy-making.
Increasingly, its power takes the form of «soft» authority,
expressed through the appeal of Western economic might and its
ability to define global agendas through key international
organizations (IOs) that it controls. Because Western nations have
closely aligned international interests, they tend to cooperate
with one another – but not with
Russia.

 

Western
countries, or «partners», that share common interests form the
nucleus of modern IOs. They may choose a close interdependence of
economic systems with the consequence being a favorable global
trade environment. This rationale underlies the establishment of
the IMF, the World Bank, and the WTO. Still, trade pragmatism is an
insufficient force to build partnerships in international
relations. For example,
China and the
United States are large trading partners that share many
trade-related concerns and, yet, they often fail to cooperate in
bilateral deals. And then there is current account deficit that
the
U.S.A. runs vis-a-vis China and which affects
both countries. While they recognize that the situation is
unsustainable, each country fiercely opposes one another’s
initiatives. The
U.S.
government insists that
China should conduct a steep appreciation of its national
currency, the renminbi, but the Chinese authorities have agreed
only to a cosmetic appreciation, made last July. For its
part,
China advocates have been pushing for the
U.S. to open its asset markets for Chinese acquisitions, but
the
U.S. government blocks virtually every Chinese
attempt of a corporate buyout arguably on security grounds. This
tug-of-war situation indicates that commercial interests alone do
not build trust. Something else is missing. What is it?

 

Trade is
insufficient for generating long-term trust because, as the example
of the 1930s shows, it may reverse if the domestic situation
deteriorates. The bond is much stronger if countries share common
social values that preclude sudden reversals. The concept of shared
values forms the very foundation of Western dominance of IOs. Take
NATO as an example. This organization was built according to the
Atlantic Charter that was signed by the U.S.A. and Great Britain in
1941. It emphasized the joint defense of democratic institutions
against Nazi Germany and, later, the Soviet Union. With few
exceptions, NATO was open only to countries that practiced forms of
public governance compatible with the trans-Atlantic vision of
democracy. Even its exceptions (Portugal or Turkey) came under
increased pressure to democratize in due course. Another IO, the
OECD, complemented NATO from a political perspective. Its initial
mandate included management of the Marshall plan for reconstruction
and development aimed at supporting free market principles. Today,
the OECD continues to be an important forum that designs norms for
market operations. The Council of Europe, which was originally
envisaged as a prototype of liberal and democratic European Union,
plays an important role in defining and monitoring human
rights.

 

C

Certainly, cosmetic improvements alone are insufficient for
developing long-lasting trust

ountries that adhere to these three
sets of values – democracy, free market and human rights – comprise
the collective «West». They have developed a complex network of
interdependence based on common values, many of which Russia does
not share. Unsurprisingly, because Russia and the West have little
common interests, they tend to ignore each other’s problems, yet it
is Russia that gets internationally marginalized. Facing strong
resistance to its initiatives, this country is compelled to take
one of two policy courses. First, Russia may consider building an
alternative union with other large countries now excluded from the
West, such as China, India, and Brazil. However, the value of such
a policy is not very high. Unlike the West, the members of such a
«union» share a single and very unstable feature: their lack of
membership in the West. And once a member of the «pariah» club
develops sufficient affiliation with the West, the group falls
apart. The second policy is more painful but holds potential to be
fruitful.
Russia
may set the goal of gradually
absorbing Western values, thereby joining the West spiritually if
not formally in the process. As
Russia becomes governed
by similar principles, the West will cease to be a separate entity
from
Russia, whose voice will be heeded because the key
test that the collective West uses to distinguish between strategic
«friends» and «foes» is a sharing in values.

 

The second
policy is pragmatic and practical. Currently, Western policy-makers
maintain two incompatible views on the potential for Russo-Western
integration. Those who take a formal approach observe that

Russia fails to measure up on many parameters of democracy,
free markets, and human rights and conclude that
Russia is a
strategic «foe». Moreover, when formalists place Russia in a
comparative perspective, they find that other major non-Western
powers, for example Brazil and India (which together with Russia
and China are commonly called the BRIC countries), are more closely
aligned with the West in terms of shared values. Even

China, an openly undemocratic country, fares better by the criteria
of economic efficiency and the quality of its state apparatus. This
conclusion is disadvantageous to
Russia. It suggests that
the West defines
Russia
and China to be strategic
enemies on the democratic count, but the Russian situation is
worse, since it is also recommended that
Russia be blocked
from economic integration in the world.

 

Other
Western observers recognize that
Russia has the longest
history of coexistence with major Western powers (G7) among the
BRIC countries.
Russia
and the West share many cultural
traits brought about mainly by Christianity and the Enlightenment.
Close cultural affiliations, therefore, serve to qualify the
Western policy toward
Russia. Today,
Russia fails many parameters to be admitted to the West, but
its historical legacy indicates that it is not an enemy
either.

 

The
ambiguity of opinions shapes Western debates about its appropriate
Russian policy. Taking a formal approach is the first option.
Since
Russia
is not a part of the West, it is not
a partner and, therefore, it is a «foe» that needs to be
«contained». To substantiate this position, its proponents
emphasize
Russia’s actual or
imaginary failings in the area of democracy, human rights and its
actions against those countries that the West recognizes as its
«partners». The first accusation argues that
Russia is
hostile to the concept of the West. The second charge highlights
potential threats that
Russia presents to the
collective West. Unsurprisingly, this line of reasoning implies
that the West should restrict Russian access to strategic resources
and know-how, as well as thwart its international initiatives in
forums like the G8.

 

The second
approach recognizes the value gap, but it takes into account
cultural commonalities, which are conducive to
Russia’s
gradual integration with the West. Its followers observe that
greater prosperity, associated with macroeconomic and political
stability in this country, encourage greater acceptance of Western
values. For example, a growing private sector allows citizens to
earn income independently of the state and available indicators
show that this independence is real. Real estate is booming and
consumer credit is expanding. But because personal well-being
improves against the background of a decaying public
infrastructure, demand for democratization will grow. Therefore,
current political apathy is misleading. Public agencies are outside
of civic oversight but this situation is likely to be
temporary.

 

Consider
another commonly emphasized Russian «non-Western» feature: the
dominance of public agencies over private businesses. It may be
transitory as well. The Putin administration appears to agree that
public micromanagement of the economy is an inefficient if not
outright impractical idea. They want private entrepreneurs to take
responsibility for economic affairs, an idea that is tender to the
heart of the average bureaucrat.
Russia’s public servants
are no exception: unsurprisingly, they embrace enthusiastically the
prospect of a public private partnership advocated by the World
Bank. However, the Russian state and businesses are deeply
mistrustful of one another, which is understandable given the
unresolved consequences of privatization distribution. On the one
hand, owners cannot claim full legitimacy of assets that were
privatized in murky deals of the turbulent 1990s. They are afraid
to lose their property, and take extra precautions not to irritate
the Kremlin with “excessive” initiative. But the state itself is a
hostage to this situation because it does not want to take
responsibility for business operations. The separation of business
and political spheres requires that the state credibly guarantee
the protection of private property rights and private businesses –
to firmly commit to be socially responsible. There are favorable
signs that the problem will be settled as the political situation
stabilizes and public pressure to review the privatization deals of
the past diminishes. Once there is greater trust between public
agencies and entrepreneurs there will be less need for state
interference in economic affairs. This development will not go
smoothly, however, since so many bureaucrats, for example, resist
losing control over the private sector because it will deny them
opportunities to interfere in business affairs for private gain
(i.e. corruption).

 

The clash
of the two Western policy strands will intensify in the run up to
the G8 meeting. Considering the recent attempts by proponents of
the confrontational approach (see, for example,
Russia‘s
Wrong Direction: What the United States Can and Should Do,
published by the Council on Foreign Relations), this type of policy
is being promoted more aggressively. Clearly,
Russia should be concerned. Promoting Russia’s image as a
reliable Western partner is an important task for President Putin
at the upcoming G8 meeting. Fortunately,
Russia has avoided
making serious mistakes since its disastrous, and completely
unwarranted, interference in the Ukrainian election of
2004.

 

In this
situation, what should
Russia do? The
recommendations can be divided into quick and easy answers to
advice that requires longer-term commitments.

 

The West
will obviously raise the question of Russian policy toward its
democracy-building programs, particularly within the CIS.
Currently,
Russia
appears to be taking a militant
stance on democratic issues, expressed in Putin’s words «dogs are
barking (about
Russia’s democratic
failings) but the caravan (of inter-state contacts) goes on». This
approach, however, is unwarranted because it assumes that the
Russian democratic position is so weak that it cannot be defended.
This assumption is false, however, as the discussion above has
shown. In particular, the Kremlin can clarify the logic of its
public oversight policy.

 

First, it
must be acknowledged that Western public opinion is split on the
issue of Russian democracy. On the one hand, the pessimists have
given up on the possibility of
Russia becoming a
democracy under the current leadership. Meanwhile, the optimists
understand that developing democracy is a complex process, but they
need solid evidence and logical argumentation to see the «master
plan». It helps when the Russian authorities frankly discuss
domestic democracy-related events.

 

The recent
NGO bill controversy is a good example. Last December, Russian
Minister of Justice Chaika claimed erroneously that the Council of
Europe, which conducted a preliminary expert assessment at

Russia’s request, found the bill to be in compliance with
Russian human rights obligations. This misleading statement raised
outrage at the Council of Europe; it believed that its integrity
had been compromised. However, the generally transparent process of
public discussions that followed the controversy, and which
involved active non-governmental participation, has partially
restored some good faith. It is also telling that President Bush
mentioned the public discussion around the NGO bill in his effort
to explain why he did not give up on democracy in

Russia (see President’s Speech reported by the White House
Office of the Press Secretary,
March 29, 2006).

 

Another
way that
Russia
can successfully defend its record is
to request formalization of the claim that
Russia is
really undemocratic. The Western (especially American) policy of
promoting democracy worldwide is built on flimsy methodological
foundations. Consider, for example, how the Freedom House
democratic ranking, which is often cited as an authoritative
indicator of democratization, conducts its assessment. It simply
employs a relatively small group of experts (about a dozen) who
provide evaluations on about two hundred countries by sifting
through predominantly English-language publications. So let’s
consider this organization’s Russian ranking as an example. The
Freedom House downgraded Russia from being «partially free» to «not
free» in January 2005, citing the Russian government’s intervention
in the Ukrainian presidential election of November 2004 as a key
parameter. While the interference was obviously unfortunate, the
logic of linking national democratic developments with foreign
policy is highly unorthodox to say the least. The formalization of
democratic criteria is likely to improve
Russia’s ranking.
For example, data from the Polity IV project, organized by
the
University
of Maryland at
College Park, which relies on formal criteria, show that by the
responses of top executive recruiting and democratic
oversight
Russia
stands in the same league with
Brazil and India
– countries that the Freedom House
assesses to be free.

 

To promote
trust building, the Kremlin may agree on a confidential peer review
in those areas where
Russia underperforms
relative to the other G8 members. Such a request would show that
the Russian government is serious about establishing its
credibility in the West. One document,
Russia in the
Spotlight: G8 Scorecard, prepared by the Foreign Policy Center, a
British think tank with significant political clout, provides a
potential framework to evaluate the performance of the G8 members.
While more work is required – and trust-building measures
introduced to ensure that such an assessment is not used for petty
politicking – a frank discussion of
Russia’s relative
failings will help to improve
Russia’s image in the
West, as well as provide useful feedback. Peer reviews are
conducted regularly at Western forums such as the OECD on both a
confidential and open basis.
Russia is familiar with
the procedure; for example, the OECD completed an appraisal
of
Russia’s regulatory reform by Russia’s
request in 2005. A review of democratic issues would be a step
forward in the same direction.

 

In
preparing for its G8 meeting, the Kremlin may want to reconsider
the logic of its outreach programs, such as the Russia Today TV
channel. This program appears to take on topics not so much of
interest to the West as reflecting Kremlin priorities. For example,
last November the Russian immigration service banned William
Browder, the Founder and CEO of Hermitage Capital Management, from
entering the country on «security grounds». This fact raised
significant interest within the international community because
Browder is a leading shareholder rights activist and outspoken
advocate for better corporate governance in
Russia.
Many have interpreted the ban as evidence of growing state
interference in private business affairs, while Browder has hinted
that corruption among bureaucrats was the main cause for his entry
ban. Because the Russia Today TV channel is designed specifically
to address Western concerns, it was expected to conduct and report
a detailed investigation of the event. The channel, however, chose
to ignore this news story, thereby missing an opportunity to
establish its credibility.

 

Certainly,
cosmetic improvements alone are insufficient for developing
long-lasting trust. Structural differences between Russian and
Western values create a natural obstacle for the successful
integration of the Russian and Western energy sectors. Here, the
main problem is not to negotiate rights and obligations between
contractual parties because legal wrinkles can be ironed out in due
course. Similarly, the West will not press
Russia to
sign the Energy Charter, although some G8 members may claim that it
should for it to succeed.

 

Overcoming
differences in business practices seems to be the most important
objective. A simple rumor that Gazprom had plans to acquire
Centrica Plc, a British gas distributing company, sent shivers
across the
UK. Such a reaction did
not arise because the Britons subscribe to economic nationalism,
like some other members of the collective West. For example, news
of Gas de France expressing a same interest would not disturb the
British layman. But a firm from
Russia, Gazprom or
otherwise, is treated differently because it is often associated
with irresponsibility, unethical behavior, and shadowy dealings.
This attitude is further aggravated because the Russian approach to
business negotiations seems to be to dominate and run over an
opponent rather than to negotiate in a businesslike manner. When a
company is state-controlled, it tends to worsen the attitude. In
this case, British consumers fear that the Russian government may
advance its political objectives by using Gazprom’s control of the
gas distribution chain in the
UK. Incidentally,
returning to the previous example of the Chinese-American trade
deficit problem, it is important to mention that if acquisitions
were initiated on the part of Chinese private companies,

Washington would be less intrusive. In fact, such deals largely
fall outside of the
U.S. government
jurisdiction altogether.

 

The
Russian government faces the difficult task of convincing its
fellow G8 members that its global energy integration plan is not a
strategic threat to the collective West. Lack of such assurances
provides fertile ground for critics of the Russo-Western
integration process. At the same time, the Kremlin has to proceed
carefully since formal assurances – such as granting unrestricted
access of Russian oil and gas pipelines to the Western oil majors –
are fraught with other dangers.
Russia’s recent history
of rampant corruption, tax evasion, capital flight, and sell-off of
strategic assets to foreign entities indicates that local private
interests may subvert national priorities if left
unsupervised.

 

Chairing
the G8 meeting in
St.
Petersburg
is an important
test of the Kremlin administration’s ability to advance its
national interests abroad. Because
Russia is struggling to
establish itself as a full member (many observers continue to call
the group «G7»), the very fact that the meeting is taking place at
all and without preconditions should be considered a success. If
Russia engages other members in a substantive discussion of its
proposals, it will make a significant accomplishment. However, to
progress further, a partnership pact should be offered to the West.
This requires adjusting Russian norms of good corporate practices,
democratic oversight and the observance of human rights to Western
standards. The G8 Summit in St. Petersburg offers an opportunity to
take a significant step along this long road.

 

COMMENTS

 

Democracy and Energy Security: Finding the Right Balance


Hiski Haukkala is a Researcher at the Finnish Institute of
International Affairs in Helsinki.

 

In an
article by Vlad Ivanenko, Russia at the G8’s Helm: Choosing the
Right Steps [featured in this issue], he raises two important
questions: the fortunes of democracy in Russia and the country’s
current and future role as a pivotal player in the ongoing game of
global energy security. As with Ivanenko, I also see a link between
the issues, but I see their interrelationship in a slightly
different manner. In my view, democracy is not only the admission
fee to the Western club of powers, but also the most reliable
method of organizing societies in such a way as to ensure their
stable development and prosperity – something that is in the
interest of both Russia and the West.

 

Concerning
democracy, Ivanenko draws our attention to what he sees as a
mismatch between Western perceptions and Russian realities on the
ground. According to him, both the West and the Russian leadership
have got it wrong: Russia is much more democratic than it is given
credit for in the West and the Russian leadership is needlessly on
the defensive about this topic.

Ivanenko
raises an important issue, but I think his analysis needs to be
qualified with a further observation. We should ask: What is the
current overall trend in the country? Is it toward more democracy,
or have we been witnessing a rollback of democratic rights in
Russia? I think in all fairness we must admit that the latter has
taken place during Vladimir Putin’s presidency. However, a certain
strengthening of the power vertical was certainly in order after
the chaotic free-for-all of the Yeltsin era. But here one should
tread carefully since there is always the danger that Russia is
getting too much of a good thing: healthy re-centralization can
easily turn into a jealous obsession with power.

The issue
boils down to the question of finding the right balance: democracy
is not a static end-state but a constant balancing act between
those who govern and those who are governed. And it is natural for
those at the helm to try to expand their powers. That is why
institutions and democratic practices are required to restore the
balance. In my view, the justified worry in the West concerning
Russian democracy is that although Putin has been adept at bringing
stability and amassing powers he has been less successful in
building stable political institutions that would, on the one hand,
constrain his powers and, on the other hand, guarantee a smooth –
and democratic – succession to the presidency in the
future.

Democracy
is also linked to Russia’s future “global prominence,” as Ivanenko
puts it. In my view, Russia’s prominence will flow from its ability
to succeed both economically and politically. This means extracting
the maximum harvest from its energy resources, as well as moving
beyond them to a more post-industrial economic development. On this
point, Russia is faced with a task of almost Herculean proportions.
To take just one example, the investments needed to sustain the
current levels of oil production are astronomical. Russia’s
infrastructure is aging rapidly and in the coming years the
situation will come to a head. For example, LUKOIL’s Vagit
Alekperov made a grim prophecy about Russia, which, if correct,
sees the country as becoming a net-importer of processed petroleum
products by 2009. This prediction speaks volumes about the shaky
foundations on which Russia’s current energy superpowerdom
rests.

Democracy
encourages accountability and transparency, the two best known
antibodies against corruption that are in danger of engulfing a
lion’s share of the vast financial resources currently generated by
Russia. In order to succeed, Russia cannot waste these resources by
their inefficient, negligent or outright criminal application.
Russia desperately needs to get a big bang for its petroleum bucks
in the years ahead in order to make that qualitative leap in her
economic development. By strictly sticking to the principles of
democracy, rule of law and transparency, Russia’s prospects of
succeeding would be greatly enhanced. Thus, Ivanenko’s belief that
Russia should think seriously about raising the issue of democracy
and energy security in tandem on the G8 agenda are to be applauded,
for it is my view as well that a link between these two concepts is
indeed intimate.

 

Great Expectations

 

Peter
Rutland works for Wesleyan University, Middletown,
Connecticut.

 

Hopes are
being raised in Moscow that President Vladimir Putin’s chairing of
the G8 summit will finally cement Russia’s acceptance by the West.
At the same time, the occasion is providing an opportunity for
Western critics to roll out their usual alarms about Russian
deficiencies – from its alleged back-tracking on democracy, to
interference in neighboring states, to unreliability as an energy
supplier. A case in point is the new version of the White House’s
National Security Strategy, released on March 16, made some blunt
criticism of the quality of democracy in Russia.


Russia’s quest to find a comfortable place in the international
order since the end of the Cold War has not been an easy one.
Excluded from long-standing institutions such as the European
Union, NATO and OECD, President Boris Yeltsin clutched at the straw
of observer status at the G7 in 1997 as a way to shore up his
plunging prestige. With one foot in the door, it would have been
difficult for Russia to retreat, so President Putin persisted in
pursuing full membership, which he secured in 2002.


It can be argued that Russia has more to lose than to gain from the
G8 gatherings. As the latecomer to the club, and the sole
“outsider,” it sets itself up as the target for criticism by the
pre-existing members. At the very least, it would make sense for
Russia to downplay expectations for the summit.


How can Russia best respond to criticism of its democratic record?
The most appropriate reaction is to adopt a low-key attitude and
avoid ratcheting up the rhetoric. This is, in effect, the current
Russian policy, and is seems to work well. The purpose of the G8 is
to reach agreement about things upon which agreement can be
reached. It is not a place to fan controversy for the sake of
political audiences back home.


Putin can legitimately argue that Russia has come a long way – with
the implicit reminder that things in Russia could be a lot worse.
In the mid-1990s, as the Yeltsin system was tottering, State
Department officials used to ask: “What happens if Russia ‘goes
bad?’” It seems that such conversations have ceased. Partly, this
is because some people think Russia has already ‘gone bad.’ But
mostly, it is because the majority no longer think that a scare
scenario of a fascist Russia, or a Russia locked in civil war and
military coups, is worthy of debate.


Not satisfied with this “least worst” argument, some observers are
encouraging Putin to more aggressively defend the current level of
democracy in Russia – and to criticize the democratic achievements
of the West. This is China’s chosen policy, with for example their
annual report criticizing the U.S. human rights record. That is
definitely not a path that Moscow should follow. They will not
change any minds in the West, and by doing so they will only give
fuel to those who wish Russia ill. The G8, and the accompanying
press debate, is not an academic seminar where one can debate the
nuances of how democratic institutions work in different
cultures.


It is also worth asking whether G8 membership was really a prize
worth pursuing. Organizations such as the G8 were created as a club
for the advanced nations, and they have arguably outlived their
usefulness by the accelerating pace of global change since 1991.
The explosive growth of India and China means that two of the
world’s largest economies are not sitting at the G8 table. Whether
the issue be trade barriers, insurance against financial crises, or
tackling global warming, the absence of India and China from the G8
is striking. This severely limits the utility of the G8 for Russia
– and the other members – as a forum for tackling global economic
problems.