Medvedev’s “Third Way”: The Unrealized Potential

15 october 2010

Modernizing Russia and Reforming Global Governance

Dr Adrian Pabst is a lecturer at the School of Politics and International Relations of Rutherford College, University of Kent, the UK.

Resume: Medvedev has begun to chart a radical alternative path that outflanks both liberal and conservative ideology. His proposed “third way” gestures towards a pluralist, associational account of the state and the market – fostering groups, intermediary institutions, small-and medium-sized enterprise as well as regions, instead of relying exclusively on the sovereign will of the individual or the sovereign power of the collectivity.

MODERNIZATION IN QUESTION

Both at home and abroad, critics of President Dmitry Medvedev dismiss his modernization strategy as little more than window-dressing that masks his determination to preserve the ruling regime led by Prime Minister Vladimir Putin. Modernization Medvedev-style, so the critics claim, is too narrowly focused on technology and won’t work without wholesale political liberalization and legal reform that will certainly be blocked by Putin and the siloviki faction which dominate the Russian government and business. Pointing to a succession of recent polls, the liberal commentariat accuses the president of ignoring popular calls for a systemic form of modernization that offers a new social contract.

Critics have a point but fail to see the bigger argument. Since he took office, Medvedev has crafted a transformational vision for Russia’s domestic politics and foreign policy. The ongoing economic crisis and the aftermath of the war with Georgia have persuaded the president that the old, conventional approaches and measures are outmoded and don’t serve Russian or global interests. Based on a critique of the status quo, Medvedev has begun to chart a radical alternative path that outflanks both liberal and conservative ideology. His proposed “third way” gestures towards a pluralist, associational account of the state and the market – fostering groups, intermediary institutions, small-and medium-sized enterprise as well as regions, instead of relying exclusively on the sovereign will of the individual or the sovereign power of the collectivity.

In terms of Russia’s role in the world, this alternative modernization strategy suggests a stronger emphasis on forging links with countries and organizations that offer mutually advantageous cooperation – starting with the export of primary resources in exchange for technology and investment. Chief of all, Medvedev looks to the U.S. and other member-states of the OECD in order to reinforce bilateral relations, but he also pursues multilateral projects such as WTO membership and the new Partnership for Modernization” with the EU. To a lesser extent, he seeks closer ties with emerging markets as part of new pan-regional associations such as the Eurasian Economic Community or the BRIC group, an expression of Russia’s “multi-vectored” foreign policy that provides greater opportunities for shaping the international system. That is what underpins Medvedev’s project of economic modernization, social renewal, a new Euro-Atlantic security framework from Vancouver to Vladivostok and reforms of global governance.

All this is set out in his landmark article 'Forward Russia' of 10 September 2009 and his major foreign policy address of 12 July 2010. In the latter intervention, he argues that the global economic crisis has brought about a "paradigm shift in international relations [which] opens for us a unique opportunity to put Russia’s foreign policy instruments to the most effective use possible to assist the country’s modernization." Central to his overarching vision is the argument that neither the individual nor the state can exercise their sovereignty and power without some form of association with other individuals within and across regions and nations.

Of course, all this could come to nothing very significant at all. The prevailing political and economic elites seem to have a higher stake in their own power than in changing the country or the world. But at the same time, there are certain developments that have the potential to transform Russia’s domestic condition and international role. Key to the success of President Medvedev’s modernization strategy is to pluralize Russia’s dual state – the constitutional, political order and the para-constitutional, administrative regime (here I draw on the work of my colleague Richard Sakwa, notably his forthcoming book The Crisis of Russian Democracy: The Dual State, Factionalism and the Medvedev Succession (Cambridge: Cambridge University Press, 2010), esp. Chapter 1). This could be done by separating political office from state corporations and by strengthening associational arrangements within Russia and with other countries (more about that below). Some degree of political competition and policy difference between Medvedev and Putin indicates that the ruling regime is perhaps not quite as static or monolithic as has been suggested. This approach, coupled with genuinely different ideological outlooks, could presage democratic renaissance and systemic transformation within the existing constitutional order – even though the risk of further authoritarian consolidation within the para-constitutional administrative remains real.

MEDVEDEV’S SYSTEMIC CRITIQUE

Whereas 2008 was largely dominated by the war with Georgia and the onset of the economic turmoil, 2009 saw President Medvedev decisively shape the domestic and international agenda. By declaring that “Russia can and must become a global power on a completely new basis,” Medvedev has staked his claim to run for a second presidential term on his ability to transform the country at home and recalibrate her international role. In a series of interventions, the president combines a cogent critique of the status quo with a bold vision for an alternative future – linking Russia’s backward economy and broken society to her diminished influence in the world.

Medvedev’s assessment of Russia’s present predicament is surprisingly candid. In his article “Forward Russia,” he denounces the country’s “humiliating dependence on raw materials” and the neglect of individual needs, reflecting “the major flaw of the Soviet system.” High energy inefficiency and low business productivity have undermined Russia’s competitiveness in the world economy and reduced her “influence in global economic processes.” Crucially, this leads the president to declare in no uncertain terms that the past decade has failed to prevent Russia’s relative and absolute decline at home and abroad: “That’s why production declined such [sic] much, more than in other countries, during the current crisis. This also explains excessive stock market volatility. All this proves that we did not do all we should have done in previous years. And far from all things were done correctly.”

In other words, Medvedev argues that the global credit crunch underscores the structural deficiencies of Russia’s patrimonial system – the convergence of power and property based on a state monopoly of primary resources. Of course, he was himself a pillar of this system, combining leading roles in Gazprom with key positions in the presidential administration and the government led by former president Vladimir Putin.

Not wholly unlike a medieval king, Putin presided over a group of “robber barons” who were rewarded for their loyalty with a share in the national wealth, notably control over the largest state-controlled corporations such as Gazprom and Rosneft as well as big posts in the government. By renationalizing strategic sectors and combining business power with political office, Putin stripped disloyal oligarchs like the former owner of the energy giant Yukos Mikhail Khodorkovsky of their assets and their political influence, whilst also re-establishing and reinforcing the vertical power structure of the central state dominated by the Kremlin.

This marked a fundamental break with his predecessor Boris Yeltsin: Putin replaced the corrupt oligarchic capitalism of the Yeltsin period with an equally corrupt bureaucratic state capitalism – “a patrimonial fusion of executive power and material wealth” (Robert Skidelsky). The global financial meltdown and the collapse of energy and commodity prices in the second half of 2008 have not just revealed Russia’s economic weakness but also undermined the ruling regime’s power base. Putin’s system has perhaps provided political stability but failed to improve the country’s economic condition and social cohesion.

What’s genuinely radical is that the current president links the ongoing economic disaster to a profound social and cultural crisis. In Forward Russia, he calls on Russian society to tackle “persistent social ills” like lack of initiative and dependence on the state, centralized paternalism, “legal nihilism” or the corrosive effect of financial and moral corruption – including “bribery, theft, intellectual and spiritual laziness, and drunkenness.” It is those social and cultural problems that underlie the indifference of “owners, directors, chief engineers and officials” vis-?-vis high levels of inefficiency and low levels of productivity. As such, Russia’s socio-economic crisis is for Medvedev also a moral crisis – not in the sense of bourgeois moralism but in terms of social vices that “offend our traditions” of “interethnic and interfaith peace, military valor, faithfulness to one’s duty, hospitality and the kindness inherent in our people.” Medvedev’s argument about social virtue and social vice cannot be mapped on the conventional ideological spectrum: it is more traditional than the reactionary nostalgia of many contemporary conservatives yearning for a golden age that never existed, and more progressive than the abstract cosmopolitanism of the post-Soviet, self-righteous liberal commentariat.

Crucially, his cogent critique is of a piece with his insistence on empowering individuals, families and communities in politics and the economy (a theme to which I will return).
Nor does Medvedev gloss over Russia’s profound political problems. His point that “as a whole democratic institutions have been established and stabilized but their quality remains far from ideal” is, of course, a vast understatement. Nor does he openly acknowledge the recent shift from an imperfect representative democracy to an administrative semi-authoritarian system. However, Medvedev’s wider point is that market economies and democracies require not just formal liberal institutions but also the informal social bonds of civil society. Indeed, his remark that “civil society is weak, and the levels of self-organization and self-government are low” is not merely an attempt to appease liberal critics at home and abroad. Much rather, it is integral to his modernization strategy – whose mark is to change the age-old top-down approach of command-and-control in favor of more individual initiative and civic participation. This central point is repeated in his foreign policy address of 12 July 2010 where he states that the second challenge of modernization is “strengthening democratic and civil society institutions in Russia. We must promote the humanization of social systems around the world and especially at home.”

Indeed, Medvedev has repeatedly attacked the centralization of power and concentration of wealth at the heart of the powerful state apparatus which nevertheless has extremely weak institutional and administrative capacities. Medvedev’s scathing critique highlights the complicit collusion of bureaucrats and businessmen who share the rents accruing from their joint monopolistic ownership of the country’s assets, especially energy resources and other primary commodities. These patrimonial practices reinforce the overall inefficiency and shockingly low levels of capital productivity which the president has repeatedly denounced.

As a result, he has called for an entirely new economic settlement whereby Russia finally moves beyond the “primitive economy based on raw materials and endemic corruption” – a sharp contrast with other emerging markets where local corruption is punished severely and a far larger proportion of state resources is invested in high-tech industries, like in China and India. Once again, it is clear that Medvedev’s modernization strategy is the glue that binds together his domestic reform agenda and his shift foreign policy towards the OECD, WTO and the EU’s “Partnership for Modernization.”

A NEW GEO-ECONOMIC SETTLEMENT

Given Russia’s economic backwardness and the pressures of the world economy, technological modernization is a necessary but not sufficient condition for the country’s progress, and Medvedev is well aware of it. Of course, the country needs to secure property rights and respect the rule of law, but technology and foreign capital also require a host of other institutions and practices – not just physical infrastructure, properly funded higher education or the ability to translate the fruits of R&D into business activity but also the social bonds of reciprocal trust and mutual assistance on which a vibrant civil society depends. For without trust and other civic virtues, the economic costs of enforcing contracts and doing business can become prohibitive. Thus, a Western-style liberal focus on the social contract and contractual, proprietary relations neglects the more informal, socio-cultural dimension that is central to economic and political development. That is why the president links economic and political transformation to social change itself.

Another distinction of Medvedev’s project from standard liberal ideas relates to the nature of global capitalism – the volatility and systemic risk involved in worldwide capital movements. Since the abolition of capital controls and managed exchange rates in the mid-1970s, the world economy has seen a growing abstraction of capital from the productive sectors of agriculture, manufacturing and industry. Reinforced by successive waves of liberalization, deregulation and privatization, money was increasingly poured into new services such as finance, insurance and real estate (or FIRE). Thus the “new economy” was born. But far from abolishing the old business cycle of expansion and contraction, this brave new world exacerbated the bubble cycle of boom and bust – with vast currency and other financial speculation bringing down sovereign nations and throwing the world economy into turmoil (Mexico, East Asia and Russia in the 1990s).

After the 1990s financial crisis and the bursting of the “dot.com” bubble at the turn of the millennium, central banks opened the money taps and injected unprecedented levels of liquidity, thus facilitating the West’s consumption binge that was fuelled by overleveraging across the globe. Since all money must in the end be secured against physical assets, the entire world economy is now dependent on disembodied global finance – seeking returns anywhere, uncommitted to any particular place or industry, and subjecting anything and everything to market valuation and commodification.

Induced by perverse incentives, the switch to quick returns on short-term investment has induced speculative trade in raw materials and commodities. That has made it more difficult for transition economies rich in primary resources like Russia build up a manufacturing and industrial base with which to compete on the international stage.
That is why from the outset of his presidency Medvedev has linked domestic reforms with the new global arrangements. After the failure of the debt-financed financial capitalism of the last two decades (1990s-2000s), both developed countries and emerging markets require much greater investment in productive activities capable of generating more economically and environmentally sustainable growth – one of Medvedev’s strategic priorities for the G20 and the BRICs.

At their most recent summit in the Brazilian capital in April 2010, the leaders of the BRIC countries agreed on common proposals aimed at reforming the global financial system. Not only do they jointly demand a “substantial shift in voting power in favor of emerging market economies and developing countries," as the summit communiqu? stated. The four are also determined to rebalance and diversify the world economy – with a greater role of the state, more regional trade and new currency arrangements less dependent on the U.S. dollar and the euro. Whilst plans for an alternative world currency have been put on ice, the BRIC countries will use their own currencies in mutual trade and investment relations.

Some of these good intentions have yielded concrete results. On the sidelines of this summit, development banks from the four countries – Russia’s Vnesheconombank, the China Development Bank, Brazil’s National Bank of Social and Economic Development, and the Export-Import Bank of India – signed a memorandum committing them to create a common Interbank System. Its main aim will be financing high-tech, innovation and energy-saving projects. This underscores the shared recognition that strategic investment involving public and private sources is key to a more balanced world economy – channeling more global finance away from short-term speculative activities towards long-term investment in the real economy.

At the same time, President Medvedev has gradually recalibrated Russia’s foreign policy towards North America and Europe. Recognizing both the potential and the limits of multilateralism, he has strengthened ties not just with the U.S. but also with other key members of the OECD (such as Japan, South Korea, Singapore and Australia). Beyond improved bilateral relations, these moves confirm and facilitate his efforts to take Russia into the WTO. Likewise, his commitment to the EU’s proposed “Partnership for Modernization” could unlock the bureaucratic quagmire of the Four Common Spaces and speed up closer cooperation with the world’s largest economic zone in the field of technology and investment.

INTERNATIONAL ECONOMIC INTEGRATION AND DOMESTIC REFORM

Pursuing WTO membership and the EU’s “Partnership for Modernization” will provide Medvedev with necessary leverage to push through structural reforms at home. Liberals are right to demand respect for human rights, the rule of law, an anti-corruption crusade, greater social justice and the wholesale modernization of the state at all levels. However, liberal recipes to reform Russia are insufficient for escaping some of the structural problems of advanced Western countries, especially a growing centralization of executive power and a concentration of wealth. Indeed, the neo-liberal phase of globalization has empowered the national executive branch of government at the expense of the legislature and the judiciary, not to mention intermediary institutions, regional and local government and ordinary citizens – for national governments are increasingly integrated into a transnational system of power, of which multinational corporations and supranational institutions such as the WTO and the IMF are key pillars.

Likewise, the pockets of poverty have become more entrenched, and the gap between the rich and the poor has widened, with both income and asset inequality reaching levels not seen since the 1930s (and in some cases since the late 19th century).
Of course, these structural imbalances are not exclusive to advanced countries in the West and elsewhere. But precisely as Russia exhibits similar trends (although for different reasons), the country must learn from these and other sticky developments and avoid repeating the same mistakes. Here the Russian leadership must go further than Medvedev’s proposed modernization strategy. Politically, it is imperative to strengthen state capacities at all levels of the Federation. One step is to implement his presidential campaign promise of separating political office from the management of state corporations. This would open the way to improving efficiency and competitiveness, while also introducing a clearer distinction between politics and business. As the experience of Western “market-states” has shown, managerialism in politics is just as misguiding as bureaucracy in business.

Besides more orthodox privatization plans aimed at selling off $29 billion worth of state assets wile retaining controlling stakes, one concrete possibility is to transform state corporations into “public interest utilities.” According to such a model, profits are reinvested and shared among the staff rather than siphoned off by bureaucrats, the top management or the shareholders. Beginning with state enterprise, Medvedev could also consider proposals for introducing a measure of employee-ownership for public sector workers. By introducing an element of co-management and co-organization, this approach has the potential to raise productivity levels and the quality of service without the sort of wage increases that induce inflationary pressure. Linked to this is the need to foster a proper professional ethos that can transform bureaucratic mentality into a genuine public service culture. Instead of centralized standards and targets, each part of the public sector must be allowed to translate certain principles (e.g. universal provision) into particular practices (local delivery) and to bring about a greater extent of self-management and professional self-regulation. Other indispensable political reforms include a large-scale decentralization to the most appropriate level (regions, municipalities, communities or neighborhoods) and an element of participatory democracy at the local level (e.g. town-hall meetings discussing municipal government, policing, or spending priorities in areas like education, housing and local transport).

Unfortunately, a number of current measures point in the opposite direction.
Economically, Russia needs to re-balance her growth model from highly leveraged financial services and speculative property development towards high-tech and a variety of sectors that combines economic investment with wider social benefits (such as education and health), as Medvedev has indicated in his article “Forward Russia.” But the proceeds of growth will not trickle down sufficiently via wages and taxation. Instead, the president could consider various ways of reconfiguring the relationship between capital and labor through the distribution of assets rather than simply the redistribution of income. What is required, first of all, is to offer ordinary people a share in the country’s resources. Examples include giving citizens vouchers for higher education (now that even state universities charge significant fees) and introducing asset-based welfare (like child trusts and lump-sum payments at the age of 18 for investment in education or property). Other schemes that should be envisaged are incentives to set up employee-owned small- and medium-sized enterprise. Furthermore, housing associations and community-based mutualized banks are indispensable for a fairer and more viable model of socio-economic development.

It is equally important to move beyond declarations of good intent and remove barriers to a more vibrant civil society. This includes restrictive legislation, the tax burden and the top-down approach in encouraging new citizens’ initiatives. Moreover, the government must create positive incentives for people to form professional associations, guilds, friendly societies and other structures that redistribute power and responsibility from the state and the market to individuals, local communities, and professional groups.

Throughout 2009, Russia showed tremendous resilience in the face of the devastating economic crisis. Yet many profound social problems persist: a growing polarization of the rich and the poor; deficient housing, road and other key infrastructure; declining standards in education; a failure to integrate or protect cheap migrant labor; nationalism and xenophobia; rampant corruption; etc. Reforming the backward economy won’t be enough, as Medvedev has repeatedly suggested. The task is to build a robust civic society which allows Russia to develop in line with her best traditions of multi-ethnic and multi-religious tolerance within a broad, generous Orthodox Christian framework as well as a deep appreciation of nature and the mankind’s organic relationship with the environment that has been severely damaged by Stalinist industrialization and the “shock transition to capitalism.”

Like President Medvedev, Patriarch Kirill has repeatedly criticized the country’s dependence on state centralization and free-market liberalism. In a speech to the 11th World Russian People’s Council in 2007, Kirill said that “thanks to the export of natural resources, the Stabilization Fund is replenished, and so are purses of a handful of people […]. Most of our people live in abject poverty.” He also endorsed the Council’s conclusion that “staking on the bureaucratic system to replace the oligarchic model has no prospect. Both are unable to solve the problems of corruption, misappropriation of public funds […] and the crises in social welfare, science and education.”

No matter what one thinks of the proximity between the state and church, both the president and the patriarch call for a new model of development centered on human relationships and associations. The state and the market must serve the needs of individuals, families, neighborhoods and communities. Global finance needs to be reconnected with productive, income-generating activities. In Russia’s case, this includes agriculture and rural development as well as modern manufacturing and new high-tech industries with the help of foreign investment. Medvedev’s modernization strategy has the potential – so far unrealized – to tie Russia’s development to her closer integration in the world economy.

REFORMING GLOBAL GOVERNANCE

As part of Russia’s much-hyped “multi-vectored” foreign policy, President Medvedev and Foreign Minister Sergey Lavrov have consistently pursued a two-pronged strategy aimed at improving relations with the West while also forging links with new powers in the East and the South – notably Turkey, Central Asia, China and other emerging markets as part of the G20 or BRIC. In spite of many serious limits, the G20 and BRIC encapsulate the dominant view that the international system has seen a shift in global power from the West to the East and a transition from U.S. unipolarity to a multi-polar (or, in the words of U.S. Secretary of State Hillary Clinton, “multi-partner”) world where multilateral institutions are once more at the center of global governance. For example, the BRICs have used summit meetings to reorient the global agenda on issues that matter to the world’s poor: development (including agriculture), poverty alleviation, and food security.

However, the G20 and BRIC are beset by insurmountable internal political tensions and conceptual contradictions. The G20 is deeply divided between developed economies, emerging markets and developing countries. Since it first met in November 2008, it has proven to be an instrument of crisis coordination (financial bail-out, monetary expansion and fiscal stimulus), but it has failed to bring about significant changes to the global economy, let alone launch a process of systemic transformation. The group has neither agreed basic financial reform (capital requirements, bank levies or transactional taxation) nor made progress on new growth models (re-localizing global capital, promoting green technologies, etc.). The most recent summit in Canada in June 2010 seems to confirm that the power of the G20 to modify the relations between the states and the markets has already peaked and is now waning.

The BRIC group is more complicated but no less problematic. The four countries appeal to international law as the ultimate authority to mediate in interstate conflicts; yet international law is unenforceable and powerless without state power, as the UN system itself exemplifies. All of the BRIC countries call for a greater democracy at the level of global governance and support concrete reform of the G20 and the UN, but China and Russia’s commitment to democratize global arrangements stops short of endorsing Brazil’s and India’s bids to obtain a permanent seat on the UN Security Council.

More fundamentally, their demand for more democratic global governance is at odds with their strong stand in support of state sovereignty. By contrast with the Western promotion of democracy and human rights, the BRICs defend a strong and sovereign state as a necessary condition to guarantee domestic stability and protect society from exploitation from outside powers (the BRIC countries fiercely opposed Kosovo’s independence and the Iraq invasion, and they see U.S. willingness to ride roughshod over the UN as a dangerous precedent paving the way for more conflict and violence, which explains their reticence to the 2005 UN adoption of R2P). This also explains why they (rightly) oppose “homogenizing, liberal social and economic models” and defend every nation’s right to choose its own path towards development and modernization; hence the emphasis on state power in the economy at the national and global levels.

From this perspective, a pluralistic world in which countries respect each other’s sovereignty is more stable than one in which great powers impose their values on others – and destabilize domestic societies. As such, the BRICs reflect the decline of Western hegemony and the end of the West’s monopoly on international rule-making after the fallout from Iraq and the economic crisis. Within the G20, the BRICs – and other emerging markets such as South Korea, South Africa and perhaps also Argentina and Indonesia – represent the only non-Western group likely to become global rule-makers.

However, the BRICs’ pursuit of narrow national interests – exemplified by more bilateral deals than multilateral policies – often gets in the way of being true to their stated principles. Russia’s recognition of Georgia’s breakaway republics contradicts its support of strong sovereignty norms. India’s respect for sovereignty and non-interference often conflicts with an impulse to promote its democratic example in the region. China’s opposition to external interference in the internal affairs of sovereign states translates into very different policies when dealing with Taiwan or North Korea. Thus far, the BRICs are caught in conceptual contradictions between state sovereignty, international law and global governance.

THE RETURN OF EMPIRE AND COMPETITION AMONG HEGEMONS

Moreover, the contemporary discourse in both East and West on multipolar multilateralism ignores the return of old empires and the rise of new ones. Except perhaps for Africa, we are witnessing the resurgence of imperial powers on all continents: the U.S. in North and Central America; Brazil in Latin America; the EU in Europe; Turkey in the Near East and the South Caucasus; Iran in the wider Gulf region; Russia in Eurasia; China in East Asia; India in the wider Southasian sub-continent. U.S. hegemony in North and Central America might be declining and is challenged by rising powers like Venezuela, but that does not threaten its global superpower status.

Of course, there are significant arguments that these (and other) countries differ fundamentally from one another and that it is perhaps more accurate to distinguish imperial, colonial and hegemonic powers. But there is a compelling case to suggest that both developed countries and emerging markets project some measure of imperial power beyond their national borders. In the end, virtually all state power tends to become imperial. First, to stabilize volatile backyards (Russia in the trans-Caucasian space or the EU on the Balkans). Second, to secure geo-economic interests with geo-political means (Russian military bases in Central Asia, or China’s growing presence in Africa and across the world oceans). Third, to pursue a civilizing mission (U.S. crusade for democracy, or the EU’s export of human rights, or the Chinese promotion of “harmonious development”). As such, old hegemonic “spheres of influence” are compatible with what Fyodor Lukyanov calls new zones of responsibility.

The reason why it is worth highlighting the return of empire is to challenge the dominant discourse in both East and West. Following the sudden collapse of Soviet state communism in 1989-90, many predicted the triumph of the Western models of democracy and market economy – Samuel Huntington’s “democracy’s third wave” and Francis Fukuyama’s “end of history.” But we are not witnessing a grand convergence towards global market democracy. Instead, much of the West is departing from the standards and practices of democratic representation and market competition and moving towards authoritarian democracy and cartel capitalism.

Likewise, the Eastern discourse on national sovereignty and territorial integrity is not entirely credible either. Countries like Russia and China view themselves essentially as imperial powers, deploying both hard and soft power in their spheres of influence – sometimes intervening militarily (like in South Ossetia in August 2008) while at other times refraining (like in Kyrgyzstan in June 2010). Both Moscow and Beijing operate a tributary system with smaller neighbors. They provide “security” in exchange for market outlets and inexpensive imports. Russia sells military equipment and buys up central Asian energy in order to export it to the West, while also importing cheap labor to compensate for its declining population. China needs to access primary commodities directly to sustain its buoyant economic growth and market outlets for its cheap consumer goods. That is the rationale for the new gas pipeline linking Turkmenistan via Uzbekistan and Kazakhstan to China and the growing Chinese overseas investment (in Africa but also, more recently, Greece and the gateway to the Balkans). In fact, the growing Chinese and Russian economic investment in their “Near and Far Abroad” could see them being pulled into local conflicts and forced to deploy some measure of military power to secure their imperial interests. That is in part why both are modernizing and upgrading their naval and other military capabilities to project their power well beyond their own borders.

Just as tsarist Russia and imperial Britain carved out spheres of interest in the 19th-century Great Power Game, so Moscow and Beijing are vying for hegemony over Central Asia in the 21st century. Not unlike the past, these empires have overlapping the spheres of influence with the potential for tension and conflict. Even though trade and political relations have grown significantly in the recent past, mutual suspicion and lack of strong links at the second tier of civil society do not diminish the risk of confrontation. In the new Great Power Game the geo-economics of energy security matters just as much – if not more – as the geo-politics of (indirect) territorial control. Thus the Sino-Russian cooperative partnership will increasingly mutate into a strategic competition. That, coupled with the imperative to modernize, will continue to pull Russia into the wider European orbit.

MODERNIZATION AND THE FUTURE OF GREATER EUROPE

The implications of these trends for Russia’s modernization strategy are threefold. First, the technologically driven process of economic and legal modernization is not necessarily conducive to the democratization of Russian politics in the sense of a move towards representative democracy, as liberal advocates of modernization tend to claim. Instead, democratic renewal is more likely to emerge from within the existing constitutional and political order – for example as a result of tensions in the tandem that could lead to an electoral contest.

Second, the imperial dimension of Russia’s resurgence makes institution-building and consolidation even more significant than hitherto assumed. Both domestically and internationally, Russia requires much greater and better institutional capabilities to govern its imperial sphere of influence. This includes modernized administrative, civic and, yes, political, institutions.

Third, the growing competition with China in Central Asia makes a long-term eastern axis less likely and increases the prospect of a rapprochement with the West – though no return to the Western fold as envisaged in early 1990s. Much rather, Russia under Medvedev will use modernization to portray herself as an alternative pillar of Western civilization with an equal right to build a pan-European economic and security community.

In this respect, Medvedev’s current strategy seems to be two-pronged. On the one hand, the “resetting of U.S.-Russian relations” increases Russia’s weight in global geo-politics, and the newly agreed nuclear arms reduction will over time free up resources to modernize the Russian military and enhance its rapid reaction capability. On the other hand, Russia’s much improved ties with Turkey and Ukraine give Moscow additional leverage vis-?-vis the EU, and this new “axis of outsiders” can claim to represent an indispensable part of pan-Europe – one without which the EU has no power in the wider Middle East, the strategically significant Black Sea region or Central Eurasia.

Taken together, these two aspects of Medvedev’s “multi-vectored” foreign policy imply that the EU is not the only European game in town and that Russia won’t be integrated into the West on purely Western terms. On the contrary, Medvedev’s proposed Treaty on European Security – arguably his foreign policy flagship – marks a serious and substantive attempt to modernize and reshape European security arrangements along shared, pan-European lines where European nations cooperate in pluralist ways as vast regions in an association of countries whose sum is greater than its parts.

Thus, Medvedev’s modernization strategy cannot be dismissed as narrowly technological or exclusively economic but arguably is a bold attempt to correct the trajectory of Russia’s internal development and renew the foundations for a greater global role. As such, Medvedev is setting out a political vision in which foreign and domestic policies intersect. In turn, this frames subtle yet significant changes in Russia’s relations with the West, as evidenced by the recently leaked Foreign Ministry document whose centerpiece is a rapprochement with the U.S. and the EU in order to promote modernization. This vision is confirmed and developed in the president’s above-mentioned recent foreign policy address.

Of course Medvedev’s strategy exhibits numerous internal tensions, contradictions and lacunae. However, his emphasis on intermediary institutions, civic participation and the cooperative association of nations suggests that his project cannot be chartered on our conventional ideological map of liberalism and conservatism but must be seen in associational terms – a “third way” whose unrealized potential offers a pathway for systemic transformation. That could deliver genuine modernization in line with Russia’s best traditions.

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