President’s Report

October 13, 2004

Dear Friends and Colleagues of CCI,

My point of view regarding the latest events in Russia, as usual, differs somewhat from assessments of most journalists and pundits. Some ponderings follow.

September's Beslan tragedy produced a tightening of controls by Putin amid deep concerns from the West and thin segments of Russia's population. The dots connecting Beslan and regional reforms don't seem to register in current western reporting.

Beslan, it appears, rapidly ratcheted up Putin's intention to tackle administrative dysfunctions between Russia's regional and Federal structures for two reasons: 1) to offset or better handle future disasters; and 2) to attack pervasive regional corruption which was on the docket before Beslan. His disclosure to appoint rather than elect regional governors, hit alarm buttons across the political spectrum. For democracy purists, this was tantamount to reverting to the Soviet era; for others looking for solutions to corrupt governorships, putting free elections on hold temporarily is less an evil than continuing the status quo.

Meanwhile, knee jerk reactions in Washington and Russia have provoked deepening suspicion and outrage between the two countries at a time when both sorely need each other as allies. This concerns me more than the issues surrounding elections or appointments.

Westerners, for the most part, have little understanding of the scale and necessity of reforms Putin is determined to push through during his second term. Our expectations of Russia's nascent "democracy" border on the absurd in my opinion.

Russia is probably halfway on its trajectory toward full democratic governance - and how could it be otherwise? Fifteen years is scant time for a process of this magnitude to take hold with leaders or populations. Even South Korea, it's reported, took 30 years and is still short of expectations. A high percentage of Russia's regional citizens still have little understanding of democracy and no experience in how democratic institutions work. Despite democracy-building assistance projects for Russia in the 90s, the 'patched on' information to which Russians were exposed is still mixed with patronage mentality and inability to confront those wielding power. Carrying out an election doesn't equal democracy. The act of casting ballots won't wave magic wands in the regions.

Putin himself is the product of Russia's centuries of conditioning in autocracy and top-down management. During his KGB years of economic espionage in Germany, the stark differences between democratic and non-democratic societies must have been obvious. Upon return to St.Petersburg, he aligned with reformers immediately. However, Putin's authoritative default buttons apparently still get triggered when tensions mount or weighty objectives must be secured. Hence today, he pushes necessary reforms forward all the while reining in democratic freedoms to achieve his ends. Not so good, but also not a long-term tragedy, at least from most Russians' points of view.

In late September, I surveyed some of the most respected of our 5,000 PEP alumni across Russia's 11 time zones for answers to the questions that bother westerners today. The responses came in as could be expected. Russian entrepreneurs don't agree with everything Putin says or does, but they say his general direction is correct. They detest the insurmountable obstacles to decent governance in their regions. They don't like top-down, non-democratic solutions, but see no other way given the levels of corruption with which they have to deal.

Regional governors control elections, use public buildings, lands, and everything in reach as their personal property. They install family members in powerful positions, and build impenetrable walls of cronies through which others can rise only by unconscionable pay-offs and patronage. This endemic corruption is why Russia's young entrepreneurs are uniting, risking their businesses and their lives, to expose these predators.

How does any presidential administration rip through such entrenched power? What would President Bush do if America's 50 governors were running their states as their private fiefdoms - impeding the development of private business, preventing new political blood from surfacing, distributing public property in return for millions of USD to their personal accounts, and refusing to support essential reforms for the development of the country's future?

Russians want to be able to vote for whom they wish and elect good leaders, but when choices are limited to only those who have grabbed power unscrupulously or are puppets for oligarchs, real democracy is out the window before they cast a ballot. How can this type of corrupt power be voted out? What's the value of the vote in such circumstances?

Russia's grassroots entrepreneurs will be the first to lose if Russia goes back to a top-down control system. They have the biggest stake in the future of Russia's democracy. In addition, they are the most practical and politically savvy population across Russia. Why then are some 90% of them firm supporters of Putin's direction? Do they understand something we don't? They support Putin because they believe he is on their side based on the reforms he's initiated already. They know that Russia's small and medium-size business sectors can't develop further unless these corrupt regional (and municipal) bosses are removed from power and that only the top office in the land can dismantle the system. It's for sure, these power mongers won't leave of their own accord. The benefits of the old system are too welded into their lifestyles and mini-empires.

Am I worried about the amount of power being concentrated in two hands? Of course. It's a gamble whether Putin will set up a fair playing field and loosen the reins after the reforms are underway - or whether power will become addictive as with so many other past leaders. If the latter, power will eventually have to be wrenched from his hands by the Russian people themselves. Bear in mind that even though political mentality of average citizens is not yet high, Russia isn't the same docile country it was in past decades - particularly grassroots entrepreneurs across 11 time zones who are independent, aggressive and a determined lot.

Regional and municipal administrative reform is critical for broad growth of small business and a middle class across Russia. Development of both is the greatest insurance that real democratic forms will take root and succeed. Russia's successful business owners won't settle for less in the future. These entrepreneurs are watching Putin and his political maneuvers like hawks. Time will provide the verdict about the current concentration of power, but there is no fear of going back to a controlled state (state control of oil industries perhaps - which most regional entrepreneurs believe would address wrongs to the impoverished). Back to reforms, several years ago, I asked regional entrepreneurs around the country what they would do if Russia's reforms were rolled back. Their answers were similar and dead serious: basically they reported - authorities, one way or another, would be 'taken out', saying that entrepreneurs (real, not oligarchs) throughout Russia have sacrificed too much to build their businesses, and wouldn't tolerate a roll back. Today's regional entrepreneurs have no concern about losing their businesses to Putin's type of "authoritarianism", their concern is rather how to grow their businesses and local communities in such corrupt environments.

Meanwhile there is little that western ankle biting will accomplish except to distance Russia further and create a deeper divide among her peoples and ours - which is not to the advantage of either country or citizenry.

On the positive side, Russians have a model of a reform-minded leader to whom they occasionally refer; that of Alexander II, who in the 1800s unleashed unexpected reforms across Russia for over a dozen or so years - reforms which had not previously been dreamed of in Russia. Unfortunately, Alexander paid with his life for not going far enough fast enough - and the country slid backward with the next ruler. However, the fact remains, it was accomplished on Russian soil, and their country would have had a different history today had Alexander's assassination not taken place.

Sincerely,

Sharon Tennison
President

P.S.: With regard to the September survey I conducted, one CCI Fellow, Andrei Davidovich from Kolomna (Moscow region), responded with a four-page letter. His opinions reflect the answers of the others. For summary, I'm copying his letter (with permission). It was translated by his secretary. FYI, on September 25, Davidovich was elected by his peers to be the first Chairman of the Board of the new Nationwide Association of Entrepreneurs for Honest Business.
Read Andrei Davidovich's letter.