Putin’s Russia: Is It a Doable Project?

Introduction he new Russian president repeatedly has claimed that the economic revival of Russia is the principal goal of his administration. After an initial period of uncertainty, the policies that Putin and his aides have chosen to improve the economic performance of the country have become clearer. They are (1) a “strong state,” able to enforce the rule of law, and (2) a liberal economic policy. Following a drastic output contraction during the first decade of post-communist transformation, Russia has experienced considerable economic growth (ca. 20 percent of GDP in 1999–2001; see MERT 2002). The projections for 2002 are in the range between 3.5 and 4.5 percent of GDP increase. The unemployment rate dropped from its peak of 14 percent in early 1999 to 8.5 percent in 2001 (OECD 2002). Inflation also has been reduced. However, skeptical observers claim that the impressive results of 1999–2001 are due to the ruble devaluation in August–September 1998 and relatively high world prices on crude oil and other natural resources. The ruble devaluation stimulated import substitution by Russian manufacturers and, consequently, employment of idle production facilities.1 At the same time, high oil prices created overprofits for Russian exporters and amplified the revenue of the federal budget. To what extent should the recent improvements in the Russian economic performance be attributed to Putin’s policy measures?2 This question relates to a more policy-relevant one: Can the combination of the “strong hand” government with liberal policy serve as the means of economic recovery in the near future? The main idea of this paper is to test the viability of Putin’s project, combining “strong hand” government with liberal economic policies as a means of economic revival, against the latest empirical data from Russia. Recent empirical research highlights the diversity of policies and institutional frameworks in Russian regions through the 1990s and at the beginning of this decade. The outcomes in terms of gross regional product (GRP) change, investment, and consumption