Russia Is Falling Further Behind

In December 1999, not long after Boris Yeltsin chose him to be his surprise successor, three months before he was first elected President of Russia, Vladimir Putin posted on a government website what would turn out to be his only campaign document.  “Russia at the Turn of the Millennium” had been prepared by an economist who had been a colleague of Putin’s in St. Petersburg.  It would be published later that year as part of First Person: An Astonishingly Frank Self-Portrait by Russia’s President.

The 5,000-word narrative noted “the dramatic turn in world developments in the past 20-30 years” – the emergence of “post-industrial society.”  It took account of Russia’s diminished economic standing. GNP had dropped by half in the 1990s, following the dissolution of the USSR. It was a tenth of the size of the US economy and a fifth of that of China. Russia was still by far the largest country in the world, yet “for the first time in the past 200 [to] 300 years, it is facing the real threat of slipping down to the second, and possibly even the third rank of world states.”

For three-quarters of a century Russia had been governed by communist dogma. “It would be a mistake not to see and, even more so, to deny the unquestionable achievements of those times. But it would be an even bigger mistake not to realize the outrageous price our country and its people had to pay for that Bolshevist experiment.”

Sovit communism had turned out to be a blind alley, dooming Russia to lag behind. But “mechanical copying” of “abstract models and schemes taken from foreign text-books” would not bring success, either.  Russia would have to find its own way, beginning with the restoration of strong state power that had been lost in the previous decade. Authority, not dictatorship, would be only a first step. “History proves… all authoritarian forms of government are transitory.  Only democratic systems are lasting.”

Last week Russia was all over the news, its hacker gangs with ransomware attacks on Western firms; its inexpensive, highly stable, and apparently effective Covid vaccine still banned in Brazil for lack of proof; its federal police cracking down on political opposition at home.

Police Wednesday led Andrey Pivovarov off a plane about to leave St. Petersburg for Warsaw on the eve of Putin’s “Russian Davos” for foreign  investors, according to Bloomberg News, and detained Dmitry Gudkov for 48 hours in Moscow before releasing him late Thursday.  Pivovarov is former executive director of Open Russia, a now-disbanded civil society group financed by exiled tycoon Mikhail Khodorkovsky; Gudkov was formerly a member of parliament. The imprisonment of opposition leader Alexey Navalny in February began a campaign that has all but extinguished organized networks of anti-Putin activists ahead of September’s elections.

With President Joe Biden preparing to meet Putin in Geneva on June 16, I turned to the works of Loren Graham for perspective. The emeritus MIT professor is often described at the leading expert in the West on the history of Russian science and technology. Former BusinessWeek Moscow bureau chief Alex Beam, who is right about most things, calls Graham “level-headed.”

The youngest of four brothers, Graham was just out of Purdue University when he decided he didn’t want to follow his sibs into engineering.  Three years in the Navy broadened his horizons, especially that night in October 1957 when, as communications officer on a small ship bucketing in the Mediterranean, he first heard the beep-beep signal of the USSR’s Sputnik, the first satellite to orbit the earth.  So Graham headed to Columbia University, for intensive Russian history and language study.  Three years after that he was a graduate student at Moscow University, on his way to becoming an expert on the history of Russian science and technology.

Reading Graham’s Russian Stories, a collection of autobiographical pieces, you get a clear idea of how strange and dangerous the world seemed sixty years ago. The first Janes Bond novel, Casino Royale, had appeared in 1952.  The Hungarian Revolution has been brutally suppressed in 1956. The Cold War was at its height. The Soviet economy was growing faster than that of the US, on the strength of vast investments in infrastructure and military production. Russian diplomats and military advisers operated successfully throughout South Asia, Africa, and South America. The confrontation over Cuba has begun. Premier Nikita Khrushchev had famously vowed to “bury” the West.

Graham wrote many books about Russia over forty years, including biographies of renegade agronomist Trofim Lysenko and engineer Peter Pachinsky (The Ghost of the Executed Engineer: Technology and the Fall of the Soviet Union), but the one  that interested me most was the most recent one, Lonely Ideas: Can Russia Compete? (MIT, 2013). Graham begins the book with a reminder of the familiar (and much ridiculed) Russian boast:  “But we invented it first!”  It turns out to be true. Arms manufacture, relying on interchangeable parts; steam locomotives; electric lights; airplanes; light-emitting diodes, semi-conductors, and lasers: Russian science and technology has exhibited a singular pattern of “fits and starts” over several centuries, Graham shows.

Why? Russians are very creative people, who have excelled at music, art, literature, mathematics, and many branches of basic science. Technology, however, is a different matter Graham says, where “intellectual creativity engages with society at large in a necessary and complex way, and where society can determine the success of technological projects, perhaps even unintentionally.

The success of technology, which usually means profitability in a competitive international market, occurs outside the research laboratory, in the social and economic environment of society as a whole.”

Russians have not done well in technology, Graham says. Monopsonies, industries dominated by government purchases  – space, weapons, nuclear power – are exceptions that prove the rule. When was the last time you picked up a consumer gadget stamped “Made in Russia?” Chances are it was a Kalashnikov rifle, an AK-47, if you did.

(Graham notes that computer software is an especially interesting counter-example to the trend. Russia’s best-known multinational firm, Kaspersky Labs, is a highly decentralized enterprise, with many members of its “research and analysis team” living outside Russia. Eugene Kaspersky, a 1987 graduate of the joint KGB/defense industry Institute of Cryptology, Telecommunications, and Computer Science, was the original target, along with his co-founder wife, of Russia’s infant high-tech ransom industry. Gangsters kidnapped their son. Unsurprisingly, the extortionists  were caught when they tried to collect. And when Graham tried to visit the company’s unmarked Moscow headquarters, he was turned away at the office park gate.)

Putin is naturally aware of all the history that Graham has written, and more. A governmental think-tank, the Strategic Research Center, was established in 1999 and participated in the formulation of the “Russia at the Millennium” manifesto.  The SRC is still going strong.  RUSNANO was established in 2007 to exploit nanotechnology. The Skolkovo Foundation since 2010 has sought to create a Russian version of Silicon Valley.

But government-led modernization projects are not what Russia needs, Graham writes. Counterintuitively, the demonstrations that began before Putin returned to the presidency in 2013 offer the greatest promise. The demonstrators are, at least in large part, he says, something completely new in Russia, the expression of a rising middle class, possessing the power “to transform Russia from a nation of subjects to one of citizens, in which creativity and excellence are not swamped by corruption and repression.” If Putin is sincere, he should permit these authentic New Russians to lead the country away from its traditions of “innovation-on-command” to a sustainable knowledge economy.

It is always possible that non-Russians, including Loren Graham, expect too much of the man.  Over the past twenty years, I’ve written often about the extent to which the United States has bullied Russia since the Soviet Union collapsed, dismissing its objections to the expansion of the NATO alliance to the very edges of its frontiers.  Putin’s resentment may have led him to seriously misapprehend the trend of American history after Donald Trump was elected president in 2016.

In September 2017, John Hudson, a foreign affairs reporter then working for Buzzfeed (today he covers national security and diplomacy for The Washington Post), broke what seemed to me like a major story. (It seemed so as well to The Wall Street Journal, which confirmed Hudson’s scoop the next day.) Two months after Trump’s inauguration, Putin had dispatched an emissary to the US State Department to deliver a bold proposal:  “an across-the-board re-normalization of the many channels that had been severed after Moscow’s military interventions in Ukraine and Syria – diplomatic, military, and intelligence.” Weeks later, Trump welcomed Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak at the White House for a famous photo opportunity from which reporters were excluded.  The story of Putin’s overture quickly lost steam after that.

All kinds of doubts exist about the legitimacy of the Russian president’ authority and his exercise of it at the expense of his neighbors, Ukraine in particular. But there seems little reason to doubt that he has sufficient power to begin to crack down on Russia’s shadowy criminal ransomware industry. Discussions of  a digital arms limitation agreement would be a good place to begin when Putin and Biden meet in Geneva later this month.

The post Russia Is Falling Further Behind appeared first on Economic Principals.