eurasia: trade and foreign policy

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EURASIA: TRADE AND FOREIGN
POLICY
PROCEEDINGS OF THE FORUM
The ANU Eurasian Society, in collaboration with the Centre for European
Studies, 26 February 2011, held at the Australian National University, Canberra
Edited by Genrikh Salata
- 2011 -
EURASIA: TRADE AND FOREIGN POLICY
PROCEEDINGS OF THE FORUM
Edited by Genrikh Salata
2011
ANU Eurasian Society
With the support of the Centre for European Studies
Forum Speakers
Dr John Besemeres
Ms Nina Markovic
Professor Ian McAllister
Dr Robert Miller
Dr Kirill Nourzhanov
ANU Eurasian Society Team
Arianne Caoili
Genrikh Salata
Alidia Lee
Michelle Fidock
Steven Squires
Alexander Minovich
Damirzhan Kalikov
Podcast available:
http://ces.anu.edu.au/events/eurasia-trade-and-foreign-policy
http://www.wix.com/eurasiaatanu/anu-eurasian-society#!__site/vblog
To obtain additional information about the forum, or to learn more about the ANU Eurasian
Society and the upcoming events:
Email:
Web-site:
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http://www.wix.com/eurasiaatanu/anu-eurasian-society
ii
Contents
Democratisation in Russia and the Global Financial Crisis .........................1
Ian McAllister and Stephen White
EU-Russia Relations: Major Challenges and Future Prospects ............... 22
Nina Markovic
Russian Trade Policies in Central Asia: Combining Good Business with
Strategic Purpose .................................................................................................... 24
Kirill Nourzhanov
The European Union, the Former Communist Bloc States and Other
Players in the Transformation Game ................................................................ 32
Robert Miller
iii
Eurasia: Trade and Foreign Policy
Forum Proceedings
DEMOCRATISATION IN RUSSIA AND THE
GLOBAL FINANCIAL CRISIS
Ian McAllister
Stephen White
School of Politics and International Relations
Department of Politics
Australian National University
University of Glasgow
Canberra, ACT 0200
Glasgow G12 8RT
ian.mcallister@anu.edu.au
s.white@socsci.gla.ac.uk
Authors’ biographies
Ian McAllister is Distinguished Professor of Political Science at the Australian National
University in Canberra. His most recent book is The Australian Voter: Fifty Years of Change
(University of New South Wales Press, 2011).
Stephen White is James Bryce Professor of Politics at the University of Glasgow, and
holds concurrent positions at the Johns Hopkins Bologna Center and the Institute of
Applied Politics in Moscow. His most recent book is Understanding Russian Politics
(Cambridge University Press, 2011).
Abstract
In principle, new democracies should be at greater risk from economic crisis than
established ones. But without a popular reservoir of goodwill for democracy, and in the
absence of an electorate that has had an extended experience of distinguishing between
the government and the political system as a whole, they are at particular risk. A wide
range of public opinion data including a survey commissioned by the authors is used to
examine the impact of the 2008-9 global financial crisis in postcommunist Russia in this
connection. We find that public support for democratic values has been relatively
unaffected by the crisis, in spite of its direct effects on the lives of many ordinary
Russians. This may be explained by a history of economic crises and a tradition of
‗getting by‘ when such crises erupt; a greater popular preoccupation with who holds
public office than with how effectively they govern; and the absence of a competitive
party system, including an effective opposition.
-1-
Democracy rests on popular support, passed from generation to generation, for the
institutions and procedures that allow it to function effectively. In turn, popular support
for democracy depends on benign economic conditions; indeed, early studies of
democracy argued that economic modernisation was a pre-requisite.1 More recent studies
have suggested that it is less economic prosperity that promotes democracy than the
absence of economic shocks. If economic conditions remain positive, then more regimes
will survive, and more of them will be democracies.2 Once a reservoir of popular support
for democracy has accumulated, then the system is more resilient to economic crises and
unexpected shocks. The experience of twentieth century Europe is replete with examples
of democracies that collapsed because of economic failure, of which the Weimar
Republic in Germany is perhaps the best-known; but there are many others in Africa and
Latin America.3
Scholars have taken different views about the extent to which it is appropriate to
regard contemporary Russia as a democracy of this kind, with or without adjectives. 4 But
even the Soviet system had rested on a ‗social contract‘ between regime and society, in
which stability depended on the provision of a modest and steadily improving standard
of living.5 Although its postcommunist successor provided much greater opportunities
for electoral challenge, it too depended – especially under the Putin presidency – on a
high rate of economic growth that allowed a rapid improvement in living standards from
which all sections of the society could benefit: the poor as well as the rich, the periphery
as well as the capital cities, civilians as well as the armed forces. The global financial crisis
(GFC) of 2008-9 was accordingly a major threat to the Russian system, coming at a time
when economic conditions had been improving continuously for almost a decade.
The discussion that follows focuses on the impact of the global financial crisis on
Russian public opinion, with particular attention to its impact on public support for
democracy as a normative ideal. The first section examines the performance of the
Russian economy from the early 1990s; the second section outlines the background to
economic voting and proposes two main hypotheses. Trends on public opinion are
outlined in the third section, while the fourth and fifth sections use a national survey
conducted for the authors in early 2010, shortly after the Duma election that had taken
place the previous December, to test the two main hypotheses. In the conclusion we
speculate about some explanations to account for our findings.
Patterns of economic performance
Although the Soviet economy had lagged behind its international competitors for many
years before the collapse of communist rule in 1991, the progressive dismantling of the
financial subsidies that were integral to the command economy had a devastating impact
on individual living standards over the years that followed. In 1989, Russian GDP stood
at $13,066 per capita (here and elsewhere we use World Bank figures expressed in
purchasing power parities and constant prices); throughout the 1990s it declined
consistently, bottoming at $7,829 in 1999, just after a rouble crisis in which the Russian
government defaulted on its international obligations and the national currency lost
much of its value on foreign exchanges. This was a very sharp fall in the real incomes of
-2-
ordinary Russians, in what appeared to be a direct consequence of the transition to a
market economy; vulnerable groups – pensioners, rural workers, parents with large
families – suffered disproportionately.6
The figures for the GDP growth rate in Figure 1 tell the same story, of continuous
economic decline from 1990 to the end of the 1990s. Over the decade the average yearon-year decline was just over 5 per cent; a slight improvement in 1997 was followed by a
sharp fall the following year as the currency crisis took effect. The contractions were
cumulative, which meant that GDP had fallen by the late 1990s to not much more than
half its level in the last years of the Soviet era – a remarkable decline in a relatively short
space of time, of a magnitude that is usually found only in countries suffering defeats in
war or a catastrophic natural disaster. It was worse, in fact, than the USSR had
experienced in the devastation that had taken place during the Second World War, the
First World War, or the civil war that had followed the October revolution; scholars
compared it with the ‗worst catastrophes in Russian history‘, reaching as far back as the
Mongol occupation of the thirteenth and fourteenth centuries.7
To cope with the economic breakdown, most Russians were forced to use the
informal economy, and to rely on barter and the exchange of goods to survive. 8 The
informal economy was also a way of avoiding the use of money; with inflation running at
874 per cent in 1993 alone, money, at least in roubles, had little value.9 Surrogates came
into increasingly widespread use: workers at a Penza clock factory were offered toilet
paper (one of them tried to pay her rent in the same unconventional currency, but
without success); male workers were offered brassieres; teachers in the Altai region were
offered vodka after they had turned down funeral accessories.10 There were particular
difficulties with state benefits of all kinds, including pensions, with delays of up to three
months. ‗You might just as well lie down alive in your grave‘, Valentina Korchenkova
from the Tver‘ region told Izvestiya despairingly. Heart attacks and hysteria were
becoming ‗routine‘, as elderly citizens stood in line for their state benefits; and you
‗couldn‘t feed people on promises‘.11
The rouble crisis of August 1998 marked a further turning point in Russian economic
fortunes. Declining prices for oil and gas, coupled with a general crisis of confidence and
a fear among international investors that Russia would default on its debts, resulted in a
major devaluation of the currency. Prices rose sharply (food by 40 per cent in September
alone); real incomes fell by about a third; and many Russians, particularly the embryonic
middle class, found their savings had lost most of their value or disappeared entirely
(even the former Soviet President, Mikhail Gorbachev, was left penniless).12 But
devaluation increased the price of imports and assisted exports in the domestic industries
that had survived the transition to a market economy. This boost to exports, coupled
with rising energy and resource prices in 1999, resulted in a remarkably speedy economic
recovery. From 1998 to 1999 GDP growth reversed more than 10 percentage points, and
between 1999 and 2008, growth averaged round 7 per cent annually (Figure 1).
-3-
Figure 1: GDP Growth in Russia, 1990-2010
Source: derived from World Bank Development Indicators,
http://www.worldbank.org/, last accessed 18 May 2011; the figure for 2010 is estimated.
Patterns of unemployment largely track these macroeconomic trends. While there had
officially been no unemployment under communist rule, at least until labour exchanges
were reintroduced in July 1991,13 the shift towards private ownership and closer
integration into the international economy meant that the level of labour force
participation became increasingly dependent on external circumstances. Figure 2 shows
that in 1992, just after the collapse of communist rule and the end of notional full
employment, the unemployment rate stood at 5.3 per cent. As privatisation of the
economy gathered pace the rate progressively increased, peaking at 13.4 per cent in 1998.
But as economic conditions improved it fell back gradually to the levels that had been
experienced at the end of the communist period, dropping to 6.1 per cent in 2007, just
before the international crisis (all these figures concealed a considerable spread across the
regions; in some cases, particularly in the predominantly Muslim south, unemployment
could reach 50 per cent or more).14
The GFC had a major impact on all of these indicators, and at all levels. Figure 1
shows that growth dropped by 13.5 per cent—from an expansion of 5.6 per cent in 2008
to a contraction of 7.9 per cent in 2009 (by contrast, the total contraction of the British
economy between 2008 and 2009 is estimated at 5 per cent). Growth returned in 2010,
but at a modest 4 per cent that was not quite enough to restore pre-crisis levels of
output.15 Unemployment had meanwhile increased from 6.2 to 8.4 per cent, the highest
level for almost ten years, and GDP per capita dropped back from $14,766 to $13,611.
Things were particularly difficult in the ‗monocities‘, where the entire town and its social
infrastructure depended on a single employer. The closure of a cement factory in the
town of Pikalevo in the Leningrad region led hundreds to block the main road in the
summer of 2009, chanting ‗Work! Work!‘16 For Russians who had become used to more
-4-
than decade of increasing prosperity, the GFC was a major shock and apparently a return
to the collapse in living standards they had been obliged to endure during the economic
dislocation of the 1990s.
Figure 2: Unemployment in Russia, 1992-2010
Source: as Figure 1; the figure for 2010 is estimated.
The Russian economy has therefore experienced three distinct periods since the end
of communist rule. First, there was the transition to a market economy, which effectively
came to an end with the rouble crisis of 1998. The devaluation of the currency and
spiralling world energy prices led thereafter to a protracted boom which, by 2008, had
lifted average incomes from less than twice to more than three times the subsistence
minimum; some became spectacularly rich, but at the same time the proportion living in
officially-defined poverty fell by more than half over the same period, and the state
pension increased in value although it fell still further behind average wages.17 All of this
was suddenly reversed in the third period, from 2008 onwards, as the international crisis
led to a sharp recession that was followed by a much slower rate of advance. These were
major fluctuations within a relatively short period of time, with every reason in the
comparative literature for us to expect they would have direct and perhaps far-reaching
political consequences.18 We explore those consequences in the next section.
-5-
Public opinion and the economy
Theories of economic voting emphasise the extent which citizens will either reward or
punish governments at elections for economic performance. In general, governments
that deliver prosperity will be re-elected, while governments that preside over economic
decline will be punished. We might accordingly expect that new democracies that
experience economic decline will find their government is challenged, and that those who
challenge it most strongly are those who have seen their economic conditions deteriorate
the most sharply. However, the simple nexus between economic performance and
political support is mediated in three ways: by target, time-span and attribution.19
The first dimension, target, focuses on whether voters are primarily concerned about
their own financial situation—what is traditionally termed ‗pocketbook‘ voting or, more
recently, egocentric voting—or whether they are more concerned about the performance
of the national economy as a whole—what has been termed sociotropic voting.20 In
general, the research tells us that voters are influenced to a greater extent by their
perceptions of the performance of the national economy than by the economic position
they are in themselves.21 There is, of course, some overlap between egocentric and
sociotropic evaluations; voters who feel personally secure may project that positive
assessment onto their evaluations of the national economy. Nevertheless, when they are
taken together, sociotropic voting is by far the more important component within the
target dimension to economic voting.
The second dimension to economic voting, the time-span of the judgement that the
person makes, focuses on whether voters make retrospective evaluations about past
economic performance, or prospective ones. In other words, do voters make judgements
about what has happened in the past, or about what they expect to happen in the future
if a particular party is elected to government? While the research is not conclusive—
much depends on the model that is used, as well as the time period that is under
examination—the consensus is that voters are guided more than anything else by
retrospective rather than prospective judgements of this kind. This accords with how
voters are generally understood to evaluate non-economic issues, by examining past
events and actions as a guide to the electoral choices they should make for the future.
The third dimension of economic voting is attribution – in other words, whom voters
hold responsible for economic performance. In European countries with a long history
of government intervention in the economy this question is easily answered, as economic
policies are promoted by the parties that are in government. The question of attribution
is more difficult in the US and some other countries with strong free market traditions
and federal systems in which responsibility for tax and revenue are shared across
different levels of government. Nevertheless, the differences between Europe and the
United States on attribution are generally minor, and voters have consistently been found
to blame governments for poor economic performance and to reward them for good
performance.22 We would expect attribution to be even more sharply focused in the case
of the GFC, since it has been characterised as a failure of government regulation at least
as much as a failure of the market mechanism itself.
-6-
While these dimensions to economic voting relate to voting and not to regime
support, they have several possible implications for the broader question of how citizens
will view the political system as a whole. First, we might expect that those who have been
most affected by the GFC will be the most likely to withdraw their support from the
current regime. Thus, we would predict that those experiencing economic stress will be
less likely to support the democratic political system. Second, such a hypothesis is most
likely to be supported if there is clear attribution. In other words, in order to punish the
current regime for poor economic performance it has to be identified as primarily
responsible for the problem in the first place.
Russian public opinion and the GFC
How did the public react to these difficult economic times? More especially, given that
the period of sustained economic prosperity between 1998 and 2008 was a key element
in support for Putin and his United Russia Party,23 how far were ordinary Russians
prepared to blame their government for what had happened during the GFC? Figure 3
suggests that Russians‘ sense that the crisis was still building peaked in late 2008 and early
2009, when just over one in two of those interviewed said the crisis was still ahead of
them; since then it has fallen to about one in four. However, most Russians remain
pessimistic: in February 2010 just under one in four thought the crisis had passed, but 38
per cent thought it was still continuing; in March 2011 the position was very similar, with
26 per cent who thought the crisis had passed and 36 per cent who thought it was still
continuing.24
Figure 3: Perceptions of the Economic Crisis, April 2008-February 2010
60
Percent
50
Going through crisis now
Crisis already behind
Crisis still ahead
40
30
20
10
0
The question wording was: ‗What would you say, are we going through the most
difficult times, are they behind us, or still ahead?‘ (‗hard to say‘ not shown).
-7-
Source: adapted from www.levada.ru, last accessed 19 May 2011.
A majority of survey respondents were also clear that the GFC had had a serious
effect on the daily lives of their own families. In March 2009 a Levada survey found that
49 per cent took this view, compared with 46 per cent who said that the GFC had not
had much effect; by September 62 per cent reported a ‗very serious effect‘ on themselves
and their families, and in January 2010 there were still 58 per cent who reported a ‗very
serious effect‘ on their daily lives and just 38 per cent who said it had made little
difference.25 Other questions identified the particular respects in which the lives of
ordinary citizens had been affected by the continuing crisis. In April 2009, 32 per cent
were already experiencing delays in the payment of salaries (by January 2010 this was
down to 22 per cent), and 38 per cent were suffering pay cuts (by January 2010 this had
fallen to the same level). In December 2008, 30 per cent were already experiencing job
losses or redundancies (this had fallen to 15 per cent by January 2010); and in March
2009, 20 per cent were experiencing a reduction in their working hours (by January 2010
this was down to 9 per cent).26
In terms of attributing blame for the crisis, the Levada Centre asked respondents over
a series of surveys conducted between 2004 and 2010 if they thought the government
had a ‗well-developed economic programme‘. The question sought to find out if the
public believed policy-makers were planning ahead and were therefore anticipating rather
than reacting to events. Respondents were generally divided in their opinions, with the
most common response being that the government did not have a consistent programme
of this kind, just ‗general ideas‘. In only one survey, conducted in December 2007 on the
eve of the crisis, did anything approaching a majority opt for a single option, which was
that the government did indeed have a coherent programme. In most of the other
surveys, opinion was more evenly divided. For example, in March 2010, 31 per cent
thought the government had a coherent programme, 36 per cent thought it had no more
than general ideas, and 20 per cent thought it was simply reacting to circumstances.27
-8-
Figure 4: Government Policies Towards the Economy, 2004-2010
50
45
40
Percent
35
30
25
20
15
10
5
Government has coherent economic programme
Government has general ideas only
Government reacts to circumstances
0
The question was: ‗What do you think, does the Russian government have
a thought-through economic programme?‘ The responses were: ‗The
government has a thought-through economic programme‘; ‗There is no
thought-through programme, it has just some general ideas about what to
do in the situation that has arisen‘; ‗The government has no programme, it
just reacts to circumstances‘ (‗hard to say‘ not shown).
Source: adapted from www.levada.ru, last accessed 19 May 2011.
Did ordinary Russians, in any event, believe that government could make a substantial
difference to the economic situation in which they found themselves? For many years
Russians have looked to government to sustain their living standards, a legacy not just of
the command economy that operated during the Soviet era, when the state had all but
total control of the nation‘s resources and managed them directly through a state
planning system, but of a longer history of state paternalism. However, the transition to a
market economy in the 1990s has served to undermine that view. When asked if the
government could improve the economic situation, Figure 5 shows that opinions were
again divided. With the exception of the February and June 2009 surveys, more
respondents believed the government could improve the situation than believed it could
not, but very similar numbers took an intermediate view.
-9-
Figure 5: Ability of Government to Improve Economic Situation, 2008-2010
45
40
35
Percent
30
25
20
Yes
15
Maybe
10
No
5
0
The question was: ‗Will the current government be able to bring about an improvement
of the situation in the country in the near future, or not?‘ (‗hard to say‘ not shown).
Source: adapted from www.levada.ru, last accessed 19 May 2011.
Trends in public opinion towards the economy and the government‘s ability to
improve it show, at best, ambivalence among the general public. While there is modest
optimism that the worst of the crisis may have passed, most Russians regard the
government‘s efforts to improve the situation with some scepticism. The largest numbers
see the government as simply reacting to circumstances as they arise and are unconvinced
of its ability to intervene effectively in a way that would improve the economic situation.
That view may represent a recognition of Russia‘s integration into the global economy
and the limitations on the ability of any national government to act on its own to effect
economic change, still more so in the case of a crisis that had affected the Western
countries even more severely and whose origins appeared to lie entirely outside Russia
itself. The most a Russian government could be expected to do in the circumstances was
to mitigate its most harmful consequences.
Attributing blame for the GFC
In order for the reward/punishment mechanism to work effectively, the public must be
able to hold a person or a government accountable for their economic performance. This
causality works best in larger countries where governments have a tradition of
- 10 -
involvement in the economy, such as in the Scandinavian countries. It is less obvious in
countries that have a more limited tradition of state economic management, such as the
United States, or in smaller countries such as Australia, where global economic
conditions – such as the price of natural resources – are often seen as more important
than government policy in shaping economic performance.
When asked who is to blame for the GFC, Russians are unable to identify any single
agency. Table 1 shows that around one in three blamed the Russian leadership for the
financial crisis in early 2010 and one in five blamed other countries, especially the United
States. However, the largest group, four in 10 of the respondents, blamed both equally,
and a further 10 per cent had no opinion. These figures are very similar to those recorded
in a survey conducted by the Levada Centre, which found that 35 per cent blamed the
Russian leadership for the financial crisis, 30 per cent the United States and other
countries, and 18 per cent the major banks; at the sharpest point of the crisis, in February
2009, 35 per cent had blamed the United States and other countries, and 20 per cent the
biggest Western banks and corporations, as compared with 30 per cent who blamed their
own leadership.28 To a large extent, then, it would appear that the Russian political
leadership has managed to avoid any major blame for the crisis, at least in the eyes of the
general public.29
Table 1: Beliefs About the GFC
Blame for GFC
%
Russia‘s leadership
Other countries especially US
Both
Don‘t know
31
19
40
10
-------------
Total
(N)
100
(1,862)
Direction of GFC
Crisis has ended
Worst is past
Worse to come
Don‘t know
Total
(N)
%
5
45
38
12
------------100
(1,896)
The questions were: ‗A question about the international economic crisis, which also affected
our country. Who, in your opinion, is mainly responsible for it?‘; ‗In your opinion, has the
crisis come to an end or is it still continuing?‘
Source: adapted from the authors‘ 2010 survey (see appendix).
We might expect that those who were most likely to blame the leadership and take a
pessimistic view of the effects of the GFC would be those who had been the most
directly affected by it, such as pensioners and parents with large families. We might also
expect that respondents who took a more positive view of the national and of their
household economy would take a more benign view of whom to blame for the crisis and
the direction it had been taking. Table 2 tests these hypotheses by regressing a range of
independent variables covering the personal socioeconomic background of our
- 11 -
respondents and their evaluations of the economy on whether or not they blamed the
Russian leadership, and whether or not they believed that worse was still to come. The
figures are standardised regression coefficients that show the relative weight of each of
the independent variables in predicting blame for the crisis and a belief that it was likely
to become even worse.
Table 2: Explaining Blame For and Direction of GFC
Opinion
-----------------------------------------------------------Blames Russian
leadership
Worse
to come
Background
Gender (male)
Age
Tertiary education
Good living standards
Size of family
Labour force participant
Retrospective economic views
.02
.03
-.03
.01
-.02
-.03
Country economy better
Household finances better
-.03
-.15**
-.09**
-.11**
-----------------------------------------------------------
Adj R-squared
(N)
.01
(1,896)
.00
.10**
.02
-.11**
-.06*
.02
.09
(1,766)
* statistically significant at p<.05 or better, two-tailed.
OLS regression estimates showing standardised (beta) coefficients predicting blame for
GFC (coded 3=Russian leadership, 2=other, 1=other countries especially US) and worse
to come (coded 3=worse to come, 2=worst is past, 1=crisis has ended).
Source: as Table 1.
In terms of whom Russians blame for the crisis, the model explains little; only one
relationship is significant, which allows us to conclude that those who believed their
household finances were sound were less likely to blame the leadership of their own
country. In that sense, the Russian authorities would appear to have avoided any direct
responsibility for what has occurred in the economy since 2008. By contrast, pessimistic
views about the direction of the crisis were more closely related to both social
background and economic opinions. Most important were sociotropic perceptions of the
national economy, followed by egocentric views of a person‘s household economy.
Background was also important, with those having good living standards being more
optimistic, and those who were older and with larger families being more pessimistic.
- 12 -
These results indicate that Russians were more concerned about the course of the
crisis, and how it would affect them and their families, than about whom to blame for it,
on which opinions were divided. This may well be a legacy of the Soviet era, when
coping with shortages of various kinds was a higher priority than seeking to hold the
government to account for its economic performance (there was of course no obvious
means of doing so); or of the ability of the Russian leadership to represent the crisis as a
foreign one in its origins, indeed all but a conspiracy.30 It may also be that public attitudes
in what is still an evolving system have not developed in the same way as those in the
established democracies, where the fortunes of governments are more closely associated
with economic performance. In that sense, Russians may blame the system of
government itself, rather than the holders of political office; we explore this possibility in
the next section.
The economic crisis and attitudes towards democracy
In established democracies, an economic crisis will have implications for the government
in office but only rarely for the regime itself. In these countries, democratic values are
deeply embedded within the mass electorate and the system will normally have a
sufficient stock of goodwill to weather such shocks. By contrast, countries in the early
stages of democratic consolidation, before democratic attitudes have become embedded,
are especially vulnerable to economic crises. Many citizens will not have made the
distinction between the regime and those who occupy positions of power, and in their
desire to deliver punishment may conflate the two. Similarly, many older citizens may
wish to see a return to the ancien régime and what they may regard as a period of greater
stability and prosperity. In short, they may well blame the system itself for poor
performance, rather than the incumbent office-holders.
Successive studies have shown that democratic values are only weakly embedded
within the post-1989 Russian state.31 For example, in our 2010 survey, 21 per cent
disagreed with the statement that ‗Democracy might have its disadvantages but it is still
better than any other form of government‘ and 14 per cent thought the best form of
government for Russia was the ‗Soviet system‘; a further 33 per cent chose ‗a more
democratic version‘ of the Soviet system. Moreover, the election of Vladimir Putin to the
presidency in the spring of 2000 led to a series of changes in which an ‗executive vertical‘
was steadily consolidated, strengthening the control of the federal authorities over such
key institutions as the media, the judiciary and the electoral system. The result has been
to move Russia away from a competitive political system to one that Russian leaders have
themselves described as a ‗managed‘ or a ‗sovereign democracy‘; others preferred not to
describe it as a democracy of any kind.32
Democracy, as a system of government, is generally understood as encompassing a
body of supportive mass beliefs and not simply a set of formal institutions. In order to
measure these attitudes, we first of all examine approval of Putin, whose popularity, first
as president and then as prime minister, has made him almost a surrogate for the Russian
regime. Throughout the 1990s, Putin‘s popularity actually increased the longer he
remained in office, in line with the progressive improvement in Russia‘s economic
- 13 -
fortunes.33 Second, we use a question relating to whether or not respondents believed
Russia was moving towards democracy. And third, since feelings of political efficacy are
an integral part of the democratic system, we use a question measuring the extent to
which the respondents believed that they could influence government decisions.
Figure 6: Attitudes Towards Democracy, 2004-2010
The questions were: ‗On the whole, looking back, did you approve or disapprove of the
performance of Vladimir Putin as President of Russia?‘; ‗In your opinion, the course our
country has adopted characterises it as … a properly formed democracy … a country
steadily moving towards the establishment of democracy … a country that is more
democratic than it was before … There was more democracy in Soviet times.‘; ‗To what
extent, in your opinion, can people like you have a direct influence on the actions of the
central government?‘
Source: authors‘ surveys (see appendix).
All three of these questions have been asked in previous surveys, and Figure 6 shows
the patterns of responses since 2004. All three measures show a high degree of
consistency over the six year period, with the partial exception of a decline in approval
for Putin in 2005 that appears to have been caused by the decision to convert social
benefits into what was regarded as inadequate monetary equivalents. By 2008 Putin‘s
popularity had returned to its pre-2005 levels, and by 2010 46 per cent ‗approved entirely‘
of his performance as President; a still higher proportion, 78 per cent, ‗approved partly or
entirely‘ of his performance and 69 per cent still did so by the spring of 2011, just ahead
of Dmitri Medvedev on 66 per cent.34 Beliefs about Russia‘s progress towards democracy
are also consistent over the period, with around four out of every 10 respondents
believing the country is moving in that direction. Levels of political efficacy, however,
remain consistently low, with little more than one in five believing they could influence
their national government.
- 14 -
To ascertain the role of opinions towards the GFC on attitudes towards democracy,
Table 3 regresses blame for the GFC and the direction of the crisis on the three
measures. In addition, the model controls for the background characteristics and
economic views of the survey respondents. The results show that blaming Russia‘s
leadership for the GFC has an impact only on beliefs about Russia‘s progress towards
democracy: those who blamed the leadership were more pessimistic about democratic
progress. Interestingly, blame had no significant impact on approval of Putin, again
confirming that the leadership in general, and Putin in particular, have avoided any major
responsibility for the GFC. By contrast, beliefs about the future were significantly and
strongly related to all three measures of democracy: pessimists were less likely to view
Russia as becoming a democracy, to approve of Putin, or to believe they could influence
government.
Table 3: The GFC and Attitudes Towards Democracy
Russia Becoming
a Democracy
Global financial crisis
Blames Russia‘s leadership
Worse to come
Retrospective economic views
Country economy better
Household finances better
Background
Gender (male)
Age
Tertiary education
Good living standards
Large household size
Approves
of Putin
Influence on
Government
-.06**
-.11**
-.03
-.17**
-.03
-.15**
.12**
.05
.13**
-.02
.04
.07**
.00
-.05
.03
-.18*
-.02
-.03
.03
.01
.02
.07**
.01
.13**
-.01
.05*
.02
------------------------------------------------------------------------------------------------------
Adj R-squared
.10
.06
.08
** statistically significant at p<.01, * p<.05.
OLS regression estimates showing standardised (beta) coefficients predicting attitudes towards
democracy and government. The dependent variables are coded as follows. Russia becoming a
democracy: 4=already a fully formed democracy, 3=moving towards democracy, 2=more
democratic than before, 1=more democracy in Soviet times; approval of Putin: 4=entirely
approve, 3=somewhat approve, 2=somewhat disapprove, 1=entirely disapprove; influence on
government: 4=to significant extent, 3=to some extent, 2=to an insignificant extent, 1=no
influence at all.
Source: as Table 1.
- 15 -
Research, as we have noted, has generally confirmed that sociotropic economic
evaluations are more important in determining political behaviour than egocentric beliefs,
and this is largely confirmed in Russia. The belief that the country‘s economy has
improved over the previous year is positively related to the view that Russia is moving
towards democracy and approval of Putin, although there is no significant relationship
with political efficacy. Indeed, for political efficacy, the more important evaluation is an
egocentric one—about the respondent‘s household economy over the previous year.
Compared with views about the global financial crisis and economic views, a person‘s
background has a relatively modest effect on all three measures of democracy.
Our original hypotheses predicted, first, that those who had been the most directly
affected by the GFC would be the least likely to support the current regime and, second,
that the more a respondent blamed the current authorities for the GFC, the more their
support for the regime would be likely to be affected by their evaluation of the economy.
There was no support for the first hypothesis: to the extent that economic attitudes
mattered in shaping regime support, it was in the perceptions of the national
(sociotropic) economy not the household (egocentric) financial situation. And there was
only modest support for the second hypothesis, based on the assumption that Russia‘s
own leadership was to blame for the crisis. In this case the impact was only on support
for democracy, not on approval of Putin or political efficacy in general.
Conclusion
Economic voting in the established democracies is shaped by a distinct set of variables,
among which who is most affected by any change, the timescale involved, and attribution
of responsibility for economic performance are of particular importance. There are
variations in how the electorates of the established democracies respond to these three
factors, largely (but not exclusively) associated with differences in history, institutions and
culture. However, as we noted at the outset, the relationship between performance and
reward or punishment is generally a uniform one. We hypothesised that the relationship
might work differently in a new democracy, in this case Russia, where citizens might be
more inclined to withdraw their support for competitive politics in response to poor
economic performance.
Our findings show only marginal support for this prediction. There are relatively
modest effects linking economic performance and support for the principles of
democracy, and then only for the national economy, not for the individual‘s own
economic circumstances. Similarly, relatively few see blame for the global financial crisis
as resting with the Russian leadership, although it is also the case that a significant
number see no obvious sign that it is pursuing a coherent economic strategy. These
findings largely coincide with those of Rose and Mishler who, using different measures
and data, concluded that the economic crisis had had only a limited impact on popular
support for the regime.35 To the extent that democracy may be undermined in Russia,
accordingly, it will not be as a consequence of the 2008-9 economic crisis and its
aftermath.
- 16 -
Findings of this kind are difficult to reconcile with the evidence of new democracies
that have collapsed because of economic crisis, from the Weimar republic in the early
1930s to Fiji in the 1980s and Bangladesh in the 1990s. Why does Russia appear to be
different? Three explanations may be relevant. First, Russia has a history of economic
crises, even predating the liberalisation of the economy, while shortages and economic
stress were commonplace under the command economy of the communist years;
scholars were particularly quick to draw comparisons with the rouble devaluation crisis of
1998.36 From that perspective, the 2008-9 GFC could be seen as the continuation of a
much longer trend. Moreover, while dramatic in its impact, the GFC was relatively shortlived. With a history of ‗getting by‘ in such circumstances, Russian could rely on their
past skills. Not least, the unemployment rate did not increase markedly, suggesting that
firms could find other ways of dealing with the economic downturn than shedding
workers.
A second possible reason is the absence of an obvious culprit. In the established
democracies, blame for the crisis focused on the banks and to a lesser extent on
governments for failing to regulate the banks effectively. In Russia, by contrast, Putin
maintained his high levels of popularity and our results show that he largely escaped any
blame for the crisis. Of course, part of this may reflect Putin‘s ability to manipulate the
mass media and to deflect criticism, but it may also be a consequence of what Rose and
Mishler see as the ordinary Russian‘s preoccupation with who governs at the expense of
how effectively government performs.37 A third, related factor may be the absence of a
stable, competitive party system that offers voters clear and consistent policy choices,
and an opposition that is able to hold the government to account. Russia, in these
respects, was different; and it was these differences that allowed its leadership to avoid
the direct effects of an international economic crisis that had severely tested the stability
of its counterparts in other countries.
- 17 -
Appendix: a note on surveys
2004
Conducted by Russian Research for Stephen White with the assistance of the ESRC.
Fieldwork took place between 21 December 1993 and 16 January 2004, n=2000. A
datafile and other documentation may be consulted at the UK Data Archive, reference
SN 5671.
2005
Conducted by Russian Research for Stephen White with the assistance of the ESRC
Fieldwork took place between 25 March and 24 May 2005, n=2000. A datafile and other
documentation may be consulted at the UK Data Archive, reference SN 5671.
2008
Conducted by Russian Research for Stephen White and Ian McAllister with the
assistance of the ESRC under grant RES-000-23-2532 and the Australian Research
Council. Fieldwork took place between 30 January and 27 February 2008, n=2000. A
datafile and other documentation may be consulted at the UK Data Archive.
2010
Conducted by Russian Research for Stephen White and Ian McAllister with the
assistance of the ESRC under grant RES-062-23-1378 and the Australian Research
Council. Fieldwork took place between 12 February and 1 March 2010, n=2000. A
datafile and other documentation may be consulted at the UK Data Archive.
- 18 -
Notes
1. See for example W. W. Rostow, The Stages of Economic Growth (Cambridge: Cambridge
University Press, 1961).
2. Adam Przeworski et al., Democracy and Development (Cambridge: Cambridge University
Press, 2000).
3. For a review see M. Steven Fish and Jason Wittenberg, ‗Failed Democratization‘, in
Christian Haerpfer et al., Democratization (Oxford: Oxford University Press, 2009).
4. For a review, see Stephen White, Understanding Russian Politics (Cambridge: Cambridge
University Press, 2011), pp. 321-3.
5. See for instance Linda J. Cook, The Soviet Social Contract and Why It Failed: Welfare Policy
and Workers’ Politics from Brezhnev to Yeltsin (Cambridge MA: Harvard University Press,
1993).
6. Assessments of this kind remain controversial; for some representative views see for
instance Anders Åslund, How Russia Became a Market Economy (Washington DC:
Brookings, 1995), and the more critical judgements of Lawrence R. Klein and Marshall
Pomer, eds., The New Russia: Transition Goes Awry (Stanford CA: Stanford University
Press, 2001), Joseph E. Stiglitz, Globalization and its Discontents (New York: Norton, 2002);
and Marshall I. Goldman, The Piratization of Russia: Russian Reform Goes Awry (New York
and London: Routledge, 2003). Simon Pirani, Change in Putin’s Russia: Power, Money and
People (London: Pluto Press, 2010), is also sceptical.
7. R. Kh. Simonyan, Bez gneva i pristrastiya. Ekonomicheskie reformy 1990-kh godov i ikh
posledstviya dlya Rossii (Moscow: Ekonomika, 2010), p. 184.
8. See Richard Rose and Ian McAllister, ‗Is money the measure of welfare in
Russia?‘, Review of Income and Wealth, vol. 42, no. 1 (March 1996), pp. 75-90.
9. US currency was used extensively (and often illegally) during the 1990s in order to
mitigate the effects of hyperinflation.
10. See respectively Izvestiya, 4 November 1997, p. 1 (toilet paper); Argumenty i fakty no.
47, 1996, p. 1 (brassieres); Guardian, 23 September 1998, p. 15 (vodka).
11. Izvestiya, 2 August 1996, p. 2.
12. White, Understanding Russian Politics, p. 142.
13. Pravda, 4 July 1991, p. 3.
14. The highest levels were in Dagestan (20 per cent), Ingushetia (47 per cent) and
Chechnya (53 per cent): Rossiiskii statisticheskii yezhegodnik. 2008: Statisticheskii sbornik
(Moscow: Rosstat, 2008), p. 134.
15. See
http://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/account/#,
accessed 20 May 2011.
last
16. See Stephen Fortescue, ‗Putin in Pikalevo: PR or watershed?‘, Australian Slavonic and
East European Studies, vol. 23, nos 1-2, 2009, pp. 19-38, and B. I. Maksimov, ‗Yavlenie
Rossii v Pikalevo‘, Sotsiologicheskie issledovaniya, no. 4, 2010, pp. 42-53.
17. Rossiiskii statisticheskii yezhegodnik 2008, pp. 169, 177 (pensioners).
- 19 -
18. The most influential formulation of this approach remains that of James C. Davies,
who argued that revolutions were most likely to occur when a population expected living
standards to continue to improve but they suffered a sharp reverse (‗Towards a theory of
revolution‘, American Sociological Review, vol. 27, no. 1 (February 1962), pp. 5-19)).
19. For reviews, see Michael Lewis-Beck and Mary Stegmaier, ‗Economic
determinants of electoral outcomes‘, Annual Review of Political Science, vol. 3
(2000), pp. 183–219, and the same authors‘ ‗Economic models of voting‘, in Russell
J. Dalton and Hans-Dieter Klingemann, eds, Oxford Handbook of Political Behavior
(Oxford and New York: Oxford University Press, 2007); Raymond Duch and
Randolph T. Stevenson, The Economic Vote: How Political and Economic Institutions Condition
Election Results (Cambridge and New York: Cambridge University Press, 2008).
20. Morris P. Fiorina, Retrospective Voting in American National Elections (New
Haven CT: Yale University Press, 1981).
21. The locus classicus is Donald R. Kinder and D. Roderick Kiewiet, ‗Sociotropic politics:
the American case‘, British Journal of Political Science, vol. 11, no. 2 (April 1981), pp. 129–61.
22. Michael S. Lewis-Beck, Economics and Elections (Ann Arbor MI: University of
Michigan Press, 1988).
23. Stephen White and Ian McAllister, ‗The Putin phenomenon.‘ Journal of
Communist Studies and Transition Politics, vol. 24, no. 4 (December 2008), pp. 604628.
24.
Levada
Centre,
18-21
March
2011,
at
http://www.russiavotes.org/national_issues/national_issues_economics.php?S77617330
3132=41ed5bddf5ee003a81f3d716f46c0aa5, last accessed 20 May 2011.
25. ‗Sostoyanie i perspektivy rossiiskoi ekonomiki‘, 9 April
http://www.levada.ru/press/2010040900.html, last accessed 11 April 2010.
2010,
26.
‗Krizisnye
ozhidaniya
rossiyan‘,
2
March
http://levada.ru/press/2010030202.html, last accessed 13 March 2010.
2010,
26.
Levada
Centre
figures
as
reported
in
http://www.russiavotes.org/national_issues/financialcrisis_trends.php, last accessed 20
May 2011.
27. ‗Sostoyanie i perspektivy rossiiskoi ekonomiki‘, 9 April
http://www.levada.ru/press/20100409.html, last accessed 11 April 2010.
2010,
28. Ibid.
29. This was a considerable change from 1998, when the largest numbers (56 per cent)
had blamed the ‗unsuccessful economic policy of the previous government headed by V.
Chernomyrdin‘; in 2009 the main cause was thought to be the ‗international financial
crisis‘ (46 per cent took this view: M. K. Gorshkov, R. Krumm and N. Ye. Tikhonova,
eds., Rossiiskaya povsednevnost’ v usloviyakh krizisa (Moscow: Al‘fa-M, 2009), p. 198).
30. See for instance Nikolai Starikov, Krizis: kak eto delaetsya (St Petersburg: Lider, 2010).
During the 1998 crisis, 27 per cent blamed the ‗subversive policies of the West‘; in 2009
- 20 -
24 per cent did so, about as many as blamed the previous or the current Russian
government (Gorshkov, Krumm and Tikhonova, eds., Rossiiskaya povsednevnost’, p. 198).
31. For a representative selection of views see for instance James L. Gibson, ‗A mile
wide but an inch deep (?): the structure of democratic commitments in the former
USSR‘, American Journal of Political Science, vol. 40, no. 2 (May 1996), pp. 396420; Harry Eckstein et al., Can Democracy Take Root in Post-Soviet Russia?
Explorations in State-Society Relations (Lanham MD: Rowman and Littlefield,
1998); M. Steven Fish, Democracy Derailed in Russia: The Failure of Open Politics
(Cambridge and New York: Cambridge University Press, 2005); Ellen Carnaghan,
Out of Order: Russian Political Values in an Imperfect World (University Park PA:
Pennsylvania State University Press, 2007).
32. White, Understanding Russian Politics, pp. 355-62.
33. See Daniel Treisman, ‗Presidential Popularity in a Hybrid Regime: Russia under
Yeltsin and Putin‘, American Journal of Political Science, vol. 55 (2011), forthcoming.
34.
http://www.russiavotes.org/president/presidency_performance_trends.php#190,
accessed 20 May 2011.
See
last
35. See Richard Rose and William Mishler, ‗The impact of macro-economic shock on
regime support in Russia‘, Post-Soviet Affairs, vol. 26, no. 1 (January-March
2010), pp. 38-57.
36. See for instance A. Navoi, ‗Rossiiskie krizisy obraztsa 1998 i 2008 godov: naidi 10
otlichii‘, Voprosy ekonomiki, no. 2, 2009, pp. 24-38. This was clearly a good moment to
translate Charles Kindleberger‘s history of world financial crises: Ch. Kindleberger and R.
Aliber, Mirovye finansovye krizisy: Manii, paniki i krakhi (St Petersburg: Piter, 2010).
37. Rose and Mishler, ‗Impact‘, p. 48.
- 21 -
Eurasia: Trade and Foreign Policy
Forum Proceedings
EU-RUSSIA RELATIONS: MAJOR CHALLENGES AND
FUTURE PROSPECTS
by Nina Markovic, Australian National University
EU-Russian cooperation architecture
•
•
Partnership and Co-operation Agreement (PAC, 1994, 1 December
1997)
Four Common Spaces (2003):
- Common Economic Space
- Common Space on Freedom, Security and Justice (internal security)
- Common Space on External Security (international institutions)
- Common Space on Research, Education and Culture
Report 2010
•
•
•
•
Partnership for Modernization (P4M, 2010)
Negotiations for a new ‘PAC’ (2008-ongoing)
Parliamentary Cooperation
Committee dialogue
High-level meetings with the
European Commission: 2004, 2005,
2009,2011; EU-Russia Summit
Major challenges: bilateral and issue-specific
Energy issues
NATO-Russia relations
Human rights issues
Visa liberalisation
Russia’s limited capacity to deal with poverty,
corruption and structural weaknesses
- 22 -
Opportunities
‘Low-policy’ issues: direct benefit to citizens
• Science & technology, research & innovation
• P4M: riding the tide
• Youth issues, scholarships and exchanges
• Second-track forums and civil society dialogue
‘High-policy’ issues:
• Military and political discussions, CBM
• Trade and investment climate
• Energy security of supply & demand
• International issues: Iran, terrorism, piracy
• A scramble for the Arctic: policy-dialogue needed
http://www.superputin.ru
- 23 -
Eurasia: Trade and Foreign Policy
Forum Proceedings
RUSSIAN TRADE POLICIES IN CENTRAL ASIA:
COMBINING GOOD BUSINESS WITH STRATEGIC
PURPOSE
A synopsis of the talk given at the ANU Eurasian Society panel discussion,
26 May 2011 – strictly not for citation.
Dr Kirill Nourzhanov
Centre for Arab and Islamic Studies (The Middle East and Central Asia)
Australian National University
Kirill.Nourzhanov@anu.edu.au
Trade relations between Russia and the five Central Asian republics (Kazakhstan,
Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) have gone through five distinct
phases after the dissolution of the USSR in 1991. During the first period from 1991 to
1996, the region was of low priority to Moscow. The government of Boris Yeltsin
channeled all its energy into engaging with the global market and especially with the
West, both for economic and political reasons. The former Soviet republics in Central
Asia were pushed away from the rouble zone, and old cooperative ties inherited from the
era of the centrally planned economy were allowed to lapse.
The period from 1997 to 2000 was characterised by Moscow‘s growing disenchantment
with the global capitalist division of labour and its turn to the Commonwealth of
Independent States as an important vehicle to advance Russia‘s economic interests.
Nonetheless, the financial crisis of 1998, the prevalence of barter in commercial
transactions, and, especially, Yeltsin‘s heavy-handed tactic of compelling the by now
fiercely independent regimes to join various integration schemes, contributed to further
contraction of trade.
The ascendancy of Vladimir Putin as Russian president in 2000 ushered in a new phase in
relations between Moscow and Central Asia based on equality and the pursuit of mutual
economic benefit. Coupled with the general economic recovery across the former Soviet
Union, this period saw a substantial increase in the volume of trade (Table 1).
- 24 -
Table 1 Volume of trade between Russia and Central Asia
Year
1991
1994
1999
2003
2007
Trade
turnover, US$
mn
59,226
6,143
3,695
7,088
21,787
Russian export to
Central Asia, US$
mn
33,785
3,771
1,903
4,520
13,489
Russian import
from Central
Asia, US$ mn
25,441
2,372
1,792
2,568
8,298
Trade
balance, US$
mn
8,344
1,399
111
1,952
5,191
Source: Russian Ministry of Economic Development and Trade
Trade in oil and gas led the way. Although their quantitative flows continued to lag
behind the Soviet high point by a factor of six and three respectively, the gradual
introduction of high market prices in these commodities bolstered the value of their
exchange.
In 2008, the volume of trade between Russia and Central Asia reached a peak of US$29
billion, which represented a five-fold increase compared to 1992. Over the same period,
China‘s trade with the region registered a forty-fold growth (Figure 1). Even without the
global financial crisis, which wiped out 30 percent of trade turnover in 2009, Russia was
facing intense competition from its eastern neighbour.
Figure 1 Russian and Chinese trade with Central Asia
The current phase in Russian trade policy vis-à-vis Central Asia can be dated back to the
end of 2008 when the Kremlin announced the Concept of Long-term Socio-economic
Development of the Russian Federation until 2020-2030 (commonly known as ‗Strategy2020‘). It envisaged a radical departure from the resource-based model of economic
- 25 -
development towards innovation and global competitiveness in what Putin and his
successor as president, Dmitry Medvedev, referred to as ‗niches in the world market‘.
These included transport, renewable energy, nuclear industry, aerospace and information
technologies, and medical services. Foreign trade was to play a crucial part in Russia‘s
modernisation program, especially when it came to the former Soviet republics. Moscow
hoped to treble the volume of trade with the Commonwealth of Independent States by
2020 and tap into their research and development potential.
The importance of Central Asia to the objectives of Strategy-2020 is highlighted by the
structure of Russian exports to the region. In 2008, the share of finished goods in it was
61 percent (where machinery and equipment accounted for 43 percent). In 2010, oil and
other minerals constituted only 3.8 percent of Russian exports to Uzbekistan. By
comparison, the share of hydrocarbons in the value of Russian exports to the EU the
same year was 85 percent.
It appears that Central Asia today plays a role similar to that of Turkestan in Russia‘s first
industrial revolution in the 1860s-1890. Chintz and samovars may have been replaced by
Lada cars and mobile telephony networks, yet the region still provides a privileged and
lucrative market of about 70 million people to Russian goods and services which
wouldn‘t be particularly competitive elsewhere. The significance of Central Asia to the
success of Strategy-2020 is greater than the region‘s modest share of 4 percent in Russia‘s
overall trade balance suggests and is set to grow.
Figure 2
- 26 -
Kazakhstan is pivotal to Moscow‘s plans of trade and economic expansion in Central
Asia. It is already in the top ten trading partners of Russia (Figure 2). Russia is the
destination of 7 percent of Kazakhstani exports and contributes 29 percent of its
imports. In November 2009, the governments of Belarus, Kazakhstan, and Russia signed
an agreement to create a customs union as a first step to a single economic space by
2012. This new arrangement is intended to maximise the benefits of the already strong
trade relationship and an enlarged market. The agreement came into force in January
2010, when the three countries eliminated most duties on mutual trade, and moved to
harmonise customs rules. In July 2010, member countries adopted a common customs
code, finalised customs rules, and began to redistribute collected duties.
Figure 3
In 2010, trade turnover between
Russia and Kazakhstan grew by
27.8 percent and reached US$15.8
bn. Border trade flourished in
particular, accounting for 70
percent of the total. The single
economic space is bound to
expedite Russian investment in
Kazakhstan too.
The official flow of Russian capital
to Kazakhstan grew three times
between 2005 and 2010 – this Central Asian republic became more attractive for
investment than traditional destinations in Europe. While Russia still lags behind several
other foreign investors (Table 2), it eclipses them in terms of the diversity of investment
portfolio. The bulk of American and European money is concentrated in a handful of
giant oil projects. On the other hand, there are over 6,000 enterprises with Russian
capital operating in Kazakhstan today, which is more than in the entire post-Soviet space
combined.
- 27 -
Table 2 Foreign direct investment in Kazakhstan, by country
Russian companies such as LUKOil and Rosneft are also quite active in the oil and gas
sphere in Kazakhstan. However, the majority of new investment from Russia appears to
be directed towards other sectors, such as nuclear and solar energy, non-ferrous metals,
transport machine-building and the aerospace industry. In 2010, the Russian-Kazakhstani
Nanotechnology Venture Fund was created. The Eurasian Development Bank controlled
by Moscow is financing 15 projects in Kazakhstan in 2011 worth US$1 bn, all of which
are beyond the oil and gas sector. As President Medvedev noted in a major foreign policy
speech in July 2010, ―Excellent prospects exist in our ties with Kazakhstan, our major
partner‖.
According to Russian experts‘ assessments, the single economic space will add up to 15
percent to the GDP growth rate in member states in 2015 and beyond. They also bandy
around the figure of US$60 bn in Russian investment in the period before 2025. These
figures, while hopelessly inflated, denote tangible material benefits which might accrue to
the Central Asian states. The governments of Kyrgyzstan and Tajikistan have already
signalled their desire to join the common market.
When discussing Russian trade links with Central Asia it is impossible to ignore the
enduring myth of Moscow‘s ‗energy imperialism‘ in the region. It is often stated that
Russia uses underhand tactics to secure cheap supplies of natural gas from Central Asia
on which it relies to maintain its energy balance, fulfil its export commitments to the EU,
and generate super-profits.
The truth of the matter is that the sovereign states in Central Asia have successfully
- 28 -
diversified their hydrocarbon export routes since independence (Map1). Turkmenistan‘s
exports make up only seven percent of Russia‘s gas balance (or ten percent along with
those of Uzbekistan and Kazakhstan); however, they do not play any role in Gazprom‘s
deliveries to the EU. Instead, the Central Asian gas is used for domestic consumption
and deliveries to Ukraine. The activation of giant gas fields in Yamal by the end of 2012
will add 115 billion cubic metres to Russia‘s annual output capacity which will obviate the
need for major purchases from Central Asia.
Natural gas transactions involving Turkmenistan, Russia and Ukraine were notoriously
opaque prior to 2005 involving shady intermediaries and barter deals. Since then,
Gazprom has entered into a series of transparent procurement arrangements whereby
Central Asian suppliers are paid in cash at the going European market rate based on
adjusted petroleum products pricing (Figure 4).
Figure 4 Prices paid by Gazprom for Turkmen gas
Table 3
- 29 -
Map 1
The Russian leadership has stated repeatedly that economic pragmatism rather than
abstract geopolitical interests ought to determine the country‘s relations with Central
Asia. Protection of Russian investment thus becomes an important element of Moscow‘s
foreign policy. A good example of this is provided by Kyrgyzstan. In April 2010, Russia
denied support to the regime of Kurmanbek Bakiev, who was quite pro-Russian in his
strategic orientation. At stake were US$2 bn dollars of soft credits and investment
(including US$1.7 bn for the Kambarata hydropower project) which Bakiev and his inner
- 30 -
circle had been busy embezzling.
A contrary example where potential profit is sacrificed in the name of strategic
imperatives features Tajikistan. In 2008, Russia committed to financing a massive
hydropower scheme in that country to the tune of US$3 bn. In 2009, President
Medvedev cancelled the deal under intense pressure from Uzbekistan which has a longrunning dispute with Tajikistan concerning the management of transborder water
resources. In the eyes of the Kremlin, Uzbekistan is a much more important partner
owing to its size and central location.
In conclusion, Russia has finally realised the importance of Central Asia to its economy,
and the potential for mutually beneficial trade and modernisation-driven integration
looks promising. However, there are important barriers to further cooperation.
Protectionism and resource nationalism have become virtually state ideologies of
development in Turkmenistan and Uzbekistan over the past two decades. Idiosyncratic
preferences of authoritarian leaders in the region that have little to do with economic
rationalism play a disproportionately salient role in the decision-making process. With the
exception of Kazakhstan, the legislative and normative framework in Central Asia is not
conducive to the smooth functioning of foreign businesses – the recent setbacks suffered
by Russian telecommunication companies in Kyrgyzstan and Turkmenistan where they
used to control the bulk of the market are telling in this regard. There are also multiple
political risks associated with the inherent instability of many Central Asian regimes and
several smouldering inter-state conflicts in the region. Finally, Russia faces stiff
competition from other external players, especially China.
There are also some factors that work in favour of Moscow‘s greater economic
engagement with Central Asia. Geographic proximity and old infrastructural ties
inherited from the Soviet period are obvious pluses. Russia has been quite skilled of late
in using its soft power to promote its business agenda: cultivating local elites, pursuing
cultural and education programs, and encouraging labour migration from Central Asia.
Most importantly, the Kremlin‘s relaxed attitude to the issues of democracy and human
rights, and its commitment to security and stability in the region, continue to position it
as a partner of choice for many in Central Asia.
- 31 -
Eurasia: Trade and Foreign Policy
Forum Proceedings
THE EUROPEAN UNION, THE FORMER COMMUNIST
BLOC STATES AND OTHER PLAYERS IN THE
TRANSFORMATION GAME
by Robert F. Miller, Visiting Fellow, TCSP, ANU
Introduction
The initial stage of the transformation process is over;
The GFC and weakening of the EU centre have lessened commitment in some
member and aspirant countries;
Decline in readiness of Brussels and EU mainstays to pay for bail-outs of defaulting
member economies and for major infrastructure projects;
The re-emergence of Russia as an alternative;
Serbia perhaps exceptional. Different strategies for coping with disarray
Trade and Investment in Individual Countries
Developing closer relations among EU regional states;
Import and Export patterns;
Traditional historical and neighbourhood factors;
Foreign direct investments, domestic and abroad
Conclusions
Virtual integration in the medium term
- 32 -
Table 1
Country from
Country to
Germany
France
Italy
Russia
Netherlands
Belgium
Austria
Poland
Turkey
Kazakhstan
Slovakia
Greece
Romania
Ukraine
Croatia
Slovenia
Bulgaria
China
UK
Czech Rep.
Bosnia-Herc
Serbia
Montenegro
Macedonia
Hungary
Total %
Poland
26.06
6.78
6.84
x
4.14
x
x
x
Romania
16.3
7.5
15.4
x
x
5.61
x
x
6.5
Hungary
25.5
4.9
5.5
x
x
x
4.7
x
Czech Rep.
31.7
5.5
4.5
x
x
x
4.7
5.85
Slovakia
Slovakia
20.1
7.8
6.1
x
x
x
5.8
5.1
Bulgaria
11.21
4.44
9.24
x
x
5.61
x
x
7.33
Slovenia
19.36
7.35
11.31
x
x
x
7.42
Croatia Bosnia-Herc
Bosnia
11.06
x
19.1
x
x
x
5.44
13.3
x
16.87
x
x
x
10.25
6.36
5.85
x
x
56.03
x
x
5
56.3
5.4
x
46
4.9
x
56.85
4.8
12.9
6.3
68.9
x
x
x
x
55.8
10.5
x
11.5
5.4
x
x
x
Macedonia
20.3
x
11.08
x
x
10.61
x
x
x
9.43
8.52
x
Serbia
13.09
6.3
7.75
x
7.47
x
x
19.07
18.58
x
12.98
5.4
x
53.3
x
61.5
4.4
x
7.74
x
x
11.2
x
78.1
8.5
8.9
x
57.8
x
71.72
- 33 -
Table 2
Country to
Country from
Germany
France
Italy
Russia
Netherlands
China
Czech Rep.
Austria
Poland
Hungary
Turkey
Kazakhstan
Slovakia
S. Korea
Greece
Romania
Ukraine
Croatia
Slovenia
Bulgaria
Total %
Poland
28
4.6
6.5
8.65
5.59
5.27
4.05
x
x
x
x
x
x
x
x
x
x
x
x
Romania
Hungary
Czech Rep
16.1
5.6
11.2
5.9
x
4.2
x
4.8
x
7.3
4.9
4.5
26.1
25.6
x
4.2
7.7
4.4
6.8
x
6.8
4.3
x
x
x
x
x
Slovakia
16.8
12.23
x
7.78
13.14
x
x
5.4
x
11.9
6.5
x
x
5.2
9
x
5.8
12.3
x
4
5.3
5.48
64.5
59.4
x
54.6
4.08
x
x
x
Slovenia
Croatia
Bosnia-Herz
Serbia
Macedonia
16.46
4.98
15.89
x
x
x
13.57
14.04
10.56
15.11
15.46
9.29
x
6.83
11.89
x
x
x
8.5
12.85
x
7.2
7.68
x
x
x
11.81
x
x
5.04
x
x
6.61
x
5.74
x
x
x
x
4.13
7.59
4.9
x
x
6.8
x
62.7
Bulgaria
x
x
65.5
x
6.17
5.65
4.81
x
x
53.9
x
5.75
x
14.88
12.98
4.32
53.5
55.9
63.9
48.1
6.26
9.08
64.5
- 34 -
Table 3
Foreign Direct Investment at Home and Abroad ($US bn)
COUNTRY
FDI IN
FDI OUT
POLAND
198.8
30.71
ROMANIA
80.16
1.831
HUNGARY
82.07
19.8
CZECH REPUBLIC
130.4
14.67
SLOVAKIA
52.2
2.643
BULGARIA
51.28
1.372
SLOVENIA
15.73
9.001
CROATIA
34.63
6.334
BOSNIA-HERCEGOVINA n.a.
n.a.
SERBIA
23.52 (09)
n.a.
MACEDONIA
3.739
0.564 (09)
- 35 -