Too much oil in the works
 

Russia is booming, but for how long?
 

“IN A decade, we have at least to double the country's gross domestic product.” In his speech to parliament a year ago, the usually cautious Mr Putin shook the entire government out of its complacency. Never mind the exact target: can he deliver consistent growth at all?

So far things look better than ever. GDP growth breached 7% last year (see chart 3) and seems set to do almost as well this year. And unlike the boom before the 1998 default, which was driven by a fixed exchange rate and a mountain of government debt, this one looks real. The government's finances are under firm control, and foreign-currency reserves at the end of April stood at nearly $79 billion. Moody's, a rating agency, promoted Russian debt to investment grade last October. Fixed investment grew by over 12% in 2003, which shows that companies are now modernising and expanding. Productivity is growing steadily (see chart 4).

As consumption figures testify, ordinary Russians are feeling the benefits. Whereas only a few years ago life outside the biggest cities was unremittingly bleak, now it is rare to find a regional capital without a profusion of smart new shops and restaurants. And most of the people spending money there are not bandits or corrupt officials, but a genuine middle class making an honest (by Russian standards, anyway) living. The number of Russians classified as “poor” has fallen by a third in the past four years. Even the demographic squeeze that alcoholism, poverty and the miserable prospects for the future have imposed since the end of the Soviet Union seems to be easing slightly. Last year, for the first time since 1998, the alarming natural decline in the population—some 900,000 per year—began to slow.

People are beginning to demand normal-country things like bank loans, credit cards and mortgages, which have only recently appeared in Russia for the first time. Companies are discovering that a population of 145m spread over 11 time-zones is a terrific market for mail order and online shopping. Though their salaries are low by comparison with the West, Russians save little, pay low taxes, tend to own not rent their homes and love gadgets and fashions, making them a goldmine for a businessman with daring and imagination. Stephan Dertnig of the Boston Consulting Group, which is bursting with new clients, estimates that a mid-sized firm which would make a 10% return on sales in the West could expect 25% in Russia.

Yet little of this is thanks to reforms. Although there have been some, most notably one to simplify and cut taxes (so that more people are now paying them), Mr Putin's main contribution has been to create, by comparison with his disorderly predecessor, a feeling of stability that allows people and businesses to think ahead.

Moreover, what drove growth in his first couple of years was the post-crash recovery, and much of what drives it now is an oil boom. According to a calculation by the World Bank last August, had oil prices not been rising, the 7.2% annual growth rate in the first half of 2003 would have been 4.2%; solid, but not the stuff of economic miracles.

Russia's energy dependence is pernicious in many other ways too. The World Bank estimates that the oil and gas sector, which employs less than 1% of the workforce, accounts not for 9% of GDP, as the official figures state, but for nearer 25%. The official statistics are distorted by transfer pricing, a tax dodge whereby oil firms sell cheaply to trading companies they control, which sell on at market prices. This has cost the federal government billions of dollars in potential revenues. Though awash with profits, the oil firms are lazy; they tend to invest in squeezing the most out of their current oilfields, rather than in exploring new ones. Yet many oil towns are miserable places where most businesses are controlled by the oil company. With little else to entertain them, workers often spend their pay packets on drugs and prostitutes, turning the towns into hotspots of HIV infection.

Even so, thanks to high oil prices, the federal government has run budget surpluses. Isn't this good? No: the money all too often bails out regional governments, which use it as a quick fix for local unemployment by creating public-sector jobs, when it would be better spent on building infrastructure or lowering taxes to help the private sector.

Nor is the oil cash an unmixed blessing for the economy (see chart 5). Combined with a weak dollar, it has driven up the rouble much faster than the central bank would like, leading some economists to argue that Russia still risks catching “Dutch disease”: a strong currency, rising imports, less competitive exports. Banks are trying to lend as much as they can, so there might be a small wave of defaults in two or three years. But the banking system is too shallow to absorb all the cash washing around. Top officials have started flagging up the risk of an asset-price bubble.

The surplus cash, along with flight capital returning from abroad, is fuelling what Roland Nash at Renaissance Capital, a Moscow investment bank, describes as “the mother of all shopping sprees” by the big conglomerates, often compared to Korea's overgrown chaebol; their rush of acquisitions is leaving “small islands of industry in a sea of chaebolised assets”. Though these firms are driving a much-needed consolidation of the leftovers of Soviet industry, they are—according to the World Bank—no more efficiently run than other businesses, and their market power and ability to wring favours from regional governments is a threat to smaller firms.

Oil prices may stay high for a while if the turmoil in the Middle East continues. But when they fall, growth will stutter, unless other parts of the economy have become stronger by then. Large swathes of Soviet-era industry have failed to restructure, and now face a growing challenge from imports as Russians' incomes rise and their tastes change. Small businesses, though growing fast, still account for a mere 12% of GDP, as against 30-70% in developed market economies. For sustainable long-term growth, these businesses need a better climate. This is where reform starts to matter.

Mr Putin evidently realises this. Having spent his first term making sure he was firmly in control, he has ambitious plans for the second. “There is a theme that the first term was one of preparation, consolidating control and removing the legacies of the Yeltsin era, while the second one is of implementation,” says Chris Weafer at Alfa-Bank. “The stockmarket is currently pricing in that this government will be able to do everything it has promised.”

Those promises include:

•Separating out the 1,000-plus banks that act as little more than pocket banks for companies from the few dozen that do retail banking and lending, and regulating the second group better.

•Making the big natural monopolies more market-oriented. UES, the state electricity firm, is already on the way to being broken up. Gazprom, the gas behemoth, probably will not be, but other gas suppliers will get access to its pipelines, there will be more private investment in its projects, and domestic gas-price subsidies may be cut.

•Investing in starved social infrastructure, notably housing, health and education, and modernising the way they are managed (for example, by expanding the use of health insurance and sorting out responsibility for the decaying communal parts of blocks of flats).

•Making the courts more efficient, more transparent and less corrupt, which is essential to allow small businesses to defend themselves, and further reducing the bureaucracy those businesses face.

•Other economic reforms, such as anti-monopoly measures, to allow Russia to join the WTO. Entry has been delayed many times, but is currently set for the autumn of next year, in time for Russia's chairmanship of the G8 in 2006.

•An overhaul of the armed forces, shrinking them and ending conscription in favour of a professional army.

•An administrative reform. A commission has identified some 5,000 functions of government, 1,000 of which it considers superfluous. These will be eliminated, and a fifth of the 2m-plus bureaucrats in central government will be fired; what the rest must and must not do will be tightly defined and put in writing.

All very fine-looking. Having reined in the natural-resources firms—a new windfall tax could bring in as much as an extra $3 billion next year—the government should have plenty of cash with which to implement these reforms. It has also hinted that it will stop running budget surpluses. Already this year, tax cuts worth $10 billion should give businesses a buzz. But there are problems.

One is that all this depends on oil prices staying high enough for long enough. True, they have a long way to fall before reaching the government's break-even level of $20 a barrel. And if this year's price predictions are right, says Mr Zhukov, the deputy prime minister, the excess will leave 500 billion roubles in the oil stabilisation fund, enough to maintain current spending for two years even if the oil price drops.

But the ocean of petrodollars is not merely drowning the economy; it seems to have put the government into a state of self-hypnosis. Ministers regularly repeat Mr Putin's mantra of doubling GDP in a decade, though that would take unbroken growth of 8% a year. When German Gref, the economy minister, said in a cabinet meeting in February that he would like to see poverty halved in three or four years, Mr Putin rebutted, “Don't be shy, say it: in three years this level will be achieved.” Shyly, Mr Gref replied, “We will do our best.” Within a few days he had increased his growth estimate for 2004.

The second problem is that Mr Putin has tried some of these reforms already, and his record is not good. There have been first stabs at such things as bank deposit insurance to help private banks compete against the state-owned near-monopolist, Sberbank; private ownership of agricultural land; less bureaucracy and better protection for small companies; and, as in many western countries, the difficult move from a pay-as-you-go pension system to a funded one. But all too often the implementation has been a fiasco. Workers can now invest their retirement savings with private fund-management companies instead of the state pension fund, for instance; but they were given so little information that only 2% chose to do so.

Do I look rich in this?

Workers at collective farms, who are entitled to a share of the farm's land, can now turn it into private property. But the law left it up to regional governments to set conditions, such as the minimum size of a private plot; some have chosen sizes as large as 200 or 300 hectares, which favours the farms' existing managers and forces the farm workers to band together in large, unwieldy groups if they want to strike out on their own. Military reform has been in the works since Mr Putin appointed a civilian silovik, Sergei Ivanov, as defence minister, but to the president's evident frustration it has more or less ground to a halt.

To many observers, any progress at all is a miracle. The land reform, says Ksenia Yudaeva, an economist at the Carnegie Centre in Moscow, “was one step forward and two steps back, but nobody believed that our state could bring the concept of private property to agricultural land.” Richard Hainsworth, a banking analyst for Renaissance Capital, says the bank reform, though it was held up and then watered down, “is going in the right direction, and it would be very difficult for someone to come in and do better.” Now that government, parliament and business all obey him, Mr Putin should, goes the thinking, be able to push reforms through faster.

But—and this is the third problem—faster may not mean better. Bad laws can now be rammed through as easily as good ones. And the reforms for the second term are more complex than for the first, so the gap between laws and implementation could grow even wider. To make them work requires an effective bureaucracy.

That is why the administrative reform matters so much. It has been years in the making. Mikhail Kasyanov, the prime minister until February, had persistently held it up, one possible reason why Mr Putin fired him. A first step towards it was a restructuring of the government in March, which notionally created separate agencies in each sphere for policymaking, implementation and regulation.

But so far it looks like little more than a reshuffle. Nobody has been fired. This may just be the cautious Mr Putin's usual strategy: he moves people sideways instead of ditching them. But the bureaucracy, immortalised in 19th-century Russian literature, is famous for its ability to frustrate its masters as much as to enrage the ordinary citizen. Nobody has yet explained precisely how this hydra, which under Mr Putin has grown even bigger, can be made to cut off so many of its own heads. And if it does not, the citizens will suffer.

Watch your back
 

Running a small business is far from straightforward

AP

Hallo, we're from the shareholders' association

WHEN Aleksei Panteliushin turned up at Plutos, his sausage factory in northern Moscow, one frosty morning last February, he found a gang of robust young men guarding the entrance as blacksmiths replaced the glass door with a steel one and reinforced the bars on the windows. He called the police. They went in, stayed for ten minutes—and left again. He called the internal security agency, the FSB. The same thing happened. He called his lawyer, who tried to go in and was told that if he persisted, they would “rip his head off”. When Mr Panteliushin at last gained entry, together with a senior police officer, three of the goons introduced themselves as “Stanislav”, “Alexander” and “Sergei”. They said they were Plutos's new owners, and flourished a document from the justice ministry to prove it.

Shortly afterwards, they invited Mr Panteliushin to a meeting and offered to buy his share in the company at well below market value. They had already got his employees to sell them their shares far too cheaply, on pain of being fired. Mr Panteliushin declined. Instead he wrote a statement, collected supporting signatures from some 40 employees, and—with the thugs openly tailing his car—filed the case with every law-enforcement agency he could think of.

He was told that the authorities did not get involved in “ownership disputes”. When he took his woes to his local tax officials, who at least were friendly, thanks to his annual Christmas gifts of sausages, they shrugged and showed him a sheaf of 15 or 20 similar complaints in the same district. A journalist recommended the Economic Security Commission of the Moscow mayor's office, where an official listened to the tale. The next day Mr Panteliushin got a call from a non-governmental organisation called “Protection of Shareholders' Rights”. This turned out to consist of a pair of affable young men with no address on their business cards, who said they knew those concerned and offered to “mediate”.

They were also kind enough to explain how the business had been appropriated. In November, a fictitious shareholder meeting had been called. It appointed a new factory director, who “sold” the factory to another firm, which sold it on again, re-registering the ownership each time. This morass of paperwork would make any legal challenge enormously complex. (It did not help that Mr Panteliushin had kept his shareholder register in the company safe, allowing the bandits to destroy the evidence.)

Not that the “takeover” itself had been a snip: what with bribes, hire of thugs, share buy-outs and lawyers' fees, it had cost some $300,000. The new owners, the mediators said, were now offering to sell the factory back for $6m, several times what Mr Panteliushin says it was worth.

Are such tales getting more common, or less? That is hard to answer. They were two a penny in the early 1990s, when Russia still lacked most of the legal framework for protecting private property. Today the laws are in place; they merely do not work.

Such raids happen, says Rinat Sagdiev, a business journalist at Vedomosti, a Moscow business daily, when established businessmen have money and want to expand quickly into other sectors. Typically they target factories dating from the Soviet era, which are likely to be both inefficient and poorly defended. “Stanislav” told Mr Panteliushin later that he had carried out about ten similar raids. Other takeover methods, says Mr Sagdiev, include using a shareholder dispute to grab some of the shares, getting a compliant official appointed as a receiver when a company goes bankrupt (some go broke deliberately to avoid taxes), or phoning with a bomb threat and sending in the new owners disguised as a sapper team.

If Mr Sagdiev is right, then Mr Panteliushin's woes may be yet another by-product of the spare oil cash washing around the economy. But the fact that the bandits often get away with such raids also highlights the unaccountability of officials.

Owners may fight back if they have powerful connections. When Ilim Pulp, Russia's largest forestry company, in 2002 faced a takeover by Basic Element, a big aluminium and industrial conglomerate, Mr Putin reportedly intervened. For those a little lower down the food chain, calling in a barrage of tax and health inspections may incline the new owners to negotiate. Small fry, however, are powerless. Mr Panteliushin says various law-enforcement officials quoted him between $200,000 and $500,000 to get involved, but with no guarantee of success, because his opponents might pay more.

Even if he could muster the paperwork and the nerve needed to go to court, the outcome again would probably depend on who had the bigger bank balance. On the overnight train to the city of Penza, a young lawyer has relaxed enough after three toasts to explain why he joined the profession: “In business disputes we sometimes have to be intermediaries. I go to a judge and say, ‘I really need to win this case.' He says, let's say, 100,000 roubles. I go to my client and tell him 130,000.” He shrugs and raises his glass again.

“The judicial system is 100% corruptible,” agrees Bernie Sucher at Alfa-Capital. “There isn't a single case that can't be influenced by money.” And yet Mr Sucher is one of the biggest optimists about Russia, pointing out that business is flourishing, even if the rules sometimes depend on things other than the law. Richard Wallace, the director of the Russo-British Chamber of Commerce, takes a similar view. “You need to do your homework, build up contacts, not go in blind. It's a question of knowing how to operate and accepting that the rules are different.”

British Petroleum is a good example: having suffered all manner of dirty tricks in a deal with the Tyumen Oil Company (TNK) in 1997, it overcame the bad blood and bought half of TNK for $6.75 billion last year, the biggest foreign buy-out to date. To people like Mr Sucher, that deal, completed at the height of the scandal over Yukos, was a sign that those who know the hidden rules will always be fine.

The problem with informal rules is that nobody tells you when they change. Mr Panteliushin broke a rule that he mistakenly thought had been abolished: that businesses need a krysha, or “roof”—a protector. “We used to have a krysha—some local bandits, like everyone did. Gradually the bandits went to jail, and we came under the wing of the authorities. That turned out to be a big mistake.”

However, Sharon Tennison, who runs the Centre for Citizen Initiatives, an American non-profit body that trains Russian entrepreneurs, thinks that cases like this have become rarer. “The criminal element has pretty much gone from small and medium-sized business,” she says. “Today it's the officials, the fire inspectors, the tax inspectors, the mayors and so on who are on the take, and the take is getting as high as it was back when the criminals were holding everyone up.”

The government has passed laws to let businesses breathe easier. A three-stage survey in 2001 and 2002 by the Centre for Economic and Financial Research in Moscow found encouraging signs: firms were being subjected to fewer inspections, licences were getting easier and cheaper to obtain, and corruption was less rife; by the time of the second stage of the survey, “for the first time in Russia's transition history...firms started to perceive competition to be a more serious problem than government regulations.” But in the third round the improvements had slowed. Laws such as the one establishing a “one-stop-shop” registration for new firms, admits Andrei Sharonov, a deputy economy minister, are still largely unimplemented.

Yet Mrs Tennison is an unshakable optimist too. Over 15 years, her organisation has brought some 5,000 businesspeople from Russia's regions to America for training, usually at their own expense. At a recent event in Washington, DC, a group of them met experts from 16 countries to talk about methods of tackling corruption. Back in Moscow, they passed on their ideas to Russian officials, including Mr Putin's economic adviser, Andrei Illarionov.

They go home, she says, determined to change things. In the city of Volgograd, local entrepreneurs banded together and called a strike to protest against an increase in local taxes. In Tula, a supermarket owner took a local fire inspector to court—with the quiet backing of the local FSB—after being forced to pay a $20,000 bribe for a permit. The local authorities tried to drown him with other inspections, but he held out, and the inspector went to jail.

Such cases are encouraging, but still extremely rare. That is why everything hinges on Mr Putin's administrative reform. The best way to cut official corruption is to reduce both the number of officials and the number of laws and regulations they can twist. Businesses of the kind that don't need, say, sanitary checks or fire inspections suffer less. On a television show in Moscow after their visit to Washington, nearly a third of Mrs Tennison's alumni said that they never had to pay bribes at all.

And Mr Panteliushin? His only recourse has been to get his story told. After a local newspaper picked it up, the police started taking an interest again, and he learned that other companies that had been approached about buying his factory were backing off. At the time of writing, he and the bandits were waiting it out. Increasingly desperate to sell, they were phoning him for advice on making sausages, and offering to hire him back to run the business.

Who needs democracy?
 

The parliamentary sort is dead, and civil society is only just beginning to come alive
 

AP

The only opposition?

“I'LL tell you why we have no democracy,” says Boris Nemtsov, suddenly dropping his customary nonchalant swagger and looking serious. “We spilled too little blood for democracy.”

It is a bright January afternoon, a few weeks after the election that wiped Mr Nemtsov's liberal-democratic party, the Union of Right Forces (SPS), off the political map. Yabloko, the party of social democracy since the first Duma in 1993, was extinguished too. Both fell short of the 5% needed to form a Duma block. The pro-Kremlin United Russia got just over two-thirds of the seats, giving it total control. Two other Kremlin stooge parties, the long-running Liberal Democrats (nasty nationalists) and the newly created Motherland (slightly less nasty nationalists), both of which were formed to cater for hardline voters, shared the rest of the seats with the fading Communists, the only group that might conceivably count as an opposition.

The state-run media favoured United Russia; one channel showed, in full, Mr Putin's 29-minute speech to party activists on the eve of the campaign (itself of dubious legality, because he is not allowed to campaign). Regional leaders also pulled out all the stops, the most eager ones claiming turnouts 20-30% higher than the national average. There were reports of government employees being obliged to vote for the Kremlin's party.

That may have helped to keep the liberal parties below the 5% threshold, but their real problem is that nobody wanted to vote for them. “They are the ones to blame,” says Alexander Yakovlev, who as Mikhail Gorbachev's right-hand man helped engineer the end of the Soviet regime, “for not working on the creation of a social-democratic base, for not attracting those who should have been on their side—doctors, teachers, pensioners.”

Many members of SPS and Yabloko agree. For years they played elite-level politics. They often supported the government's economic reforms, so voters saw little to set them apart from those in power. Last year, some now think, the two parties could have tried to win over the growing middle class on issues such as private health care and education. Instead, they wasted their time and money attacking each other.

And, perhaps most damaging of all, voters associated them with oligarchs such as Mr Khodorkovsky, who openly financed both parties. With the Yukos affair unfolding in the months leading up to it, the Duma election became the voters' first chance to show their anger over the plunder of the 1990s. All the pro-Kremlin parties capitalised on Mr Khodorkovsky's arrest. Indeed, the fear of a new rise of nationalism, stirred by Motherland's and the Liberal Democrats' strong results, may be overblown. Their virulently anti-oligarch line, with calls for heavy windfall taxes on the oil companies—an extreme version of current government policy—probably appealed more to voters than their slogan “Russia for Russians”.

Liberals wring their hands. The elderly but still spry Mr Yakovlev, working doggedly to publish 60 volumes of secret Soviet records even as the FSB gradually cuts off his access to the archives, reminisces: “I, like a romantic, like a naif, fought for the creation of parliamentarianism, so that there would be alternatives, so that people could choose. I overestimated the readiness of people for that choice...But what happened after 1991 was never in my imagination.” Mr Nemtsov, equally romantically, argues that had more people died fighting for democracy, as they did in the American civil war or the French revolution, Russians would defend it harder now. “People don't look a gift democracy in the mouth,” he quips.

Parliamentary democracy, then, is dead. United Russia, a collection of political vehicles for various national and regional leaders, is by no means homogeneous, but its internal debates are held behind closed doors instead of on the floor of the Duma. The leaders of Yabloko and SPS are either in denial or in other jobs (including government ones). A “2008 Committee” has been formed to fight for clean elections next time round, but it is an elite talking-shop, not a popular movement.

Is the Kremlin cut off from the people? Not entirely. Ella Pamfilova, a former social-security minister who in 1994 broke with Boris Yeltsin, in 2002 became head of Mr Putin's human-rights commission, which also includes bona-fide human-rights activists. She thinks that in principle the president does believe in human rights, even press freedom.

Among her successes she cites a bill now being drafted to create a civilian inspection of prisons, draft amendments to restrict officials' power to mess businesses around, and better conditions for Chechen war refugees in tent camps. Other lobbyists have won such things as legislation against human trafficking. An American-Russian lobby group, the Transatlantic Partnership Against AIDS, is beginning to make political and business leaders aware how disastrous the disease could become. Mr Putin's nomination of Vladimir Lukin, one of Yabloko's top men, as his human-rights ombudsman is another good sign.

But this sort of “civil society” is a co-opted one, say other activists. “You can achieve certain concrete things,” explains Tatiana Lokshina of the Moscow-Helsinki Group, a leading human-rights body, “but it allows the authorities to ignore the real, big issues, anything that's painful to the state.” Those who protest about the war in Chechnya, nuclear waste and labour rights face all manner of harassment and threats. Yet perhaps their worst enemy, she says, is something much more powerful. “Putin is truly very popular. In many respects we're fighting against society itself.” And for Russian society, democracy and human rights are not a high priority right now (see chart 6).

However, Mr Putin's popularity is not quite what it seems. Although polls show his personal approval rating to be a solid 80% or so, far fewer people think his government has done well on most individual issues, even on the economy. Nor are they too confident that it will do better in future. His trick, borrowed from the tsars of old, is to shift the blame on to his underlings: state television frequently shows him sternly ticking off hapless officials for some failure or other. But now that he is seen to be more in control, he may get more of the blame if things go wrong.

If he does, the opposition parties are in no shape to capitalise on it. Mr Putin's succession, and quite possibly his successor's succession, will be decided within the Kremlin. (He insists that he will not change the constitution to seek a third term, and many believe him.) A political opposition will have to be built over many years, from the grassroots. But the grassroots is already becoming an interesting place.

In Ryazan, a three-hour train ride south-east of Moscow, Grigory Shvedov is walking around with a digital camera, taking photographs of every single lamp-post he can find. The lamp-posts display posters about the war in Chechnya, soldiers' memorials, abandoned widows and children, each emblazoned with an accusatory “How much?” Mr Shvedov records how well each poster has been placed and how it looks from the street.

Ryazan is the site of one of Russia's first scientific experiments in civic activism. After a decade of conflict in Chechnya and a series of terrorist attacks in Russian cities, Russians have no sympathy for Chechen rebels, and little for ordinary Chechens: racism runs deep, and the media subtly encourage it. Memorial, a leading human-rights group, has decided to try instead to get people worked up about what the war is costing them: the taxes they pay, the sons and brothers who die serving there, and the lies that their government tells them about it.

This should be an explosive issue. Officially the second of the two wars in Chechnya, starting in 1999, has killed around 5,000 soldiers; according to the Union of Committees of Soldiers' Mothers, a nationwide network of voluntary help groups, the real figure is nearer 12,000. The deaths continue even though officials insist that the “military phase” is over. The size of the military budget and even the military presence in Chechnya are secret. Hazing and brutality in the army are rife, possibly killing hundreds of soldiers each year and causing many more to desert or go insane. Last winter there was an outcry when some young recruits died after officers had made them stand outside without coats for hours.

Young men go to enormous lengths to avoid the draft, paying bribes of $3,000-5,000 if they can find the money, and spending as long as possible in education (the draft ends at 27) if they cannot. That alone produces an extraordinary economic distortion: between 1992 and 2000 the number of colleges in Russia increased by 75%, but many of them, education experts say, are of poor quality, there to satisfy their students' hunger for staying alive as much as their thirst for knowledge. Those who do serve often come back brutalised and alcoholic. Many join the police or other agencies, with the result, says Ms Lokshina, that police brutality is becoming more widespread; there are even signs that torture techniques invented in Chechnya are spreading elsewhere.

So it is no surprise that 87% of Russians have heard of the Soldiers' Mothers, according to a poll by Human Rights Watch. Relatives of missing soldiers, and veterans and widows who cannot get their benefits, invariably turn to their local committee. That makes for a powerful civic force. In 1995 the union collected 1.5m signatures against the first war in Chechnya.

But campaigns have made no headway and apathy has set in. These days anti-war demonstrations in the centre of Moscow pull in only a few hundred people. “We've exhausted everything,” says Valentina Melnikova, the energetic, motherly chairwoman of the union. “The people in power won't react. They were made by TV. They're virtual people.” Earlier this year the union formed a political party, hoping that a handful of Duma deputies might give it more clout. But the omens are not good: a small-businessmen's party formed for the most recent Duma elections polled only 0.3%.

Mr Shvedov, about half the age of his fellow board members at Memorial, is trying a different approach. With help from American advisers, he and the enthusiastic young activists at Memorial's Ryazan chapter designed a campaign. They hired a local sociologist to pinpoint the sensitive issues—in another city, the campaign chosen was about the plight of orphans, to encourage foster-parenting—and road-test the material with focus groups. They found, for instance, that people react badly to posters showing how many schoolbooks one tank shell would buy, because they do not think the army should be kept short of funds, but that they are moved by images of soldiers' suffering. The activists plan to hold public meetings, produce a mini-newspaper, distribute stickers, maybe launch a letter-writing drive. They have exact targets for how many people should see their campaign, how many newspaper articles should appear about it, how many of those should be positive, by how many percentage points public opinion should change.

Compared with the wordy open letters and principled stands of the Soviet-era dissidents who still dominate Russian civil society, it is all very 21st-century, as is Mr Shvedov's language. “The information space has changed a lot,” he says, pointing to the profusion of advertising that his posters have to compete with. “When there are a dozen signs and logos on a street corner you can't hang a 40-page report there. You need commercial methods of delivering information and tracking its effect on the clients.” If the pilot scheme shows those methods to be successful, Memorial will think about choosing an issue for a national campaign.

Modern activism could help to make Russian democracy grow. As Russians become better off, they are getting keener to challenge the authorities—whether it is over Chechnya, pollution or education standards. But to keep doing this they will need funding. And right now, Russian philanthropists are scared. After Mr Khodorkovsky's arrest, every organisation supported by his Open Russia Foundation was visited by tax inspectors. Some NGOs had been discussing a similar endowment with the Russian Union of Industrialists and Entrepreneurs, the main business lobby group, but “all that is suspended now,” says Ms Lokshina.

Foreign support for activists is discouraged too. America's Agency for International Development, one of the biggest donors, has provisionally agreed to pull out of Russia by 2007. Last year the Peace Corps and the Organisation for Security and Co-operation in Europe's mission to Chechnya left after their operating agreements were cancelled. The Open Society Institute, an international pro-democracy foundation run by George Soros, a famous financier, closed its Moscow office after its landlord demanded a tenfold increase in rent and sent in a gang of thugs. “For everything that we do now, we have to think about how easy it would be to drive us out,” says the Moscow director of one western agency. “The willingness of people in power to take different sides has all but vanished.” Mr Putin has plenty of ideas about how to engage with the West, but taking handouts is not one of them.

Here today, where tomorrow?
 

Mr Putin keeps everyone guessing

 

AP

OK, your turn to be friends with him now

ST PETERSBURG, May 2003. Historic buildings shone with freshly gilded domes and new coats of paint. Mr Putin, having contrived to assemble 47 world leaders for a series of international summits to coincide with the city's 300th anniversary, was showing the world the former imperial capital in its full glory.

It was the high summer of Mr Putin's relations with the West. Over three years, he had gradually sidelined Russia's foreign-policy hawks who pined for Soviet supremacy and mistrusted any rapprochement with the former enemy. Thanks to his immediate declaration of solidarity with George Bush after the September 11th attacks, America had turned a blind eye to the uglier sides of his own regime, including his characterisation of the war in Chechnya as part of the war on terror.

For months, the world's most powerful men had been wooing Mr Putin to use Russia's permanent seat on the UN Security Council either to support or to oppose an attack on Iraq. This presented him with a dilemma: if he supported it, he would look like an American puppet, but if he opposed it, America might bypass the UN, invalidating Russia's biggest remaining claim to being a global power. It never came to a vote; the UN was sidelined anyway; but Mr Putin somehow managed to stay on fairly good terms with everyone all the same.

However, since then a chill has set in. The Yukos affair, the Duma election and the blatantly fraudulent presidential election in Chechnya last October got foreign leaders to take fears about Russian authoritarianism more seriously. The assassination earlier this month of Chechnya's president, Akhmad Kadyrov, made a mockery of Russia's claims that the situation there was “normalising”. The expansion of NATO and the European Union right up to Russia's borders revived old disputes about visa rules, security and trade barriers. The roar of NATO jets patrolling just outside Russian airspace is almost drowned out by the grinding of teeth in the defence and foreign ministries.

Russia has been squeezed into a narrower space. Countries such as the Baltics, which used to be under its thumb, are now members of the EU. Countries such as Ukraine and Belarus, which Russia still considers part of its backyard, are now Europe's neighbours, and therefore its concern. That has brought nasty surprises. When Russia last November brokered a peace deal in Moldova that would have involved Russian “peacekeeping” troops staying there until 2020, it expected no resistance. But Moldova's president, under pressure from European leaders as well as from his own people (who had watched Edward Shevardnadze being swept from power in Georgia only a couple of days earlier), scrapped the deal at the last minute, infuriating the Russian leadership.

Old assumptions have changed. The Partnership and Co-operation Agreement that Russia first signed with the EU a decade ago had “an integrationist goal”, says Fyodor Lukyanov, editor of Russia in Global Affairs. “It meant that Russia should gradually adopt EU standards. But under Putin, Russia doesn't want to become just like Europe. It won't have human rights as a priority. It doesn't want to be endlessly coming to agreements on things.”

In February the European Commission admitted that its strategy of gradually integrating Russia, the fruit of one of the St Petersburg summits, was getting bogged down. “Russian convergence with universal and European values will to a large extent determine the nature and quality of our partnership,” it observed pointedly.

Yet as it looks around its new, smaller Lebensraum, Russia sees that the place has something cosily familiar about it: it is a lot like the old Soviet Union. It may now be called the Commonwealth of Independent States (CIS), but their independence goes only so far. The Kremlin sends advisers to help its preferred candidates with election campaigns. It vies with the growing American presence there, using Russia's remaining military bases and, in Georgia, loyal statelets as levers.

Last September Anatoly Chubais, the head of the state electricity firm, UES, said Russia should become a “liberal empire”, extending its reach on the economic side. Though he was then campaigning for his opposition party, SPS, his words have resonance in the Kremlin, says Mr Lukyanov. As big Russian firms outgrow opportunities at home they are increasingly venturing abroad, especially to countries where Russian is still spoken.

The government is doing much the same. A preliminary agreement on a single economic space for the CIS pushes Russia further from Europe's economic embrace (though it will take ages and may never happen at all). Russia is unlikely to replace the Middle East as the West's main source of oil, but when Russia eventually builds a Far East pipeline, it will forge closer ties with Asia. UES has bought electricity companies in Georgia and Armenia, and Gazprom owns stakes in firms all across the CIS and in much of Europe (see map).

Yet strengthening its hold in the CIS does not mean that Russia is withdrawing from the West. Mr Putin may not care what foreigners think of the way he runs his country, but he cares a great deal about its status in the world, and thinks these two things can be kept separate (after all, they are for China). Now that Russia's Security-Council veto has lost its shine, he will concentrate on his country's prospective chairmanship of the G8 in 2006. He is expected to try hard to get preliminary approval for WTO membership by then.

For that, Russia will have to negotiate with many countries, above all with the EU over the price of the gas it exports there. There are plenty of other shared problems, from drug-trafficking to terrorism to migration, so the West will continue to have plenty of dealings with Russia, as well as considerable leverage.

One way of using this wisely will be to show Mr Putin that his approach to many of his domestic problems makes them the world's problems too. He believes that Russia needs a strong leader to contain threats such as economic and political refugees, a decaying army, terrorist breeding-grounds and epidemics spiralling out of control. But the strength that enables the country to cope with all this is also a weakness: at the moment too much depends on the man at the top. A sudden jolt (a sharp economic downturn, a new outburst of terrorist attacks, or any mishap that might befall Mr Putin himself) could tip the country over the edge again. A more democratic Russia would be a more stable one, and less worrying for the world in general.

It does not help that people have trouble understanding what Mr Putin himself wants for Russia. As examples such as the Yukos affair or his dealings with the media show, he has an uncanny ability to keep everyone guessing. Mikhail Fradkov, his new prime minister, was about the only candidate that not a single political pundit had thought of; and also the only one bland enough to leave a large question mark over why he was chosen.

But now that Mr Putin is as much in control as he ever will be, the next few months should provide a clearer indication of where he is heading. Telltale signs will be whether he lets his reformist ministers get involved in issues that have so far been the province of the siloviki, such as military spending; how he brings the Yukos affair to a close; whether he encourages the oligarchs to invest in ways that help develop the economy rather than merely plug holes in state welfare spending; and how he responds to his officials' more retrograde ideas (he recently softened a law restricting public gatherings after an outcry against it).

In broad terms, though, Mr Putin's agenda for Russia is clear: he wants it to be a global power and an economic tiger, but also a controllable, monolithic state where suggestions are welcome but opposition is not. “Russia was not a democracy in the 1990s and it's not an autocracy now,” says Nina Khrushcheva, a professor at the New School in New York. “Russia is a process, but we always insist on labelling it as a finished product, as this or that, and then scold it immediately if it doesn't fit.”

Yet the 20th century had many such countries in transition, and many of them stayed that way for decades before the system cracked and democracy started to seep in: think of Mexico, South Korea, Malaysia, Chile, Singapore. Russia is not what it was 13 years ago; it is not what, 13 years ago, everyone hoped it would be today; nor is it better or worse; it is simply what it is. And given how fast things change there, tomorrow it might well be something completely different.