Russia Balance Sheet Project: Outline
Summary
The goal of the Russia Balance Sheet Project is threefold: 1) to provide a clear, objective, and comprehensive assessment of the current situation in Russia, the country’s near-term challenges, and their implications for US interests with Russia; 2) to identify and analyze the key drivers for Russia’s future in a rigorous manner; and 3) to work for the integration of Russia into the world community and economy.
Sound U.S. policy towards Russia must be based on a firm, fact-based and objective understanding of the current Russian reality. Our capacity for effective policy towards Russia in the future must be informed by a careful and open-minded calculation of the more likely as well as the less likely future Russian realities and how they may impact US interests. The CSIS-PIIE-NES Russia Balance Sheet Project aspires to look at Russia with clarity and suggest how major factors may influence future developments to the year 2020. More near-term, the project has focused on deliverables pegged around the presidential elections first in Russia in March 2008 and then in the US in November 2008.
The Russia Balance Sheet intends to reproduce several successes of the CSIS-Peterson Institute’s The China Balance Sheet project. First, it should be a truly collaborative effort between the CSIS and the Peterson Institute. Second, it should establish the state of the Russian politics and economics as well as US-Russia relations in a fashion that is relevant both to the Washington policy community and the U.S. business community. Third, it should be attractive to private business financing. However, the Russia Balance Sheet has also reached out to incorporate an outstanding Russian partner, the New Economic School (NES) in Moscow, which is without doubt the best institution of economic education and research in Russia, where President Barack Obama spoke during his visit to Moscow in July 2009. The role of the NES was marginal in the first year of the project, but will be palpable in the last two.
The first deliverable of the Russia Balance Sheet project was a short book along the lines of CSIS-Peterson Institute’s The China Balance Sheet. The two institutions have sought to provide a similarly comprehensive analysis of Russia with particular attention focused on the impact of Vladimir Putin’s presidency over the past 8 years and the key challenges his successor will face.
The second component of the Russia Balance Sheet Project will entail rigorous analysis and projections of the key drivers of Russia’s future to the year 2020. We have established a working group around a varied set of political, economic, and social drivers that will shape Russia’s potential future trajectory. During the second year of the project this working group meets monthly in Washington and once or twice in Moscow to review working papers and discuss policy issues. These papers will be put into a second book, Russia after the Global Economic Crisis, which will be edited by Anders Åslund, Andrew Kuchins, and Sergei Guriev. It will be discussed at a work shop in Moscow on November 17. The ensuing day the three project leaders will provide a dinner briefing to project supporters.
The final product of the three-year project will be a third book tentatively entitled Russia 2020 which will synthesize the findings of the working groups and present alternative scenarios of Russia’s development to the year 2020.
The Russia Balance Sheet is also hosting major Russian officials for speeches in Washington. On April 24, the PIIE and the CSIS hosted Deputy Prime Minister and Minister of Finance Alexei Kudrin at the PIIE, and they also hosted First Deputy Prime Minister Igor Shuvalov at the Russian Embassy on September 21. As agreed with the Russian Embassy, these major events will continue approximately semi-annually.
The project has also gathered a substantial advisory committee that will be convened as appears relevant. So far, it has met twice.
An Elusive Subject and Past Failures of Analysis
Historically, Russia has displayed a profound capacity to confound and confuse everybody, partly by design, partly due to an opaque political culture. Various blinders and biases among observers also contribute. Moreover, Russia has tended to develop in highly non-linear and thus unpredictable nature. This quality is at the heart of the genius and the frustration of the country; a quality that Russians themselves simultaneously boast about and find vexing. Churchill’s famous comment about Russia as a “riddle wrapped in a mystery inside an enigma,” or the 19th century Russian poet Tyutchev’s line that “Russia cannot be understood by the mind, only felt by the soul” sound like clichés but usually clichés are grounded in some reality. Is Russia a partner or an unpredictable and unreliable troublemaker?
Looking back over the past 25 years, it is remarkable how non-linear and unpredictable Russia’s development has been. More often than not, efforts to prognosticate Russia’s future more recently have similarly been woefully off the mark. Yet, in most cases sensible forecasts have also been at hand. In 1984, Richard Pipes rightly pointed out that Russia had entered a revolutionary situation. One of the current authors write in a book published in 1989:
The first [most likely] scenario is radicalized reform with far-reaching democratization. As Soviet reformist economics are waking up from their imposed lethargy, they are becoming ever more radical, because they realize that the state of the economy was worse than they had imagined and that half-measures do not offer any results. Therefore, they want to go further towards a market economy and independent forms of ownership than they themselves had anticipated. The impressive resistance from the party and state bureaucracies is convincing them that little can be achieved without a considerable democratization… (Anders Åslund, Gorbachev’s Struggle for Economic Reform, Cornell UP, 1989).
There were many warnings of an authoritarian backlash with the coming to power of a former KGB agent to the Russian presidency. Daniel Yergin and Thane Gustafson in 1993 published the best book outlining alternative Russian scenarios to the year 2010 (Russia 2010 and What it Means for the World). Ironically, Yergin and Gustafson outlined one very positive economic scenario called Chudo (miracle in Russian), which sensibly reflects the splendid economic growth that has taken place. However, they got the reasons for the actual economic miracle that has taken place since 1999 mainly wrong. In their chudo scenario, the Russian recovery would most likely be driven by the diversification of the Russian economy promoted especially by flourishing small and medium sized enterprises. Economic reform is certainly part of the story of the Russian recovery, but skyrocketing oil and other commodity prices have probably been far more important drivers.
Since we know that Russia is prone to non-linear development, we should be very wary about concluding that the sources of the current stability are sustainable. Russia is a quasi-authoritarian state, and such states almost by definition are unstable. The recent economic boom was driven to a great extent by the oil price, and it turned out to be as cyclical as could be expected. It is difficult to predict the timing and the magnitude of its rise and fall, but that it will rise and fall is almost axiomatic because of structural factors in the oil business. The big question is whether Russia will undertake sufficient structural reform to truly modernize its economy and society to be able to fully integrate into the global community.
Project Context
Despite inherent difficulties in anticipating what will happen in Russia, the stakes in getting it right remain extraordinarily high for US policy interests. This should be fairly obvious on security challenges: Russia still maintains the largest stockpiles of nuclear weapons and fissile materials; its military industrial complex is second only to the United States, and its client list features many countries like China, Iran, Syria, Venezuela, and others whose interests diverge from ours. Russia’s geography bordering on the periphery of Europe, East Asia, and the Greater Middle East makes its role as either a partner or troublemaker in theaters of greatest concern to US foreign policy very significant. As the world’s largest producer of hydrocarbons, and a major producer of civilian nuclear energy, coal, and electricity, Russia’s aspirations to being an energy superpower are not without foundation. Whether those aspirations will be realized remains, however, an open question.
Given Russia’s intrinsic importance, it is surprising that more effort is not devoted to understanding its possible trajectories of development. This was striking, for example, in the National Intelligence Council’s report Managing Global … to the Year 2020. The main country focus was on China and India, and Russia’s prospects were nearly dismissed as being really significant for U.S. security interests. The proposed Russia Balance Sheet project will seek amends by addressing the key questions about possible trajectories of Russia’s development through a focused, rigorous, multidisciplinary, and comprehensive approach. Most importantly, we will endeavor to approach the subject with an open mind to the hard to imagine but possible outcomes since so many times in the past in looking at Russia ten years hence we have failed to imagine or anticipate what could and did happen.
The timing is ripe for such an effort with new administrations scheduled to assume power in Russia in spring 2008 and in the United States in January 2009. We will be embarking on a third epoch in post-Soviet US-Russian relations following the Yeltsin-Clinton 1990s and the soon concluding Putin-Bush period. The relative positions of the two countries in the world have changed considerably in the last eight years with Russia’s unexpected resurgence and the United States’ weakened by the draining war in Iraq and an economic and financial weakening. In the near term Washington needs to have a sense of how a new Russian president may consolidate power, the Kremlin ability to drive policy, and the broad outlines of that policy. In the longer term we need to consider a series of questions including: what kind of power is Russia likely to be in the world; how will it define its interests; what capacities will it have to pursue those interests; and how compatible will those interests be with US interests.
Organization
Fred Bergsten, John Hamre and Sergei Guriev co-chair the Russia Balance Sheet Group. The project is directed by Anders Åslund, Senior Fellow at the Peterson Institute, and Sergei Guriev, President of the New Economic School, and Andrew Kuchins, Director and Senior Fellow in the Russia and Eurasia program. For the rest, the Russia Balance Sheet Group will be comprised of the participants of the Working Group, some senior staff at CSIS and the Peterson Institute, as well as additional outside experts. The Russia Balance Sheet Group will serve as a steering committee throughout the duration of the project. We have formed a large and prominent advisory committee comprised of the foremost experts on Russia and interested parties.
We would also design a series of briefings for members of Congress and private sector supporters of the project as well as briefings and workshops in Moscow and possibly other interested capitals during the course of the project both for feedback of work-in-progress and dissemination of findings. There should be considerable interest in Europe and Asia as there is no other group in the world undertaking a project on Russia of this scope and magnitude.
The CSIS and the Peterson Institute have strong comparative advantages to undertake this project including strong regional and functional in-house programs important for Russia’s future, an established “brand” for this kind of project with the China Balance Sheet, a sterling reputation for independent and innovative analysis, and strong boards with powerful name recognition, interest, and experience in Russia. We are very happy to have extended this cooperation to the New Economic School.
Year One
During the first year of the project two well-attended meetings with the advisory committee were held in Washington. They proved helpful to set the directors for further work.
The first “deliverable” of the Russia Balance Sheet project was a short book by the end of Year 1 along the lines of CSIS-Peterson Institute’s The China Balance Sheet: What the World Needs to Know Now about the Emerging Superpower. The authors of The China Balance Sheet articulate the goal of that publication in its preface as based on the belief,
that constructive U.S. policies toward China must rest, first and foremost, on a firm factual and analytical footing, [and] this study’s primary purpose is to provide comprehensive, balanced, and accurate information on all key aspects of China’s own development and its implications for other nations. (p. x)
The Russia Balance Sheet project has provided a similarly comprehensive analysis of Russia with particular attention focused on the impact of Vladimir Putin’s presidency over the past 8 years. The resulting book, authored by the two project managers, Anders Åslund and Andrew Kuchins, comprised of essentially eight chapters of substance with a large final chapter on policy advice for US-Russia Relations:
Introduction: Why Russia Matters and How
1. Russia’s Historical Roots
2. Political Development: From Disorder to Recentralization of power
3. Russia’s Economic Revival: past Recovery, Future Challenges
4. Policy on Oil and Gas