Where will economic reform in Russia come from?

In a guest post for the Russia Foundation website, Dr. Richard Connolly, an expert from the University of Birmingham on the WTO and specialist in the political economy of the post-socialist region, examines the possibilities for economic reform in Russia.

In August last year, Russia finally joined the World Trade Organisation. Around the world, hopes were high that this would signal a fresh round of economic reform in Russia that would help overcome the problems associated with, amongst other things, a poor business environment, weak rule of law, a growth model based on natural resource exports, and the overbearing presence of the state in the domestic economy.

Nearly eight months after Russia’s accession, the prospects for reform appear much bleaker, causing observers to ask two important questions. First, why has WTO accession not acted as a catalyst for domestic reform? Second, where might a reformist impulse come from, if not from WTO accession?

The answer to the first question is surprisingly straightforward, although perhaps surprising to proponents of international trade. Quite simply, there is no evidence to suggest that WTO accession, in and of itself, has a positive effect on economic reform in new members. Since 1996, 46 countries have joined the WTO, ranging from Angola to Vanuatu. Some countries reformed before, during or after accession. Some didn’t. There is, however, no general trend towards economic reform among new members. It should, therefore, come as no surprise that accession didn’t cause a sudden renewed interest in economic reform in Russia.

What is most important for economic reform is an appetite for reform within member countries themselves. Sometimes WTO accession can act as a useful anchor to support domestic reformers. More often, however, it is not enough by itself. Instead, a clear desire for reform needs to come from a country’s ruling elite. Unfortunately, mixed signals are coming out of Russia, with conflicting messages being given on a range of issues ranging from privatization to defence industry reform, and from the regional development of the Far East to energy policy. Amidst rumours that the President, Vladimir Putin, is preparing to remove the government led by former President, Dmitri Medvedev, confusion is growing in all areas of government policy, including economic policy.

Why does Russia appear so rudderless? The simple truth is that Vladimir Putin has never been the omnipotent autocrat that many appear keen to paint him as. Instead, Putin has tended to rule more as an arbiter among conflicting interests than as an autocrat. Until recently, his immense popularity among Russia’s citizens meant that Putin’s position as supreme arbiter was unquestioned. However, since the fateful rokirovka (‘castling’) between Putin and Medvedev in late 2012, and the subsequent protests in some of Russia’s largest cities, Putin’s popularity is less secure. As his approval ratings have diminished, so has his ability to bring order to the powerful interests competing behind the scenes. The growing sense that Putin is both unwilling and unable to bring order amidst increasing conflict will only invite more policy uncertainty as no single interest group is powerful enough to ensure policy consistency. Unless Putin’s popularity returns to its previously high levels, this is unlikely to change in the near future.

But what of the opposition that captured the world’s attention in the winter protests last year? Unfortunately, the chances of the non-systemic opposition formulating a credible economic reform plan are even worse. The power of the protest movements, located in primarily in the middle classes of Russia’s largest cities, was not great to begin with. The fact that the opposition consists of a wide array of interests, with widely divergent views on economic policy, means that any consistent or viable programme for economic reform will not come from there.

Thus Russia is left with a rudderless elite and an incoherent opposition. The prospects for a new direction in Russia’s economic policy look as bleak as ever. In this context, WTO accession was never likely to be sufficient to cause a new era of economic reform.