Russia: Which Capitalist Road?

The relationship between democracy and the economy has always been contested terrain. In Russia, many people, including intellectuals, do not see democracy as important to economic reconstruction. They are unconcerned by President Vladimir Putin’s steady elimination of the content, if not the form, of democratic institutions. Defending his near-monopoly of Russian television, Putin claimed that Russians want to know the truth, not its many variations. He has been buying up media, arresting politicians and businessmen who challenge him, substituting appointed for elected local officials, and bringing the judiciary under executive control. In fact, many Russians attribute the country’s current economic growth to the order that Putin has imposed. Western criticism of Putin stokes a nationalistic pride.

They remember Boris Yeltsin’s years as an era of rigged elections, stolen wealth, lawlessness, and economic disintegration. To most Russians, Mikhail Gorbachev was the man who gave away the empire and received nothing in return. Gorbachev’s high status in the West is evidence that his actions unnecessarily compromised Russian power.

Many Russians also reluctantly admire the Chinese road to wealth—growth without democracy or, as one academic put it, growth with order. In their view, Russia crashed during the 1990s, but China prospered, modernized, and planted an entrepreneurial culture. Georgi Arbatov, founder of the Institute for the U.S.A. and Canada, told me, “We do not have real capitalists in Russia.” Still, if both China and Russia are more or less authoritarian, why has the Chinese economy produced double-digit growth for the past twenty years while the Russian economy contracted through the 1990s and has grown about 6 percent annually over the past seven years?

The rise of the price of oil from $11 to over $70 a barrel has certainly helped the Russian economy in the past few years, but the American analysis of the Russian economy has more to do with Kremlinology than economics. Part of the reason is that Russia has few links to the U.S. economy. China is the second largest exporter to the United States. Russia does not even make the top fifteen. It trades mostly with Germany, followed by Belarus and Ukraine. The Netherlands and Italy are more heavily involved in the Russian economy than is the United States. The absence of economic ties is important because much of what we know about the Chinese economy comes from the corporations that invest there and the unions whose members compete with Chinese workers. The American presence in Russia is heavily weighted with nongovernmental organizations that report on Russian democracy, not its economy.

To get some insight into the new Russian economy, I used professional connections I developed when I wrote a book on the U.S. steel industry. Steel consultant Mike Locker told me about a Russian company that was expanding in North America. In 2004, Severstal, the...