The Russian obsession with the big picture – big projects, big plans and equally big gaffes – is much in evidence these days.

Still, the budget has just been passed and, for once, the Russian government can claim to have a genuinely decent document.

All in all, the government has broadly stuck to its economic principles, and barring some friction over how to spend the windfall gains from high oil prices, the polity seems to be displaying a healthy degree of common sense.

The regional governments are being checked by the increasingly aggressive governors general that President Vladimir Putin appointed earlier this year.

The auditor general's office, which had largely been a ceremonial post – and a playground for Communist sympathizers – has been training its guns on public sector companies and forcing them to be more accountable.

Most of the oligarchs have been distanced from power – and the Kremlin seems free of Boris Berezovsky's pernicious influence.

The new oligarchic star, Roman Abramovich, is getting over-ambitious, with his sights now set on taking control of the country's diamond industry by becoming governor of Yakutia. But too much visibility in Russia usually ends in a public hanging – and Abramovich might be getting too big for his boots.

Chechnya also seems to have dropped out of the news.

All in all, Putin can feel reasonably pleased that, bar a couple of high-profile foul-ups, his administration is making progress.

But that is where the trouble begins. Since the collapse of the Soviet Union, the federal authorities in Russia have largely been a symbolic branch of government. This branch has been extremely effective at spreading the virus of corruption. It has been efficient in acting as a guarantor for all that is wrong.

But aside from Putin's brave experiments with a new form of vertical power, the system operating the day-to-day administration of the country, that affecting the daily lives of the Russian population, remains completely unreconstructed.

The men and women running the country's bureaucracy today are the direct descendents of those who seized the reins of the bureaucracy in 1917. They continue to spread their tentacles throughout the private sector, government, power structures, polity and offshore havens for private wealth.

Further down the ranks, at the village and municipal level, the bureaucracy has never been reformed. It has never been disciplined or trained in new ways of administration. If there is democracy in this country – demanding a new system of responsibility and accountability – then the local bureaucrats know little of it and care less about it.

The decay of institutions across the country is complete, and no matter what the Kremlin's intentions, or its resolve, the bureaucracy remains capable of sabotaging every decision and policy impinging on its interests. As the saying goes, "Governments come and go – bureaucracy remains forever." And it is the bureaucracy's interests, entrenched at every level of government, particularly those involving business, that pose the greatest danger to society.

The drama of a Kremlin under the control of a powerful few – colluding to loot the country – is in fact being played out in one form or another across the country. It is naive to believe that the only reason for Russia's political failure is Berezovsky.

Unfortunately, even though Putin has shown good sense in appointing liberal economic advisers – and one hopes he gives greater powers to intelligent people like Economy Minister German Gref – the president has shown little inclination toward fostering democratic institutions in this country.

Instead, Putin seems, like his predecessors, to be looking for administrative solutions to Russia's overarching problem. He thinks that by imposing rules from above, the existing system can be made to function for the better of the country. To him, with better rule, a vertical system of power, respect for law and good economic policies, Russia can become the darling of foreign investors.

But that is not the way for the country to move forward.

Instead, the president needs to begin strengthening local democratic institutions. Grassroots democracy needs to take hold in the country – it is the only hope. There is no better guarantee that the law of the land will be upheld than if every individual citizen has a stake in ensuring that this is the case.

Today, this is a long way from reality. The signals that have been going out to the security agencies are the exact opposite. These agencies are enforcing the current contradictory and chaotic laws at a local level with the zeal of commissars. They are, just as effectively as the federal government, using laws selectively to target and destroy political opponents.

At best, continuing down this path will lead Russia to a Chinese version of democracy and the free market. At worst, lacking a binding ideology and party discipline, it will be a recipe for arbitrary rule and, in turn, chaos.

Indeed, what Putin has achieved to date is the easy part of the job – macroeconomic reform is not hard to implement, particularly with a servile Duma lower house and a toothless Federation Council.

If he is to really make a breakthrough, all the president's energy needs to be directed toward grassroots reform and the implementation of policy. The latter will prove virtually impossible without a complete overhaul of Russia's bureaucratic structure. The government cannot simply dismiss a few thousand bureaucrats, though that would be a good start. It needs to go for root and branch reform.

The president also needs to make clear that the overriding principle today is respect for the institutions of democracy. That means ensuring a free and independent press, an independent electoral commission and an independent judiciary.

If Putin follows this course, he will create a self-sustaining administrative system for Russia that will demand – and ensure – better of its leaders.

At the moment, the media is obsessed with the fate of the mighty few – men who are irrelevant in the bigger scheme of things. The details that shade-in the bigger picture are far more important. Attention needs to be devoted to every region, okrug, city, town and village.

That is the critical issue that Putin must address. If he fails to tackle this priority task, then all the work he has done so far – and might do in the future – will amount to nothing.