President Vladimir Putin has just signed two important documents. The first is the president's budget address to the Federal Assembly, and the second is the law on citizenship, recently passed by the Duma and now in effect with Putin's signature. These documents deal with very different aspects of state life, but they have significant similarities in how they were prepared.
What stands out in the budget address is one sentence, in which Putin says he thinks it's impossible to further increase budget expenditures, outside of servicing the state debt. By making this statement on such a fundamental point of budget policy, Putin lent his support to his economic advisor, Andrei Illarionov, who has been locked in debate with the government over key economic strategy issues. Putin's clear disapproval of high state spending is an unambiguous nod to Illarionov, who has consistently argued for cutting state spending.
Illarionov made full use of Putin's statement at a press conference he gave the next day. "What kind of economic growth do we need?" was the title of the presentation with which Illarionov began the press conference. As usual, he presented a lot of statistical material about dozens of countries, all to argue his case that Putin's recent dissatisfaction with the government for "lack of ambition" has far-reaching grounds, at least when it comes to the economy.
At the same time, the government's reluctance to aim bigger is groundless. Dozens of countries have grown faster than Russia over recent years, and Russia itself had average growth rates of 6.5 percent in 1999-2001. So what upheavals have made the government decide that growth of more than 3-4 percent is impossible?
Illarionov's opponents in the government and among commentators say the Soviet past is full of sorry examples of how the need to come up with politically advantageous figures has cost the country dearly. But Illarionov points out that the issue is about creating conditions for rapid growth, and this means speeding up structural reforms. Lower taxes on manufacturers, reining in the bureaucracy, full liberalization of currency regulation, limits on natural monopoly tariffs and setting up a stabilization fund to prevent the ruble's real exchange rate from rising are all widely recognized as necessary conditions for successful economic growth.
But this brings up an issue that discussions on the pace of growth have so far tried to avoid. To cut taxes, the state has to decrease its spending, and by a fair amount, too state spending at all budget levels currently accounts for 36 percent of GDP, while Illarionov thinks the acceptable limit should be twice as low. But what can be cut or rather, sacrificed to achieve this saving?
"Everything will be affected," is Illarionov's response. The subject wasn't developed any further, but the issue at the center of discussion has been named for the first time. Both Illarionov and his current opponents in the government all originated from the same team of like-minded liberal economists. They all support further reform, but the government is inevitably concerned about the political instability that would likely arise if social spending is cut.
In the long run, more rapid industrial growth eventually takes care of social problems: People gain more from business and employment growth than they lose as a result of decreased state social spending. But that is the final result. Getting there involves a number of difficulties, which can be overcome only if the whole society pulls together on the basis of democratic consensus and a new social contract.
This kind of initiative has to come from the president, but he hasn't said anything on this point. Indeed, he is on the sidelines, neither preventing his advisor from criticizing his government, nor preventing his government from ignoring this criticism. It's already safe to predict that the draft budget for next year will reflect only a minimum of Illarionov's wishes. Will Putin react, or will he prefer once again not to notice?
The law on citizenship is an even better illustration of the current political style. The new law makes it much harder for immigrants to obtain Russian citizenship, and more importantly, it abolishes simplified citizenship procedures for former Soviet citizens. Not only is this law inhuman, it also contradicts Russia's state interests. Russia desperately needs immigrants from former Soviet republics to compensate for its falling population.
Putin is the first Russian leader to have realized the gravity of this problem and to have spoken publicly in favor of immigration. But the draconian draft law on citizenship was introduced to the Duma in his name, and received the support of the pro-Kremlin factions despite objections from the right and the left. Putin's signature on the law now clears the last doubts if there were any left about his role in this absurd law.
So just who in his political entourage does Putin support?