Russia 100222 Basic Political Developments

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RFE/RL: Don’t Expect Miracles From Russia’s ‘Authoritarian Modernization’
February 21, 2010

By Georgy Satarov

I was surprised by the reaction to the detailed interview that first deputy presidential administration head Vladislav Surkov gave to the respected “Vedomosti” newspaper this week.

For some reason it was generally taken as a tale of the authorities’ plans for constructing a Russian Silicon Valley as part of the realization of their ambitious idea to create an innovation economy in our country. I -- how do I say this politely? -- am not so sure. I think that Surkov had another aim. So I have taken upon myself the none-too-pleasant labor of annotating this interview.

First let me explain why the innovation economy and the creation of creative reservations for scientists are completely beside the point. For one thing, in recent months the media have been overloaded with discussions of all of the authorities’ various plans. The plans are grandiose and laid out in lofty (sometimes touching and sometimes spellbinding) rhetoric. The president himself kicked things off. Then everyone was talking about the report by the Contemporary Development Institute. And now Surkov -- and everyone is discussing his interview.

All of these developments have one thing in common -- a complete lack of any connection to reality. They are building for us a virtual space under the general rubric of “modernization” -- although there are probably other names for it, but that’s not the point. And we -- including myself -- have taken up this game with enthusiasm. But this idyllic picture was destroyed with the appearance of Surkov’s interview. He shouldn’t have done it. If it hadn’t been for that interview, I probably wouldn’t have written this article.

When you, dear readers and colleagues, find yourself eagerly discussing the various topics that are being thrown at you, please remember what is really going on in Russia, in our common country. Remember the constant, ongoing zombification of our people that is being conducted through the state-controlled mass media. Remember the astronomical levels of corruption that have never before been seen in our history, although our history has seen a lot indeed. Remember the uncontrolled police abuses going on across the country, the torture in our prisons and at our police precincts. By now, you yourself can remember the other things needed to fill out this list.

And don’t forget to take into account that all this has been going on for a long time and that the authorities are not in a position to cope with any of it. Many of you will recall the many examples of the authorities’ complete powerlessness to do anything except steal and protect themselves. Think of our burning Caucasus. Think about the destruction of things like the federal state, the separation of powers, political competition. Don’t forget the failed administrative reform or the laughable “war on corruption.”

And don’t forget about how the Soviet Union collapsed. It was also poisoned by the drug of oil. Its economy was also primitive and the dissatisfaction of its citizens was contained by imports. Its bureaucracy was also corrupt, although not nearly so much as today’s. The Brezhnev regime -- like the current one -- maintained the bureaucracy’s loyalty by indulgences of permissiveness. But by this standard too it was way behind the Putin regime. I don’t think we need to recall how the Soviet Union ended. But now, dear readers and colleagues, answer this question honestly: in what way is the current regime stronger, solider, or more experienced than the Soviet regime?

And now, one last test. Honestly answer these two questions: what are the perspectives for the current regime? And -- the second question is based on the obvious answer to the first -- what are the perspectives for our country?

But please be honest with yourself. And then it will become clear that at the present moment Russia has only two real tasks: how to save the citizens of Russia from these authorities and how to save the country itself from these authorities. You and I and our country all have the same problem -- survival. But we shouldn’t think about this too much. Doing so is deadly dangerous. Not for us -- for them! That is why we are all now discussing all this rose-tinted nonsense.

I wouldn’t have written all of this if not for Surkov’s interview. It turned out to be useful in that it supplemented and shaped the general picture with its candor, which was unsuccessfully masked by simple cunning. It is like a lover who spends half an hour professing her love and then at the end asks for a mink coat. Let’s go through the interview together. It has the following structure: about the first 80 percent is all Potemkin innovation villages and at the end comes the main point (the mink coat).

How To Do Innovation

Let’s start with the villages.

First: The strategy for building an innovation economy that we are being offered is oriented toward the giants of business. In real life, this doesn’t happen. Giants are useful when you need to conquer new markets with new products that have been created by the research of scientists and then tested by small and medium-sized businesses. When the strategy is oriented toward large businesses, you run into two problems. First, they don’t understand what you are talking about. Second, they already have their own goals. It doesn’t matter which of these two problems dominates in the end; in either case, the promised result is unattainable.

Second: They are proposing that foreign specialists and our own who have been for years working successfully abroad will come to work on this reservation. But ask yourself, why in the world would they come? What has changed since they left? Have things gotten better? Those who are lured back will end up sitting inside a compound. Otherwise, they will encounter the same things that you and I encounter everyday. These are people with a sense of their own self-worth, which is what pushed them to leave in the first place and has since become natural for them. And do you know how our authorities react whenever anyone displays any sense of their own self-worth?

And, in general, can an innovation economy really thrive based on a bunch of imported brains? We’ll need support staff -- our own. And do you know what is going on now in our institutions of higher education? Who are our young people going off to learn from? Do I need to go into details about this?

Where will qualified workers come from? They are dying off, and no new ones are appearing. Will we import them too? Maybe it would be more effective to import new bureaucrats.

Questions like these arise in connection with almost every thesis that forms part of the glorious panorama that Surkov paints in his interview. All you have to do is read it with a minimum of intellectual effort and a small dose of critical thinking.

Let’s conclude this section with the main point. Specialists agree that an effective innovation economy is based on an abundance of posited innovations. Only a small fraction of them will develop into future breakthroughs. Such abundance is built on the following foundations. The first is independent universities graduating independent-minded students.

Russian educational standards today do not set themselves this goal (free thinkers are dangerous). The second is the freedom and daring to try the most varied things. This is possible when, among other things, there exists a reliable and enforceable right of a person to enjoy the fruits of his or her labor. We don’t have this in Russia. Third, such abundance requires the infrastructure to quickly set up a business based on a new idea. This means affordable credit and the confidence that if a business succeeds, it won’t just be stolen from you. Who would be willing to say that we see even the beginnings of such an infrastructure in Russia today.?

But the main thing is freedom. That is the backbone of creative inquiry -- we’ll get back to freedom later.

So, what can we conclude? Under present conditions and under the present regime, there is only one reason to discuss the creation of an innovation economy and Silicon Valleys -- the creation of a virtual reality. And who is the country’s finest propagandist? You guessed it -- Surkov! Now it is clear why he is in charge of this project.

'Authoritarian modernization'

Now let’s get down to business. I’d like to proceed by introducing some quotations from Surkov’s interview and then following each one with my commentary.

Surkov: “We have a school that tells us that political modernization, by which they mean political dissipation, can ‘do anything’ -- that this is the key to the modernization of the economy.”

I don’t know anything about such a school. Never heard of it -- I mean, a school that says political modernization means dissipation and permissiveness. But that’s not the point. After all, this is a fairly high-ranking government official talking. An official of a regime that is famed for its modesty and restraint. They are known for crashing their helicopters while hunting for endangered animals. They live in palaces in special compounds outside of Moscow. Their cufflinks cost about what person with a doctorate in physics earns in a year. You know the rest.

Surkov: “There is another conception, which I endorse.... Some call it ‘authoritarian modernization.’ I don’t care what they call it.”

Russia has been undergoing “authoritarian modernization” for 10 years now. We see the results.

Surkov: “Spontaneous modernization is a cultural phenomenon (it is cultural -- not political) and has only been achieved in Anglo-Saxon countries.”

Spontaneous modernization was carried out in the United States by the brains and hands of Germans, Jews, Chinese, Indians…and Anglo-Saxons, of course. It is simply that they lived under a political regime under which their ethno-cultural and other differences were secondary. Where you have brains and freedom, you will have success.

Surkov: "The 1990s in Russia proved that the splintering of society in itself does not create positive energy. Yes, some energy is released, but what is it used for and what does it lead to? We saw that nothing happens by itself."

This -- again, how can I phrase this politely? -- is a delusion. Hopefully, an honest one. During the 1990s, independent universities and independently educated people began to emerge. There is a reason why those universities have been suppressed. Independent courts began to appear and people began to use them independently. There is a reason why this independence has been destroyed over the last 10 years. And independent and (which is more important) effective business began to emerge. From furniture factories that were able to export their products to Italy to Yukos, which was looted and destroyed by the authoritarian modernizers. After the August 1998 crisis it was precisely independent business that lifted the country off its rear end in record time. And all it took was not getting in its way. There is no longer any free business in Russia. And all that was the very energy that we so sorely lack now.

Surkov: "If you want to throw up your hands and wait while until from the squabbling of the liberals, from their endless arguments, emerges a new economic miracle, then you have a long, long wait -- I guarantee it. You will have an extraordinarily colorful parliament. There will be talking shops everywhere -- in the presidential administration, in the government. We went through all that -- when one official says one thing and another says something else because one is working for one corporation and the other is working for a competitor."

I reproduce this tirade in its entirety on purpose so that you could feel for yourselves this cry from the soul. The part about the officials and the corporations is particularly touching. It sounds like he knows his material. Of course, you should phrase it differently -- every official has his own business, and those who are stronger have corporations.

Surkov: "If we again have disorder, conflicts, and redistribution, if we undergo Ukrainization, then no one would ever consider investing in and cultivating anything in Russia. Under the noise and chatter about freedom, they’ll carry away everything.”

Here we see the main theme for the first time -- Ukrainization. That’s what happens when you can’t direct elections. As for “carrying things away,” judge for yourselves. No comment is needed.

Surkov: “I think that the main task of a democratic society is to protect people. To protect them from one another. Not to beat one another up  for some reason or for no reason, but to protect.”

This, of course, is about our police. And this is a good place to ask: where do the orders come from under which the riot police violently break up protest demonstrations?

Surkov: "For 50 years, Japan was ruled by one party. Didn’t it develop? Yes, we can hardly dream of what happened there."

There are a lot of nuances here, beginning with the fact that Japan is inhabited by the Japanese, and this is important. In Japan, the bureaucracy does what it does, and business does what it does. And the bureaucracy has one overriding task -- to help business, rather than pillaging it. And the reason for this is because in Japan business influenced the ruling party. Isn’t it the other way around in Russia?

Surkov: "Or take Sweden. They had a single ruling party for 70 years. Hasn’t Sweden developed?"

Again, how to say this politely? Delusion. He shouldn’t have mentioned Sweden. Sweden has a super-strong civil society. And what would happen to a bureaucrat who tried to restrict it? There officials resign -- on their own -- not when they are convicted of corruption, but the very moment they find themselves in a conflict of interests. And the reason for this is simple -- because the country has a powerful, independent opposition.

Surkov: “The relentless criticism of democratic institutions is a natural sign of democracy. I’m not the one who said that -- it was a famous European political scientist. If you criticize democracy in Russia, then that means it exists. If there are demonstrations, it means there is democracy. They don’t have demonstrations in totalitarian states.”

Sadly, this unnamed political scientist has deceived Surkov. In Europe, they don’t have “relentless criticism of democratic institutions.” They criticize politicians, that’s true. Sometimes relentlessly, like they did Boris Yeltsin. They criticize mistaken decisions, and they criticize correct ones. They also seek out defects in the way institutions function, since there is no such thing as a perfect institution. And they criticize those defects. But in Russia, no one criticizes the institutions of democracy as much as Surkov and his “political scientists.” Of course, they criticize outside ones -- American, Ukrainian, Yeltsin-era ones. Other critics do not criticize the institutions of democracy in Russia, but the absence of them (the institutions, not the critics).

As for demonstrations, they are equally a sign of democracy and a sign of the absence of democracy. Otherwise, we’d have to say that the regime that Stenka Razin rebelled against in the 17th century was democratic. They most certainly do have demonstrations in totalitarian countries. Sometimes those demonstrations are met with gunfire, as happened in Novocherkassk in 1962.

Surkov: "The system must be adapted to a changing society, one that is growing more complex. But this doesn’t mean we should reject the system. It must be preserved. And we can’t release things that could destroy it. This system is inseparable from the people -- it is deeply rooted in the social fabric. Anyone who wants to destroy it is a social danger."

Here we see it again. The main thing is to save the system and that those who aren’t with us are socially dangerous. This is even more precise than the Stalinist formulation “socially estranged.” It sounds terrifying. But I am against preserving this system. As far as it being “rooted in the social fabric,” I think this formulation is not precise. It would be more accurate to say our social fabric is infected by this system.

Surkov: "It is crucially important to preserve political stability. Stability does not mean stagnation. It does not mean petrifaction. It is a tool of development. Modernization cannot result from chaos."

Here we see it again. The main thing is stability. This is a new scholarly term -- stability as a tool of development. Let me indulge in a short lecture: Stability is never a cause of anything. It is always a result, and a temporary result at that, since otherwise there would never be any development. There are two types of stability. The first is institutional stability. This is the stability of the basic principles and institutions of democracy which, first and foremost, ensures the adaptability of those very institutions. It also preserves a necessary amount of chaos, which ensures the search for the new in civil society and its social creativity, in science, in art, and in business. It is the variety of innovation that is born of creative chaos and ensures development.

But there is a second kind of stability -- extra-institutional stability. This is an illusory, temporary, unstable stability behind which stands the violence of clans or the inflated authority of The Leader. This is not the stability of development, but the stability of the dead end. What kind of stability do you think Surkov is talking about?

Surkov: “It is not certain that Russia could survive a second round of collapse. Although it is certain that it cannot survive in the absence of development.”

These are the last words of Surkov’s interview. And here I am in complete agreement with him. Russia won’t survive. We don’t have Yeltsin. We don’t have our energy. Adaptive institutions have been destroyed. And here it is not just that I agree with Surkov, but that he agrees with me -- with the first part of this article. He is condemning the regime. Justly. Sincerely. Thank you. Maybe that was the main point of the interview?

Forget about the promised Silicon Valley. There won’t be any miracle. Not here. Not now. They don’t have enough time.

Georgy Satarov is president of the Moscow-based INDEM foundation. The views expressed in this commentary, which originally appeared on the website “Yezhednevny zhurnal” are the author's own and do not necessarily reflect those of RFE/RL.

February 19, 2010
Russia Profile Weekly Experts Panel: Should Modernization Be Imposed?

Introduced by Vladimir Frolov
Russia Profile

Contributors: Stephen Blank, Vladimir Belaeff, Ethan Burger, Vlad Ivanenko

Last week, President Dmitry Medvedev called on the leaders of big business to contribute to the modernization of the economy. Medvedev asked Russia’s business leaders to come up with a list of specific innovation projects involving cutting-edge technologies that would open new markets for Russian-made high-tech products. The list of such projects will be reviewed by the Kremlin’s Commission on Modernization in May, in order to determine which projects will receive state funding or a special tax regime. Will this approach to innovation succeed in Russia, where others did not? Can the state actually force private companies to innovate? What kind of incentives does the state have to encourage private investment in innovation?

Medvedev chaired a meeting of his commission to modernize the economy in Tomsk, where he met with the leaders of the business community, including RusAl Chairman Viktor Vekselberg, Onexim Group owner Mikhail Prokhorov, Rusnano Chief Anatoly Chubais and LUKoil CEO Vagit Alekperov. The president essentially acknowledged that private businesses should be forced to invest in innovation, since very little private investment in Russia is geared toward those objectives. It was an ultimatum, albeit a mild one. “I believe that all large private companies that have been established in our country in recent years have to make a major contribution to the modernization of Russia's economy and promote its growth,” Medvedev said, calling for significant growth in the innovation component in corporate investment programs.

He even went as far as to demand that the corporate social responsibility programs be redefined to move away from charity toward a practical focus on innovation and the companies’ effectiveness. Acknowledging that such demands amount to heavy government intervention, Medvedev reminded the oligarchs of their moral obligation to the state that bailed out their crumbling business empires at the peak of the financial crisis last year. “It is very important to remind ourselves that the government has shown itself to be a reliable partner during the crisis; it has not abandoned private companies to their fate. And today when we talk about the challenges of the innovative development of our economy, I hope that we can understand each other and formulate a plan of specific measures and long-term policy outlines,” Medvedev said.

Among innovative projects discussed at the meeting was Prokhorov's plan for a low-budget car, and Vekslberg’s Renova investment company plans to open a solar panel factory in Chuvashia by 2012. Prokhorov said that he plans to launch mass production of his car by the middle of 2012. The car will use liquefied natural gas as fuel and will fundamentally change the existing infrastructure of the automobile industry, he said. Both Vekselberg and Prokhorov are counting on state financing for their innovation projects.

Will this approach to innovation succeed in Russia, where others did not? Can the state actually force private companies to innovate? How can the state determine which private innovation projects need government support and which do not? What kind of incentives does the state have to encourage private investment in innovation? Why is Medvedev moving away from the recommendations of his think tank for less government interference in private business? Why is he adopting a sort of a statist approach to innovation? Will Medvedev’s efforts bear fruit?

Vlad Ivanenko, Ph.D. in economics, Ottawa, Canada:

It is laudable that president Medvedev proceeds with public consultations after having launched his modernization agenda in the article “Go Russia!” a few months ago. It indicates a certain structural break with the more familiar authoritarian approach exercised by the Kremlin up to now. However, a look at the list of projects proposed by big business makes me question the process by which the state selects the winners, and its transparency.

As part of my job responsibilities, I monitor the programs of modernization worldwide, particularly in the energy sector. It strikes me that projects that Frolov mentions – the production of liquefied natural gas-fuelled cars and solar panels – are borrowed from abroad. This is a disturbing development because the Russian proposals are not tailored to meet specific local objectives, unlike their foreign analogues. For example, the plan by American billionaire T. Boone Pickens to use natural gas in cars would eliminate the need for imported crude oil and, hence, reduce the U.S. trade imbalance – a major threat to the national financial stability. A similar project by Russian billionaire Michael Prohorov would be a boon to Gazprom, whose sales are in decline, but what else would it do for Russia? Similarly, the EU support of solar power plants in Spain and possibly in Sahara is conditioned on their ability, among other things, to rid the union of its dependence on the import of Russian natural gas. Under the circumstances, the project by another Russian billionaire Victor Vekselberg to build a solar-panel factory is ill-thought out, unless it is somehow integrated in the EU plans. These observations suggest that for one reason or another, Russian big business is unwilling to synchronize its plans with the Russian state as much as its American and European peers do.

Another event that took place in Russia last week highlights a possible mismatch between the idea of public consultations floated by president Medvedev and a more opaque way to support modernization plans emphasized by Prime Minister Vladimir Putin. It concerns the €2.1 billion loan that the government is offering for a joint venture between the Russian automaker Sollers and the Italian car giant Fiat. The loan is questionable on two counts. Firstly, Putin does not explain the merits of this particular project relative to its alternatives. Secondly, the logic of singling out the car-making industry for state subsidies instead of other economic sectors is unclear. It is true that road vehicles constitute one of the largest items in the structure of Russian import, but import substitution should not be a national priority for a country that runs persistent trade surpluses. If the Kremlin decides to substitute a part of the imports, it is better advised to look at the development of the national petroleum services industry – the idea suggested in Tomsk by Lukoil’s president Vagit Alekperov – given Russia’s unique conditions under which its oil and gas industry operates.

In general, I find that the relationship between the state and business in Russia is currently deformed. On the one hand, the state doubts private interests as the latter has shown proclivity to misuse public support. On the other hand, big business is careful not to put all of its eggs in the Russia basket, mindful of Yukos’ fate. The resulting mutual distrust can be gradually healed if the two sides continue the dialogue that Medvedev seems to be determined to maintain, possibly with the help of independent mediators.

Ethan S. Burger, Adjunct Professor, Georgetown University Law Center, Washington, DC:

In the near future, the European Court of Human Rights will turn its attention to the cases of Mikhail Khodorkovsky and Yukos. The Russian government’s handling of this matter over the years has become a prism through which the country is judged by many business and political leaders. In 2002, then-president Putin’s actions toward the oligarchs can be summed up as “stay out of politics, behave patriotically, and I will let you keep the wealth you accumulated during the Boris Yeltsin years.”

Medvedev’s approach to Russia’s existing oligarchs seems more sophisticated than that of Putin. He has apparently said, through words and actions, “I am not so concerned with what you can do for me, and don’t ask what your government can do for you. Instead, tell me what you can do for our country.” President Medvedev’s success and future will ultimately depend on the health of the Russian economy. While human connections remain important, it seems as if Medvedev believes that policies must be based on well-designed programs and respect for the law/private property.

President Medvedev aims to implement industrial policies that rely primarily on market principles, rather than with some new form of a command economy (in the Putin as opposed to the Soviet sense). Medvedev is well aware of the fact that state-run enterprises tend not to operate efficiently. Fear of outright or creeping expropriation is unlikely to motivate domestic business leaders to invest in Russia as such policies are far more likely to make them think of the best way to transfer their wealth abroad, which will not strengthen the Russian economy.

Governments have plenty of tools to encourage businesses to pursue particular goals, particularly by altering tax policies. Giving favorable treatment for research and development as well as investment in human capital, increasing government procurement of products and services and providing incentives to create jobs in areas of high unemployment can be effective mechanisms for achieving policy goals. Creating tax disincentives for investing abroad can lead to positive economic outcomes. It is also reasonable for the state to pick out sectors to support. Taxing clean jobs at a lower rate (e.g. ones where recycled materials are used or generate less pollution than existing factories) is good public policy as well as good politics.

The oligarchs should not be coerced to undertake particular policies. At the same time, where the oligarchs see opportunities to adopt policies that are consistent with the state-created incentive system, they should not be excluded from participating if they do so lawfully. A statist industrial policy and government intervention in the economy are important when the market fails (as they have in many parts of the world), but Adam Smith did not blindly believe in laissez-faire economics. He had considerable faith in the invisible hand, but not in unregulated capitalism or excessive political interference in economic activity.

Vladimir Belaeff, President, Global Society Institute, San Francisco, CA:

Medvedev’s appeal to Russian business – to become more involved in economic and technological modernization – is neither surprising nor exotic. The proposal is contrary to deeply seated habits (vices) of corporate egotism, short-term planning and greed for the “quick buck.” In our present global crisis the pursuit of obscene short-term profits at the expense of society and reckless disregard for the long term are no longer seen as legitimate, quaint or endearing. Democratic governments serve the interests of large societies; when these are forced to rescue commercial corporations from the consequences of their folly and greed – the beneficiaries are required to reciprocate. So there is nothing wrong with Medvedev’s reasoning.

Russia’s government is now identifying one of the objectives of social responsibility for big businesses operating in Russia. Is this “force?” Every government everywhere has coercive power – this is the definition of government. In what way is the demand that businesses engage in innovation different from taxation, central bank interest rate policies, anti-trust regulation and many other aspects of economic governance?

It is the function of governments to define and implement national goals for a variety of purposes (the U.S. Great Society program is an example.) Part of the implementation of such programs is a suite of tools to incentivize and to coerce business when appropriate – to perform alignment with the greater goals. This is the interaction of the state with the private sector, ongoing everywhere in the world, even in this instant, and since time immemorial.

More fundamentally, the reported dichotomy between “state” and “private” sectors – in the economy of any country – is fictitious. The state and the private sectors are distinct, but they are in a symbiotic relationship and must collaborate to survive. Proponents of a divergence between the private and state sectors, or those who advocate the absorption of one sector by the other (socialists – 100 percent absorption by the state; liberals and libertarians – 100 percent absorption by the private sectors) are demonstrably utopists.

The history of innovation demonstrates that the state is very often the main sponsor and initiator of economic and technological modernization. This was true in the days when the inventions of Archimedes were sponsored by the city of Syracuse; in the Great Modernization by Russia’s Alexander II; in the era of the U.S. Apollo program, as well as the National Ignition Facility at the Lawrence Livermore Laboratories today. These programs are prime drivers of very diverse innovation. Nobody complains about statism when American military programs generate lucrative contracts for the vast American defense industry – so cross permeated with the rest of the economy that practically every major U.S. corporation has a Department of Defense subdivision.

Generally, established business is not strongly innovation-oriented. Technical innovation is most active in entrepreneurial start-ups, university labs and think tanks and in some (but not all) engineering firms. So it is not surprising that a special invocation was addressed to leaders of Russia’s extractive industries. Whether the head of RossNano was a target or only a witness of the recommendation depends on how one measures his effectiveness as head of one of the “premier” innovation resources of Russia.

Will Medvedev succeed in his appeal? That depends on his audience. The fact that Medvedev had to speak out is indicative; but he has other options – for example, to impose surtax on large business revenues and direct the funds toward venture financing, and to support academic research and development in basic and applied sciences. Would this approach “force” innovation on the private sector? Or would it simply be a method to direct tax revenue into socially-beneficial projects – like other tax revenue streams?

Professor Stephen Blank, the U.S. Army War College, Carlyle Barracks, PA:

It is so Russian to believe that the state can force private business to innovate and that it, rather than business, knows what to innovate and where to go for exports. And it is equally Russian that this gambit will fall flat on its face as it always has in the past. If insanity consists of doing the same thing over and over again and expecting a different result, then Russian policy is insane.

If indeed Medvedev has opted for a statist approach (and nothing I'd seen suggested opting for a truly liberal approach), then it is because he has signally failed to modernize his domestic political and economic structures along the paths he wants, so maybe he will try more coercion and/or go along with Putin's preferred course, which is to rely on import substitution, the energy and defense industries. 

These strategies have long been discredited and the resort to them merely indicates the bankruptcy of the current course which, however, has a lot of muscle and vested interests behind it. Russia's oligarchs, in any case, are not technological modernizers whatever other skills they possess, so this is not the audience for such sermons. 

But then there is no truly independent business class in Russia, as property rights are not secured and entrepreneurial ambitions are distorted into short-term actions or corruption, or stunted by government regulations. Even those who are true entrepreneurs cannot reach their full potential in such a system. 

While there are incentives that the regime can offer in terms of tax breaks, subsidies, etc., they don't get at the basic problems of this oligopolistic system. The main incentive he could give is the security to do as you will, with property rights under law and a truly free or at least freer market, but nobody should hold his breadth. 

Medvedev is no Mikhail Gorbachev, nor even an Alexander II, just another bureaucratic reformer in a long line of such who inevitably fall short before the accumulated obstacles of vested interests, autocracy, despotism, and the absence of the rule of law.

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