Why Dmitry Medvedev Will Fail - Owen Matthews

It's hard to see Dmitry Medvedev as a tragic figure. Russia's president is, at least in theory, one of the world's most powerful men. His demeanor is cheerful; his speeches are refreshingly liberal and increasingly bold in criticizing the new Russian state. But his vision will go nowhere as long as his predecessor, Vladimir Putin, remains the real power in the land.

Consider Medvedev's latest proposals. Published earlier this month on the president's personal blog, the manifesto calls for overhauling Russia's "terrible" and "dysfunctional" economy by weaning it away from its dependence on energy and metals. Medvedev wants to close down unproductive single-industry towns that churn out products no one wants, to create a new tech sector and to invest more in education, to cut bureaucracy, and to encourage Russians to start small businesses, which have been crushed by bribe-taking and regulation. "We spent the 1990s trying to survive, then we spent much of the last decade achieving stability," Medvedev told a foreign audience recently. "Now we have to dismantle the legacy of our 'beloved' Soviet past."

It all sounds good. But it was all undermined by the fact that, just one day before the blog post appeared, Putin strongly hinted that he intends to return to the presidency at the next election in 2012. "[Medvedev and I] will make that decision together," Putin said. "We are of one blood." In the coded language of modern Russian politics, the message—that Medvedev is little more than a temporary stand-in—was loud and clear.

Putin's return will undermine all of Medvedev's radical proposals, from his economic ideas to his earlier plan to reform Russia's rotten justice and law-enforcement systems. That's because many of Russia's problems today are of Putin's own making. During his two terms in office, Russia's bureaucracy doubled in size, while according to Transparency International, the size of the "bribe economy" increased 10-fold. The bureaucracy became the business elite as the state—from the Kremlin to provincial governors and even local policemen—swallowed up private businesses.

Today business rivals regularly use state power to put opponents in jail. They conjure up crippling tax raids and steal whole businesses with the connivance of local authorities. This makes it almost impossible for Russian businesses to compete internationally or attract outside investment, since there's no guarantee that your business won't be stolen. The only way to survive is to be big and connected—creating bloated, inefficient business empires.

Medvedev alone would not fix all these problems. He may have radical ideas, but he is a consummate insider, chosen by Putin precisely because he posed no threat to Putin's eventual return. Still, Medvedev is more than a front for Putin; even many critics consider his prescription for Russia's ills spot on. What he lacks is clout. His anti-corruption campaign has not led to the sacking of even one high-profile Putin appointee. His demand that bureaucrats make their incomes and assets public produced laughably understated declarations, which only reinforced the idea that Medvedev lacks the power to take on the old guard.

Russia's economy is like a leaky bucket—it seems full because of the amount of free money gushing in, mostly from oil and gas. In fact, Russia falls far behind the rest of the developed world on almost every competitiveness, productivity, and production index. At the beginning of Putin's rule in 2000, Russia stood 55th on the World Economic Forum's index of global competitiveness; by 2009, after a decade of stability and prosperity and vast oil windfalls, it had dropped to 63rd. On legal protection for investors and property rights, Russia under Putin slipped 20 places, to 116th. Small wonder that while Europe and the U.S. are now starting to post signs of GDP growth, Russia has had to revise its forecasts down, and it now expects GDP to fall 8.5 percent this year.

Given all these trends, Medvedev has become an increasingly compelling figure, both for the sharpness of his critique and for the hopelessness of his cause.

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