Khodorkovski was obliged to sell off his Yukos assets at a knockdown price to Rosneft, and in May 2005 he was sentenced to eight years imprisonment in Chita province in eastern Siberia. Rosneft was a private company under tight governmental supervision. Its acquisition of Yukos was the decisive signal that Russia’s political economy had changed since Yeltsin’s presidency.
The implications for foreign businesses in the country were discouraging. The government’s declared priority in the early 2000s had been to attract the maximum of Western capital into the Russian economy. The world’s biggest energy companies queued up to buy up rights of extraction in areas of Russia where great profits seemed guaranteed in the near future. Royal Dutch Shell and BP signed early deals. Their investors rubbed their hands with satisfaction as Russia appeared committed to having an internationally open economy. Both companies soon suffered disappointment when official investigators were sent into their Sakhalin facilities. Infringements of environmental legislation were quickly diagnosed. One by one, American and European energy corporations were compelled to renegotiate their contracts and accept poorer deals or face the loss of all their holdings in the Russian Federation. They all gave way, and Gazprom, Rosneft and other native conglomerates exploited a commercial advantage. Personnel moved flexibly between them and the various ministries in Moscow. Russia was becoming a bastion of state capitalism. The State Duma in March 2008 rationalized the process by passing a bill to restrict foreign investment in forty-two ‘strategic’ sectors of the economy (which included petrochemicals, nuclear power, armaments, fisheries, airspace and the media). Russia was no longer up for sale to the highest external bidder.
There was no thought of dismantling capitalism. Cabinets during Putin’s presidency always included not only former intelligence officers but also liberal economic reformers. Among such liberals was Mikhail Kasyanov, who was Putin’s prime minister from May 2000 to February 2004. Kasyanov tried to impose a framework of commercial law — and indeed there was a degree of enhanced protection for small businesses to register and operate even though the local elites remained as corrupt as ever. Improvement was also detectable in the workings of the courts, but only in cases lacking a political dimension.6 Yet Putin and Kasyanov did not get everything their own way. They worked long and hard for a new Land Code and yet the Duma frustrated them by rejecting the proposal for the privatization of territory outside the urban outskirts. President and Prime Minister were annoyed that farms in the countryside remained outside the jurisdiction of the reform. The Federal Assembly was equally averse to the call for Gazprom to be broken up so that the pieces would compete with each other. Nor did it sanction the demand for electricity and other utilities to be sold at higher prices to Russian domestic consumers.7
Putin also ran into difficulties when he attempted to put pressure on the leaders of the various republics and provinces of the Russian Federation. Soon after being elected, he withdrew their right to sit automatically in the Council of the Federation where they could affect the passage of legislation; he awarded himself the power to sack any one of them. He also divided the whole country into seven super-regions and appointed his own plenipotentiary to each super-region with the mission to ensure compliance with central laws and Presidential decrees. Putin’s initiatives were greeted with barely a murmur of objection from local leaders.8 Yet little changed in reality. The sheer complexity of political and economic processes in every republic and province defeated the attempt at abrupt disciplinary action; Putin was more successful in intimidating the media than in securing obedience from the lower levels of the state hierarchy. But one thing he did achieve was a halting of criticism of the government. Mintimer Shaimiev of Tatarstan, who had been a thorn in Yeltsin’s flesh, became a garland around Putin’s shoulders. In 2004 Putin forced through a measure allowing the presidency not only to remove regional governors but also to appoint new ones without reference to the local electorate.
Formal central prerogatives were one thing, provincial reality was often entirely another. The new governors, being obliged to ensure stability of administration, needed the co-operation of local politicians and businessmen. A strategy of give-and-take worked better in practice than peremptory orders.9 The old Russian obstacles to achieving an effective political hierarchy persisted, and the Kremlin found itself increasing its fiscal subsidies to the regions.
Putin had formed a party, Unity, in September 1999 to enforce the government’s authority. Unity’s main function was not to discuss his policies but to agree to them in the Duma. But the party failed to achieve a majority in the Duma election of December 1999. The President in May 2001 engineered a coalition with three other parties called United Russia. Like Yeltsin, Putin refrained from becoming a party member and justified this by saying that the President ought to stand outside the fray of public dispute. In December 2003 the Duma elections left United Russia a little short of an absolute majority. But other Duma deputies quickly came over to Putin’s side and the Kremlin at last broke free of the restrictions in the parliament which had plagued Yeltsin. Presidential authority was strengthened as party discipline increased.10 Indeed Putin needed to veto only one bill produced by the legislature from 2002 onwards. He removed the Communist Party of Russia from the chairmanship of several Duma committees. After 2003, indeed, United Russia supplied the leaders of all such committees. The State Duma and the Council of the Federation had become pliant instruments of presidential rule.
Putin’s election for a second presidential term in March 2004 hardly required him to conduct a campaign. This had not stopped him from organizing fawning support from the media. Zyuganov, veteran of presidential contests in 1996 and 2000, said he had had enough and allowed Nikolai Kharitonov, who was not even a communist party member, to take his place. Zhirinovski took a similar decision: not even the chance of months in the political limelight induced him to take part. The liberals were in disarray. Irina Khakamada put herself forward on their behalf but did not succeed in uniting them. Russian TV took little notice of anyone but Putin, who asked to be judged on his record and appealed for patriotic unity. The election was a foregone conclusion: he would have needed to fall under the wheels of a Moscow trolley bus to lose against his rivals. This time Putin took seventy-one per cent of the votes in the first round, again rendering a second unnecessary.
He had been given credit for bringing order and stability to the country. In truth the economic resurgence had little to do with his performance as a leader. Since mid-1999, before he was even prime minister, there had been a steady rise in oil and gas prices on global markets. By the end of 2007 the Russian economy was the world’s tenth biggest in gross domestic product, having expanded at an annual rate of seven per cent since Putin’s rise to the presidency.11 This had the effect of widening prosperity in Russia. Real incomes more than doubled in the same period. The size of the middle class purportedly grew to a fifth of the population by 2008. Other estimates put it at a tenth. What was undeniable was that people with a stake in the market economy had grown in number. From stall-holders to owners of small manufacturing or retail companies the proliferation was rapid and constant. Employment in all sectors of the economy had increased. Neglected regions were at last beginning to experience some improvement.
Yet capitalism in Russian remained a wild phenomenon. In industries big and small the executive and judicial authorities turned a blind eye to the infringement of health and safety rules. Mining and chemical enterprises were the tip of a dangerous iceberg for the workforce. But strikes were few and demonstrations were fewer. Political repression and manipulation played a part in procuring this situation, but anyhow the wish of most Russians was to live comfortably. There had been many improvements since the mid-1980s. Citizens of the Russian Federation had freedoms not witnessed since the fall of the Imperial monarchy. They also had a degree of privacy impossible in the USSR. They could enjoy their sense of nationhood without fear of official disapproval. Yet it rankled with them that blatant social inequalities remained. The conspicuous wealth of the few contrasted with the harsh austerities afflicting the many. Unfairness abounded. Administrative processes were still prone to arbitrary rule. Police and judges were venal. Russians went on grumbling and had much to grumble about. In order to cope with existence they turned to the traditions of mutual assistance which had for centuries helped them through the worst times. But they did not take to the streets. The last thing twenty-first-century Russians wanted was a revolution.
In the early years of his presidency Putin had confined his assertiveness to domestic politics. Recognizing that Russian power would remain restricted until the economy could be regenerated, he stressed his commitment to a ‘multipolar’ world. This was a tactful way of expressing dislike of the USA’s dominance as the single superpower. In practice, there was not much he could do to turn Russia into one of the globe’s great poles. Like Yeltsin, Putin tried to make up for this by holding frequent meetings with his leaders of other countries. Each get- together was managed superbly by his media experts and Putin, fit and increasingly confident, contrasted sharply with his decrepit predecessor. But substantial results were few.
Putin rushed to offer condolence and support to the USA after 11 September 2001 when Islamist terrorists flew aeroplanes into New York’s World Trade Centre. The destruction of the twin towers and the massive loss of human lives provoked the Americans into a furious reaction involving a military campaign in Afghanistan to eliminate
