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"Liberty, Equality, Fraternity"
(1996 poster)
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Yet for the
government to properly reduce the effectiveness of the crony
capitalist system, economic reform would be a priority for Putin.
The initial problem faced by the new government would be to gain
control of capital that would reduce the dependency on business for
financing. Since the oligarchs were happy to support reform
policies provided it didn’t prevent their business practices or
reduce their power base, Putin would not be able to do so without
capital in the hands of the federal government. Initial moves such
as tax reform were a crucial component. In March 2001 the
implementation of the flat tax of 13% proved to be a resounding
success at providing an influx of capital to the federal government,
making up 20.7% of total GDP by the end of the year (Sakwa; 2008,
p300). Given the major problem before of either inability or
refusal to pay, the new tax rate signified an understanding of the
nature of Russian society in the post-Communist Russia.
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Beyond this the
need for foreign investment was a pressing issue – in the past loans
from Western banks and the IMF had provided capital, but was lost in
the chaos of liberalisation and came with strings attached (Klein;
2007, p219). Foreign investment however, while based on
contractual terms, could be signed on a more equal basis – Western
energy needs coupled with a desire to reduce dependency on the
volatile Middle East meant Russian companies would be in a better
place to dictate their needs.
The effectiveness
of Putin’s policies can be seen in attracting this kind of
investment. While criticised in the West for not fully following
Western economic practises, major Western companies have been
attracted into partnerships with their Russian counterparts. The
key is equal dependency; Russia controls the resources, but the more
technically advanced and capitalised Western companies are needed to
access them, normally those located in particularly inhospitable
areas. That Russia has seen high levels of growth since Putin took
office is a good indication of the success of economic growth.
However it should be contrasted with the fact that part of this
growth has been fuelled by high oil prices rather than investment;
it has been observed that should the price of oil drop to less than
$10 per barrel the economy would collapse without altering the
federal budget (Truscott; 2004, p237).
Thus structural adjustments
in the economy need to take place in order to better protect the
Russian economy from commodity price fluctuations. As energy
exports count for a considerable portion of Russia’s GDP,
diversification in the economy is still a priority goal for the
government. What can be said is that throughout history, the
country has been able to mobilise its sometimes scarce resources in
order to strengthen the state against its perceived enemies
(Hedlund; 2006, p796). The moves to consolidate the energy industry
under leaders Gazprom and Rosneft, plus the absorption of high tech
aviation manufacturing under United Aircraft would appear to be
sensible moves towards increasing competitiveness and keeping vital
industry in domestic hands.
Copyrighted
material
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