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News Gram™ January 2005

January 2005 ~ Volume 11, No. 6

Russian President Vladimir Putin's effort to scale back benefits for millions of Russian pensioners, veterans and those with disabilities - and the cross-country protests his initiative has provoked - underscore the challenge any government faces when seeking to reform a massive, entitlement system.

Since the collapse of the Soviet Union in 1991, leaders in the 15 former Soviet republics have sought to preserve many of the benefits the communists offered their countrymen - benefits, it's worth noting, that barely paid the bills or offered recipients the chance to save anything.

While these efforts may have proved temporarily helpful politically, they have stymied the economic development of Russia, Ukraine, Belarus, Kazakhstan and other countries in the former communist behemoth.

Only the Baltic states - Lithuania, Latvia and Estonia - have aggressively modernized their economies, dramatically shrinking the role of government and seeking entry into western markets. Last year, all three joined the European Union.

While Russia has taken some bold steps to forge a new, post-Soviet economy - most notably, by replacing its tax regime with a 13-percent flat tax - there has been great resistance at the Kremlin and in the Duma, Russia's lower house of parliament, to trimming benefits for older workers, retirees and others.

In part, this resistance is political: Voters in Russia, like those in the United States, often choose their representatives based on how fat their benefits are.

But there is also a cultural-historical component at work here: Many in Russia, like many in governments across the former Soviet Union, can't quite let go of the Soviet Union or, for that matter, tsarist Russia, which stretches back 1,000 years to the beginnings of Slavic civilization.

According to this worldview, the state is not just a set of elected officials in charge of a bureaucracy that doles out checks and services.

The state, as many in the former Soviet Union see it, embodies the heart of the Russian identity. The state - with its massive army, its "benevolent" cultural, educational and social-service ministries - is what gives Russians their sense of greatness. Viewed in this light, scaling back benefits is not simply about finances or even moral obligations, as politicians in Washington frame things, but really about the whole question of what it means to be Russian. Put another way, cutting pension checks means cutting into the Russian sense of self-importance.

Despite all this, Putin has sought to do exactly what his predecessor, Boris Yeltsin, and many in this country have been afraid to do - limit government spending. (His effort, which has been met by outraged throngs of older Russians and left-wing activists, coincides with Republican plans in Washington to reform Social Security, which has been met by equally outraged retirees and Democrats hell-bent on preserving this cornerstone of Franklin Roosevelt's New Deal.)

Ultimately, Putin's reforms, which have already taken effect, are likely to stick. First, the Russian president, despite this recent flare-up and political scars he received from wading into Ukraine's disputed presidential election late last year, remains popular across the country. Just last March, he won a second term with more than 70 percent of the vote. In the end, he will likely be able to coax or cajole Russians that he knows best. Second, Putin has very skillfully (and undemocratically) recentralized the Russian government, depriving voters in the country's 89 region-states (or oblasts) of the right to vote for their governors - they are now appointed by the Kremlin - and clamping down on the media and business leaders who threaten his power.

The most striking example of Putin's battle against business is the Yukos Oil debacle, in which Yukos President Mikhail Khodorkovsky was arrested and thrown behind bars while his company was sold off and, in the end, reabsorbed by the government. Khodorkovksy's crime - threatening to run against Putin in last year's presidential election.

This means, of course, that in the end most Russians will be powerless to do much about Putin's economic reforms.

There is a curious irony here: While Putin's economic reforms may end up expanding freedom - giving more Russians more opportunities to make money and live where and how they want to - those reforms will be achieved only be curbing freedom. In other words, the Russian president is "forcing" his countrymen to be freer. Whether this amounts to genuine freedom - whether people can be "forced" to be free - remains to be seen.

What is abundantly clear is that in Russia, like the United States, slashing benefits, and prompting people to rethink their relationship with the state, is politically dangerous. Workers, pensioners, veterans, the disabled - all have deep-seated ideas about what they can expect from their government, and themselves, and when someone challenges those ideas, even a popular president, they are necessarily rankled.

Putin remains a controversial figure - in Washington, where government officials have been forced to turn a blind eye to the Russian war in Chechnya in exchange for critical help in the war on terrorism; and at home and the "near abroad," the surrounding, ex-Soviet states that have yet to figure out how they feel about their once-all-powerful Russian neighbor.

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