Russia sent an impressive delegation to the World Economic Forum at Davos this year. After strong representation under former Russian president Boris Yeltsin, the level of Russia's participants had slipped since Vladimir Putin became president. This year, however, the Russians sent their "A" team, and a well-attended session focused on "Russia's More Muscular Foreign Policy."
With higher energy prices, many Russian officials are enjoying their renewed power. I was asked to comment on US-Russian relations at a dinner with top officials from the government and Gazprom, the giant energy company. I said that the US and Europe had too many illusions about democracy in Russia in the 1990s, and were now going through a stage of disillusionment. There is concern about Russia's future, how it will use its newfound power, and how the West should respond.
One view is that Russian politics is like a pendulum. It had swung too far in the direction of chaos under Yeltsin, and has now swung too far in the direction of order and state control under Putin.
It has not swung back to Stalinism; Czarism might be a better historical metaphor. Observers debate whether it will eventually reach a new equilibrium.
The optimistic view is that property rights are becoming more deeply anchored than they were in the past, and that Russia's future will depend on how fast a middle class with a stake in law-based government can be created. But others are not so sure. Sometimes pendulums continue to oscillate wildly unless there is some friction to slow them down, and sometimes they get stuck. Pessimistic observers foresee a continual decline of freedom rather than a liberal equilibrium.
Faced with this uncertainty about the future of liberal democracy in Russia, how should Western countries respond? This question is particularly difficult for the Bush administration, which is torn between the president's early endorsement of Putin and his pro-democracy agenda.
US Secretary of State Condoleezza Rice declared in 2005 that "the fundamental character of regimes matters more today than the international distribution of power," and Senator John McCain, a US presidential candidate, has urged removing Russia from the Group of Eight advanced countries. Yet, in addition to its democracy agenda, the West has a realist agenda based on very tangible interests.
The West needs Russian cooperation in dealing with issues like nuclear proliferation in Iran and North Korea, the control of nuclear materials and weapons, combating the current wave of radical Islamist terrorism and energy production and security. Moreover, Russia possesses talented people, technology and resources that can help to meet new challenges like climate change or the spread of pandemic diseases.
There may not be as much conflict between these two agendas as first appears. If the West were to turn its back on Russia, such isolation would reinforce the xenophobic and statist tendencies present in Russian political culture and make the liberal cause more difficult.
A better approach would be to look to the long run, use the soft power of attraction, expand exchanges and contacts with Russia's new generation, support its participation in the WTO and other market-oriented institutions and address deficiencies with specific criticisms rather than general harangues or isolation. In any case, the sources of political change in Russia will remain largely rooted in Russia, and Western influence will inevitably be limited.
But advocating engagement over isolation should not prevent friendly criticism, and in Davos I offered four reasons why Russia will not remain a major power in 2020 unless it changes its current behavior and policies.
First, Russia is failing to diversify its economy rapidly enough. Oil is a mixed blessing. Riding on record-high energy prices and raw material exports, last month Russia became the world's 10th-largest economy. But energy exports finance about 30 percent of a government budget that is based on forecasts that oil remains at US$61 per barrel. Russian industrial exports primarily consist of armaments, with advanced aircraft accounting for more than half of sales. That leaves Russia vulnerable.
A related problem is that Russia lacks a rule of law that protects and encourages entrepreneurs. These are precisely the people needed to help foster a vibrant middle class -- the bedrock of a stable democratic market economy. Instead, corruption is rampant.
Moreover, Russia's demographic crisis continues, sustained by poor public health and inadequate investment in a social safety net. Most demographers expect Russia's population to shrink significantly over the coming decades. Adult male mortality is much higher than in the rest of Europe, and it has not been improving.
Finally, while one can understand a former superpower's temptation to seize its opportunity to return to a muscular foreign policy, Russia's bullying in the energy area is destroying trust and undercutting Russia's soft power in other countries. Both Russia's neighbors and Western Europe have become more wary of depending on Russia.
Most Russian participants at the Davos dinner seemed to ignore these criticisms, but it was interesting to hear one important official admit that reform might progress faster if oil prices dropped somewhat, and another accept the point that criticism should be welcomed as long as it is offered in a friendly spirit.
The mere fact that high-level Russians reappeared in Davos to defend themselves may be a small but healthy sign.
Joseph Nye is a professor at Harvard University.
Copyright: Project Syndicate
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