Russia

M

Foreign Trade and Investment

Russia’s foreign-trade approach and trade patterns have changed dramatically since the collapse of communism. After the start of the Cold War in the late 1940s, the USSR conducted most of its foreign trade with other communist countries and tried to make the bloc of communist countries in Eastern Europe and Asia economically independent of the West. Beginning in the 1960s the Soviet leadership sought more Western technology and grain to compensate for the shortcomings of the USSR’s planned economy, but in the 1980s the other members of the Soviet-led Council for Mutual Economic Assistance (COMECON) still accounted for almost two-thirds of Soviet foreign trade. Like other Soviet economic activities, foreign trade was centrally planned and administered.

Since the USSR’s collapse, Russia has sought to integrate into the global economy. The Russian government began implementing reforms in trade laws and practices in the mid-1990s as part of its quest to gain membership in the World Trade Organization (WTO). It abolished export quotas and export licenses, as well as export duties on certain key goods. Direct government management of foreign trade persisted only in the realm of arms exports and defense-related equipment. Russia’s pursuit of WTO membership received a major international boost in 2004 when Russia secured a promise of support for its entry from the European Union (EU), its biggest trading partner, although it must still reach similar agreements with countries outside the EU. Domestically, WTO accession faces resistance from certain business groups, such as automobile manufacturers, which fear that WTO membership will expose them to new competition from abroad.

For most years since the early 1990s, Russia has maintained a positive balance of trade. A country’s balance of trade reflects its trade with the outside world in both goods and services. In 2004 the total value of Russian exports was $181 billion, while the cost of imports was $75 billion. In proportional terms, Russia has recently maintained one of the largest trade surpluses in the world.

Foreign investment in Russia has been concentrated primarily in the purchase of government treasury bills and bonds, as well as shares on the Russian stock exchange. Foreign direct investment (FDI)—that is, foreign ownership and management of companies in Russia—remains quite limited. Foreign bidders were generally excluded from the first phases of enterprise privatization, and in some sectors, such as banking and energy, ceilings continue to limit the proportion of foreign ownership to a small percentage of the total shares. The ambivalent attitude of the Russian government and the reservations of foreign investors have combined to keep per capita FDI at a fraction of the level in the most prosperous post-communist economies.

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Perhaps even more significant than the small inflow of foreign direct investment has been the shortage of domestic investment in Russia. Throughout the 1990s the rate of domestic investment was extraordinarily low. A large volume of domestic capital left Russia in the form of “capital flight.” Many Russian investors put their money in low-yielding offshore accounts instead of in Russian businesses for a number of reasons, including insecure property rights, political uncertainty, and stifling taxes. Capital flight peaked at 13 percent of GDP in 1998 but then decreased. In 2003 net capital flows reportedly turned in Russia’s favor for the first time since the onset of the economic transition, and this change was accompanied by sharp increases in the overall level of investment in the economy. However, the overall rate of investment remains modest in relation to Russia’s needs and the standards of other high-growth economies.

N

Mass Media

In the mid-1980s the freedom of the Soviet mass media from government control grew dramatically as a result of reforms instituted by Mikhail Gorbachev. His campaign for glasnost (openness) encouraged public discussion of politically sensitive issues. The lifting of government censorship allowed reformist ideas to be printed and broadcast openly for the first time since the 1920s. Consequently, there was an enormous upsurge in the circulation of reformist journals and newspapers, as well as in the viewership of reform-minded television broadcasts. However, these positive changes did not prepare the media to operate in the turbulent environment created by the breakup of the USSR.

The introduction of shock therapy caused severe economic problems for the media. As government subsidies were slashed and inflation drove up publishing costs, many newspapers and periodicals lost legions of readers soured by skyrocketing subscription and newsstand prices. In theory, these publications could tap new revenues by selling advertising, but most enterprises were too hard-pressed to advertise. As a result, many newspapers launched in the 1980s were forced to close. Russia’s newspaper readers still enjoyed considerably more choice than they did during Soviet times. Intellectuals and many professionals continue to rely on the major national newspapers, which were published in Moscow and set up new Web sites in both Russian and English; however, the countrywide circulation of these newspapers declined dramatically.

As a news medium the press was gradually eclipsed by television, which has become far more popular, has far wider reach, and attracts heavier investment. State-owned or influenced television networks have the largest audience. In radio, traditional state-run networks compete with music-based commercial stations.

In the mid-1990s Russia’s new business elite began to exert growing influence over the mass media. Two new television networks were founded as private companies, and 49 percent of shares in one state network were sold to private investors. In each case, the network soon came under the strong influence of a powerful banker-entrepreneur, and critics charged that these ambitious entrepreneurs were improperly shaping the content of public broadcasts. Likewise, by 1997 many print media were owned, at least in part, by bank-led financial-industrial groups, and a few high-profile cases demonstrated the capacity of these conglomerates to override editors’ preferences on especially sensitive topics, particularly those concerning charges of business misdeeds. The economic pressures unleashed by shock therapy also contributed to the spread of corruption among rank and file journalists, who sometimes accepted bribes from outsiders in exchange for favorable news coverage.

The issue of media control assumed growing importance under President Putin, who took steps to curb the political influence of the business elite. Under Putin government control of the media increased substantially. In 2001 government pressure forced one media magnate to sell the Independent Television (NTV) channel to Gazprom, the mostly state-owned gas monopoly. Meanwhile, two privately owned newspapers were shut down after their owner, another powerful businessman, was charged with money laundering (disguising the origins of illegally acquired money by passing it through a legitimate business or bank account). In January 2002 the government ordered the closure of a small independent television channel, TV6. It was replaced by TVS, which remained Russia’s only privately owned national network until June 2003, when the authorities shut it down, officially for financial reasons. The international media watchdog group Reporters Without Borders said the action threatened the diversity and freedom of news coverage in Russia.

Bruce Parrott contributed the Economy section of this article.

VI

Government

The Russian Federation became an independent state in December 1991 as a result of the collapse of the USSR. During the communist era the Russian Soviet Federated Socialist Republic (RSFSR) was the largest of the USSR’s 15 republics. The present Russian Federation occupies the same territory as the former RSFSR. Since independence, Russia has adopted a new constitution and system of government.

Russia is a federal and presidential republic governed under a constitution that took effect in 1993, replacing the 1978 constitution of the RSFSR. The central government is composed of three independent branches: the executive (the president and prime minister), legislative (the Federal Assembly), and judicial. The government is responsible to the president, and the executive branch is considerably more powerful than the other two branches. The constitution is largely the creation of Russian president Boris Yeltsin, who dominated Russian politics from independence until his retirement from politics in 1999. Yeltsin was elected the RSFSR’s first president by popular vote in June 1991, and he retained this position in Russia after the Soviet Union dissolved later that year.

To some extent presidential decrees can take the place of laws, thereby evading legislative scrutiny. Furthermore, the legislature has only limited rights to investigate government activity. Nevertheless, the legislature can reject the budget, draft legislation, publicize government errors and malpractice, and, at the price of its own dissolution and new parliamentary elections, bring down the government by repeated votes of no confidence.

A

The Constitution: Origins and Development

During the Soviet period, power was concentrated in Communist Party institutions and was highly centralized. Federal institutions, located in Moscow, were much more powerful than the regional institutions of the 15 republics. Although Russians dominated the central party and government institutions, the RSFSR’s own institutions were even weaker and less autonomous than those of the other 14 republics. Unlike the other Soviet republics, Russia did not have its own separate Communist Party, security police (KGB), or Academy of Sciences for most of the communist era. Although Russia did have its own government (Council of Ministers) and legislature (Supreme Soviet), these institutions did not exercise their full constitutional powers.

The RSFSR’s 1978 constitution only became significant when the Soviet Union collapsed. The constitution gave the legislative branch supremacy over the executive branch. However, the legislators’ lack of political experience made government extremely difficult. As a result, increasing power was granted to the newly established state presidency, sometimes on a temporary basis. In 1992 and 1993, when President Yeltsin and the legislature clashed over policy, the absence of clear and realistic constitutional demarcation between executive and legislative power became a major problem.

A new constitution, ratified by referendum in December 1993, solved this difficulty. Although it greatly increased the power of the presidency, it also established basic democratic guidelines, such as fixed terms of office, electoral procedures, and universal suffrage for all citizens aged 18 or older. In principle, the constitution also guarantees civil rights and the rule of law. Yeltsin’s opponents regarded the constitution as illegitimate, and they disputed whether a majority of voters had in fact endorsed it in the referendum. After a few years, however, hostility to the constitution decreased somewhat.

B

Executive

Power is concentrated in the executive branch, which is headed by a president. He or she is directly elected by the people to a four-year term and cannot serve more than two consecutive terms. The president serves as the commander in chief of the armed forces and chairs the Security Council, which is the central decision-making body for matters of defense. With the defense minister, the president has control over Russia’s nuclear weapons. The president appoints the prime minister, who is second in command. The appointment is subject to ratification by the State Duma, the lower house of parliament; if the State Duma rejects the candidate for prime minister three times, the president can dissolve the legislature and call for new elections. The president has the right to dissolve the legislature under certain other conditions as well. In the event of the president’s death or permanent incapacitation, the prime minister temporarily takes on the president’s duties, but new presidential elections must be held within three months.

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