A few more random words on Putinostan
The discussion that followed TMFBent's post has prompted me to pen down these few lines.
I think the basic mistake people make is drawing false analogies between Russia and China. This is why they feel so confident green-thumbing Russian stocks. Indeed, if Putin is no different from Deng Xiao Ping, or, to draw a "western" analogy, Pinochet or Franko, then MakeItSeven's reasoning is correct: there will be more decades of rapid growth, investors will get rich, while democracy may be falling behind for a while, but who really cares? Unfortunately, this picture, seen through the rose-colored glasses of Wall Street, which is enraptured by GDP graphs but fails to see the reality behind the numbers, has nothing to do with the actual processes unfolding before our eyes. Here is my own take on the situation, and let us hope that time will prove me wrong.
For starters, it is not so obvious that we need to focus on Putin's personality. To be sure, Putin can always run for the third term or declare himself a president-for-life. That's always a possibility. However, it is my opinion that we'll see instead something closer to the Iranian model. The Iranians, as you may remember, have two leaders at the same time (both are phychos, so this doesn't really make things any easier), and the Iranian polical system is the object of endless fascination to the KGB toadies who are now in charge of Russia. So I wouldn't be surprised to see Putin turning into an ayatollah, while leaving the mundane tasks of running the government to his successor. My crystal ball says it will be Igor Sechin - the only influential figure that has not been mentioned by the press as a possible successor, which, if you know Putin's mode of operation, is highly suggestive, but then, I may be wrong and it could be someone else. The point is, whoever the successor will be, he will almost certainly one of Putin's "bad cops" who will soon make us remember Putin with nostalgia.
Now, to the main issue. The primary motivation of the current regime is simple: rejuvinate the corpse of the Soviet Union and restore Stalinism in its full glory. The reason the China analogy doesn't hold water is that the goal of the Chinese leadership is to improve China's economy. This is a responsible dictatorship whose goals are akin to the goals of any other normal government. On the other hand, the primary goal of Russia's leadership is to bolster its own ego by making territorial acquisitions and by obtaining protestations of respect from its own subjects and especially from foreign powers, while stealing as much as they can steal in the process. This has always been true, for some reason. Why this has always been true, I can't tell, but the fact remains: there was never a government in Russia that viewed economic growth as its primary goal. I know it is hard for Wall Street to imagine how one can sacrifice all those glorious economic prospects, budget surpluses, 8% GDP growth, the promise of future riches and several million people to boot for the prospect of winning back, say, some useless piece of land in the Caucasus, but this is precisely the terms in which the Kremlin inhabitants view the world around them. As soon as the opportunity presents itself, you should expect all economic achievements made thus far to be thrown overboard without any hesitation.
OK, once we mentioned the economy, let us review these achievements that make the Wall Street so exhuberant. Out of 8% GDP growth this year, 2% are due to rising oil prices, by the government's own estimate. But oil is not the only game in town. There are also gas prices, and the prices of other commodities. Subtract these price increases, subtract the growth in industries that cater to the oil and gas industry, subtract the military spending buyoyed by petroleum dollars, subtract the "multiplier effect", subtract the economic activity that already existed under Yeltsin and now showed up in the statistics for the first time as a result of better tax reporting, and this pretty much summarizes Putin's economic miracle. Without the tailwinds, Putin's management of the economy looks every bit as pathetic as Yeltsin's dismal performance. Even the US under Bush would have grown faster than Russia's 1% or 2% a year, commodity-adjusted (compare that with the performance of resource-poor Armenia or Lithuania). Not a single innovative company like China's STP, MR, CTRP or India's SAY and TTM emerging over the 8 years of Putin's presisdency - this really says a lot. Americans taking their hints from Barrons and Wikipedia may feel tempted to attribute the dictator's approval ratings to his sound economic policies, but Putin's genius really lies elsewhere: in his ability to suppress dissent and control the press, and in his readiness to claim credit for every fortunate event from warm weather to the success of the national soccer team.