<html><body><P>American Enterprise Institute</P> <P>Tuesday, September 18, 2007</P> <P>[Edited transcript from audio tapes]</P> <P> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>8:30 a.m.</DIV></TD> <TD> <DIV class=BodyText>  <DIV class=BodyText>Registration and Breakfast</DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> <DIV class=BodyText>9:00</DIV></DIV></TD> <TD> <DIV class=BodyText><EM>Welcome</EM>:</DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Christopher DeMuth, AEI</DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> <DIV class=BodyText>9:05</DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText><STRONG>Panel I: Domestic Politics</STRONG></DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Panelists</EM>:  </DIV></TD> <TD> <DIV class=BodyText>Georgy Bovt, journalist and commentator</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Andrei Kortunov, New Eurasia Foundation</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD>Michael McFaul, Stanford University</TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText><EM>Moderator</EM>:</DIV></TD> <TD> <DIV class=BodyText>Lilia Shevtsova, Carnegie Center, Moscow</DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText>Leon Aron, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>11:15  </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel II: The Russian Economy</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Panelists</EM>:  </DIV></TD> <TD> <DIV class=BodyText>Anders Aslund, Peterson Institute for International Economics</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Padma Desai, Columbia University</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText><EM>Moderator</EM>:</DIV></TD> <TD> <P>Jonathan Schiffer, Moody s Investors Services</P> <P>Johannes Linn, Brookings Institution</P></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:30 p.m. </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><STRONG>Luncheon and Keynote Address: U.S.-Russian Relations: Yesterday, Today, and Tomorrow</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Speaker</EM>:  </DIV></TD> <TD> <DIV class=BodyText>John Bolton, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>2:15  </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><STRONG>Panel III: Foreign Policy and U.S.-Russian Relations</STRONG></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Panelists</EM>:  </DIV></TD> <TD> <DIV class=BodyText>Fyodor Lukyanov, <EM>Russia in Global Affairs</EM></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Mikhail Margelov, Committee on Foreign Affairs, Federation Council </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Rajan Menon, New America Foundation and Lehigh University</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText><EM>Moderator</EM>:</DIV></TD> <TD> <DIV class=BodyText>Dmitri Trenin, Carnegie Endowment, Moscow</DIV> <DIV class=BodyText> </DIV> <DIV class=BodyText>Andrew Kuchins, Center for Strategic and International Studies</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>4:00 </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Adjournment</DIV></DIV></TD></TR></TBODY></TABLE></P> <P><BR>Proceedings:</P> <P><STRONG>PANEL 1:  Domestic Politics</STRONG></P> <P>Christopher DeMuth:  Ladies and gentlemen, can we come to order, please?  My name is Chris DeMuth, I m President of the American Enterprise Institute, and I m delighted to welcome you all here today for the beginning of this day long conference, Russia on the Eve of Elections.  The symposium subtitle is Continuity or Change?  But, Russia has been the scene of such constant and tumultuous change now for 20 years, and then in the past two or three years further dramatic and a different sort of change with the recentralization of political and economic control in Moscow and the harassment or jailing, and, perhaps worse, of those thought to be in convenience to Vladimir Putin and his government, that it s not entirely clear what, at this point, continuity would consist of.  </P> <P>In any event, the old art and practice of Kremlinology has been reborn and I am really thrilled that such a highly distinguished group of students of the Russian economy, Russian politics, Russian foreign policy, and U.S./Russian relations should have gathered for today s discussions.  My colleague, Leon Aron, is Director of Russian Studies at the American Enterprise Institute.  He published earlier this year a superb collection of his essays from 1989 through 2006 entitled, Russia s Revolution, and, since that book was out, he has continued to put out a really deep and perspicacious series of essays in his Russian outlook series on the vagaries of the presidential succession, and, most recently, two wonderful essays on the title, Is Liberty Really Bad for Russia.  I m delighted that he could take time out from his lucubrations to organize today s symposium to be in touch with colleagues around the world and that they have responded by coming to be with us today.  </P> <P>There will be a series of panels this morning, a luncheon address by our colleague, John Bolton, and a further panel in the afternoon.  I m looking forward to a very deep and productive series of discussions.  To offer further words of welcome and to moderate the first panel on Russian Domestic Politics I will now turn things over to Leon Aron.  </P> <P>Leon Aron:  Thank you very much, Chris.  Thanks again.  I would like to extend a few other thanks in addition to those, to Chris DeMuth for his constant interest and support of the Russian studies at AEI, my colleague and boss, Danielle Pletka, Director of Foreign and Defense Studies, has been very supportive of this project, the wonderful staff of Lectures and Seminars under Jessica Browning did it with customary perfection, and last but not at all least is somebody who you will see a lot today, and that s my Research Assistant, Kara Flook, who has been, in the last few days, and nights, I should say, thoroughly engaged with this conference.  One final note, as many of you have already found out by going to our website, Vladimir Ryzhkov is unable to come, he has taken ill, although nothing serious, but, his doctors recommended that he stays put for a couple of weeks.  </P> <P>With that, I will now assume my duties as the Chair of the panel with a very, very brief introduction, I don t want to take any more time than necessary from our wonderful panel, a very brief introduction of the panelists with the caveat that you already have their bios in your folders, and, therefore, there is no need for extensive introductions.  [Recording goes silent briefly.]  . . . served as Editor in Chief of Profil and Business Week Russia, of late, and, before that, as Deputy Editor in Chief and then Executive Editor in Chief of Izvestia.  A very good personal friend for many, many years, Andrei Kortunov, now the President of the New Eurasia Foundation, but I m sure known to a lot of you as one of the top specialists on U.S./Soviet, U.S./Russian relations, and Russian foreign policy, but, of late, delving very deeply into Russian domestic politics as well.  </P> <P>Another, well, this is a panel of close friends as well, Lilia Shevtsova, whom I know for longer than we care to remember or publicly acknowledge.  She is a Senior Associate at the Carnegie Endowment for International Peace and Moscow Carnegie Center and Associate Fellow at the Royal Institute for International Affairs, known, again, like other members of this panel, to all of you for her superb articles on, over the past 15-20 years on Russian domestic politics and her wonderful books.  Michael McFaul, who asked to go last because he is technologically most proficient, and, therefore, would be using, I believe, a PowerPoint.  With Michael, I have to take a very deep breath before I rattle off all his positions.  He is the Director of the Center of Democracy Development and Rule of Law.  He is the Deputy Director of the Freeman Spogli Institute for International Studies at Stanford University, and also a Senior Fellow at the Hoover Institution, and a non-resident Senior Associate at the Carnegie Endowment for International Peace, and I think it s all of that in addition to being Professor at Stanford.  </P> <P>With that, in alphabetical order, save for Michael McFaul who asked to go last, we will start with Georgy Bovt.  Thank you very much.  The order is this, the usual order, we speak for 15-20 minutes, please hold on to your questions until the panel is over, and there will be ample time for that.  </P> <P>Georgy Bovt:  Thank you very much for coming here and for allowing me to speak about Russian elections, or, whatever.  So, probably the most important question for today is, who is Mr. Zubkov, but I don t know the answer.  [Laughter].  I probably met this guy, but I don t remember any reflections, any recollections about his personality, and what person he is.  Could he be the next Russian president?  Sure, he could be, and recently Mr. Putin mentioned that there are about five, he mentioned five guys who are electable in his mind.  Mr. Zubkov is the sixth guy.  So, will there be primaries?  Well, they are already on.  Mr. Putin has started the primaries and the most important goal for him is to select a person who will be like him, like second Putin, because it s very important for him to preserve in all peculiarities the characters and the framework of the regime he created.  So that s why he preoccupied most of all of preservation and keeping it in the regime power.  So, the most important thing to pick out the person is, is to pick out the person who will be like him.  But there is no such person in Russia, that s the problem, and that s why he is hesitating, that s why he hasn t decided yet, neither about his own future, concrete, I mean future, concrete position, and concrete, well, preoccupation, and about the concrete person who will be his successor.  </P> <P>I think that Mr. Putin, personally, don t want to just mechanically nominate some person who give him guarantees of safety, like Yeltsin gave such guarantees to Putin in 1999.  I think that, well, he has some ideas in his mind, and one of these ideas is that this person should be somehow popular, and that this person should be somehow electable by the majority of the people.  Well, of course we can, we must, of course, have in mind the principle characters of the Russian electoral process, which is heavily influenced by so-called administrative resources, influenced by restricted media coverage, powered and directed by the current administration, but, nevertheless, he wants this person to be elected, not just, well, with mechanical accounted voices, votes, but, simply elected to be a popular person, to be accepted by the people, and to govern the nation for coming four years.  </P> <P>As for the Duma elections, as you probably know, this year elections will be the first held under the country s much amended election laws.  Not all 450 deputies will be elected, only as members of the party, there will be no independent candidates, and there should be 7 percent barrier to be overcome in order to get into Duma.  As for now, there are 15 political parties registered with Minister of Justice.  What allows them to participate in elections?  According to some estimations, probably a dozen of them, maximum, a dozen of them, will really participate in elections.  And there are definite four, probably five, let s say four, four runners.  Of course, the Unified Russia, according to recent polls, they enjoy from 40 to 59 percent of populous support.  In the second place is so-called Just Russia, with the media coverage comparable to Unified Russia, United Russia, mostly due to its leader, Sergey Mironov, who is the head of the Council of Federation, the upper chamber of Parliament.  But, still lagging behind with probably 10 to 15 percent of populous support.  Liberal Democrats will get from 5 to 10, according to nowadays estimation, and the Communists will add some votes, as compared to the latest Duma elections.  Probably they will get 15, maximum up to 20 percent of the votes, according to current estimations.  </P> <P>As for the liberals, it s a big question whether they will be able to overcome this 7 percent barrier, that is true either for the Apple Party, Yabloko Party, or the Union for the Rightest Forces or any other liberal organizational party.  The question is whether their liberal ideas are totally discredited in the Russian society or not, because the very term liberal democrats is heavily, deadly, I would say, unpopular in the society at all.  Aldor [ph.], at least in his first term, President Putin actually put into practice some of the advices and planks of the platform from the platform of the Union of the Rightest Forces.  </P> <P>The other question is, what will be the agenda for the campaign?  There is still no answer for that because, well, recently could be suggested that nationalism could be put on the agenda, but, nationalism mixed with strong anti-western sentiments appears probably not being very popular with the Putin center circle.  He definitely wants the sentiments to be under control, but, once you re unleashed there, it would be very difficult to control them in future.  So that s why I think that his inner circle is quite split on the matter.  Some of these guys would probably be glad to use the nationalism as a powerful tool to come to power and to rule the country, but there are some other people who are hesitating about this, being afraid of this very matter to be unleashed, and come out of the control.  They want to control everything, and once they unleash the nationalism, it will be very difficult to keep the control over the society.  </P> <P>As for the other topics that could be put on the agenda, as for now it s very difficult to find any difference between party platforms because none of them, if you put them on the table, without names and any partisan definitions, it will be very hard for you to distinguish, where is the platform of United Russia and where is the platform of the Communist party, for instance, where is the platform of the Just Russia, because everybody promises everything to everybody.  There will be free medicine, there will be big pensions, and some other stuff.  So, all of them quite similar.  </P> <P>But, recently, probably it s even premature to speak about it, but, recently I ve noticed that some of the parties try to find some demands and some slogans which could sound more concrete for the society.  For instance, in the recent interview, Sergey Minorov was the head of the Just Russia Party, made some statements about, well support of the youth generation by somebody with concrete propositions of how they should behave, how they should study, how they should do their career and so on and so forth.  There could be some other planks appear on the platform which sound more concrete and look more concrete for the electorate, but, so far, it s premature to speak about the general appearance of the whole electoral campaign.  </P> <P>The other question, which also important for this electoral campaign, either for the Duma campaign and for the presidential campaign, is the Putin s legacy itself.  What is, as I ve said, what is most important for Putin personally is to keep his people in power, and to keep his inner-circle in power with the same redistribution of balance and influences as he has already established.  That s why he put all his inner-circle members and head of economic private and governmental corporations, and that s why he wants to keep them in power after the elections.  Whether that will be possible is a big question because there is no precedent in Russian history when any Russian ruler, a successor, or overthrown their previous rule, would ever keep his promises on continuation of the course.  I guess that could be even a personal tragedy for Putin because the nearest future, even the nearest future could not meet fully his expectations about this future.  And, in the Russian political system, there is no position for him being effective enough to influence the, well, full-time president who will be his successor, and whether they ll be his personal friend, as Sergey Minorov, or even such an unknown person as Victor Zubkov, the outcome could be the same.  The future, the nearest future, could not meet fully the expectations of Putin, but probably there is more reservation, probably he could simply step down and the current play he plays is just for the sake of creating the image that he is in full control until the 3rd of March of the year 2008, and that is the end of his game, and the continuation would be put on the shoulders of his successor.</P> <P>So, that s all, thank you very much.  [Applause].  </P> <P>Leon Aron:  Thank you, Georgy, for staying right on time, set us on the right course.  Andrei.  </P> <P>Andrei Kortunov:  Thank you, Leon.  Last time we were here, was it a year ago, more than a year ago, I recall that I was on the foreign policy panel, and now, Leon, you moved me to the domestic politics panel, I wonder whether it is a promotion or demotion.  [Laughter].  Yes, maybe it s kind of a diversification of my own academic portfolio.  But, let me start with saying that I m grateful for having the chance to be here and to talk in front of this audience.  I should say that Leon is the person who can bring the most distinguished audience in the city.  I don t know how he managed to do that, but, definitely, it s quite exceptional.  It s always a pleasure to be here.  Let me say that since the subject is really very broad, and we have a number of exceptional speakers, I will try to limit myself to giving you a snapshot of the current situations, specifically following the line of the previous speaker, I will talk about the elections to the State Duma, and will give some of my humble conclusions about where it might lead us to.  </P> <P>Let me say that in my opinion, it would be fair to state that Russia is entering a new political cycle.  It is entering a new cycle, and this cycle will be quite different from what we witnessed during eight years of Mr. Putin.  The elections to the State Duma might be one of the first manifestations of this new ballgame that we are going to get involved in.  First of all, the political discourse is going to be quite different from what we had earlier.  It s not a discourse between the political establishment on the one hand, and the non-system position on the other.  It s rather a fight within the political establishment.  For the first time, these elections will not be black/white elections, not a fight between communists and liberals, between nationalists and integrationists, but we will have a much more complicated picture within the political establishment mostly.  </P> <P>Second, it s clear that politics is getting local, in Russia, like in any other country, and voters are much more concerned about specific issues than they are about big ideological questions that dominated the political scene for almost two decades in the Soviet Union and in Russia.  It s clear that politics will reflect, more and more, the social agenda issues like education, housing, like local government, issues like medical care, like pensions, will fly high.  That would change the essence of the Russian politics, gradually.  </P> <P>And, finally, the last, but not the least, I would venture to say that politics has become somewhat more professional in Russia.  With all the reservations we might have about the conflict establishment, we can see that there is a learning curve and a rather steep learning curve.  </P> <P>So, let me just illustrate these basic assumptions by the analysis of the current elections to the State Duma.  Let me give you a couple of facts about the elections.  First of all, the turnout, it s evident that the turnout will be lower than usual.  During the 90s and earlier in this decade, was sure the turnout of about 60-65 percent.  If you look at polls this year, the May polls suggest a turnout of 45 percent, August polls suggest a turnout of 49 percent, close to 50, but not more than 50 percent.  Of course, there might be independent variables that will influence the turnout.  </P> <P>For example, there might be a huge scandal, and, of course, when Mr. Zhirinovskii involves Mr. Lugovoi, running, on top of the LDPR list, this is something that might, at least in theory, generate new interests towards election, and if we have many people like that, probably the turnout will be higher, but it s not very likely.  Of course, personal involvement by the President might also drag these levels higher, but I m not sure that Mr. Putin is ready or willing to be personally involved in the election to the State Duma.  Likewise, the involvement of the successor, if we have the ultimate successor within the next two or three months, might change the picture, but, not as dramatic as potential involvement of the President.  </P> <P>So, the odds are that voters will be relatively passive compared to what we had earlier.  Partially, it is a result of the limited protest vote potential, the tie erases all the votes, and, definitely, there are fewer people in Russia who are willing to use their votes as protest votes.  Partially we can say that the reputation of the State Duma is lower than it was four years ago, and, again, polls suggest not that Russians do not pay attention to democratic procedures, but they really do not trust political parties that we have today in Russia.  Even if we compare the figures that show respect to the State Duma, the figures that show respect to the government, government gets higher scores than the State Duma.  The perception is that the State Duma is not for real, that under the current political system it cannot make decisions, and, definitely, it cannot defend the interests of the population.  </P> <P>Now, if you take the new legislation, in what way can it influence the outcome?  Conventional wisdom suggests that it favors United Russia.  It s not necessarily the case because for United Russia it is easy to co-opt, to absorb, if you wish, to bribe, independent Duma members.  If you look at the results of the last elections, United Russia got about one-third of the votes, however, it was able to control the State Duma.</P> <P>So, I would rather say that the new legislation, the new proportionate system of our presentation favors big parties and is absolutely ruthless to newcomers.  This is definitely a purpose that the Kremlin has stated very explicitly, to personify politics, to consolidate big political parties, and to make sure that we have a limited number of players represented in the State Duma.  </P> <P>So, if you look at the potential composition of the State Duma, you will definitely see three political leagues.  The first league is represented by one party, which is United Russia.  No one can compete with United Russia, even in the Kremlin they say about 1.5 party system, not about two-party system, but 1.5, suggesting that probably the Just Russia, or, would you say Fair Russia in English?  Just Russia, is not going to compete, Just Russia.  Yes, that s interesting.  Is not going to compete with the United Russia.  </P> <P>So, the only question is, how many votes the United Russia will get.  Indeed, statistics suggest that right now they can count on support from approximately 47-48 percent of the public vote, but, of course, the [indiscernible] can bring this figure up.  </P> <P>The second league, Just Russia, you know, 12 to 15 percent of the public vote, depending on whether they can steal some votes from communist, and, definitely, Mr. Mironov is quite explicit about his intention.  He says that the party should gradually accumulate all the left flank of the political spectrum of Russia, however, it s not clear of how he can do it with people like [indiscernible], whether [indiscernible] is the person to represent the left wing of the political spectrum.  She s definitely fair.  </P> <P>Now, if you take communists, I think that communists will get lucky if they get 15 percent of the public vote.  They have to compete with the Just Russia, they have also compete with some other nationalist groups.  However, one can argue that this 15 percent is more or less secured, unlike other parties of the second league, they have stable constituency which they can count on.  So, we cannot really expect major surprise here.  </P> <P>Now, Liberal Democrats, I m a little bit skeptical, if you have all these defections, and if you consider the relative importance to the Kremlin, one can argue that it s not clear whether the Kremlin will need this party in the next State Duma.  Zhirinovsky s clearly nervous.  He doesn t feel secure, and that might affect the overall performance.  </P> <P>And, finally, the third league, we can talk about parties which are not likely to cross the election barrier, and are not likely to be represented in the State Duma.  There are a number of them, probably the most prominent is the Union of Rightest Forces.  They can still count on something like 4 or 5 percent of the public vote.  It s yet to be seen whether they are able to make use of this electorate.  If you take Agrarians, Yabloko, Patriots of Russia, they are not likely, at least right now, they re not likely to get more than 2 percent of the vote each.  So, basically, unfortunately, for many of us the third league is not going to be represented in the State Duma, unless something dramatic happens, and the situation will change completely.  </P> <P>Now, does it mean that we don t have anything to watch?  I think that it s not the case.  Indeed, there are some indicators which will be relatively important because they will somehow show the trajectory of the Russian political development, and they might become more explicit and more important in years to come.  </P> <P>Let me outline a number of these indicators that observers can watch.  First of all, the specific level of political support for United Russia, and, it s a big issue, whether they get majority, or whether they get qualified majority, or whether they get less than 50 percent, I think all these indicators will be important because they will tell us whether we can really count on a two-party system in the foreseeable future, or the system will be consolidated around the United Russia and no changes can be expected.  </P> <P>The number of parties represented in the State Duma, we can have a three-party Duma, let s say with the United Russia, Just Russia, and communists.  We might have a four-party Duma, if Liberal Democrats gather.  And, finally, I still do not exclude that we might have a five-party Duma, if, let s say, the Union of Rightest Forces gets, which is not very likely, but, still, this is something to watch, because the composition will definitely define the format of debates in the State Duma, and if the Rightest Forces are represented, of course the professionalism of the next Duma is likely to be higher than otherwise.  </P> <P>Who is going to get second place?  This is also important.  Is it the Communist Party, which will get the second place, with 15-17 percent of the public vote, or, is it Just Russia.  And, so, the fight about who will represent the left flank of the Russian political spectrum is important for the future.  Either communists are going to change and gradually turn into a social democratic party, which is still possible, although not very likely, or, Just Russia is going to marginalize the communist party, and the communists will move further to a more radical position.  </P> <P>And, finally, the last, but not the least, participation of Putin or his successor, to what extent Putin might indicate his preference, to what extent he would like to demonstrate his particular support for any of the political forces.  It s not clear, but, if we see it, it will definitely define the balance of powers in the next State Duma.  </P> <P>Let me make one conclusion, that, in my opinion, is relatively important.  I think that the next political cycle in Russia, no matter what people in the Kremlin really want, will move the country towards greater political pluralism.  I think it s almost unavoidable because no next leader will be as popular as Mr. Putin, I think it s also unavoidable if Mr. Putin really wants to get back in 2012.  The only hope that Vladimir Putin has if he wants to get back is to have a more pluralistic political system between now and 2012.  That means that we might see a kind of embryonic checks and balances system, we might see more political battles in the legislative power, or we might see a little bit more independent judiciary, and, probably, a more diverse political discourse in Russia.  It is a challenge.  I think the question is, what specific forces, what parties, what political groups are going to make use of this opening.  But, my bet is that we will see this opening, and this is probably the most characteristic of the new political cycle that Russia is entering.  Thank you.  </P> <P>Leon Aron:  Thank you very much, Andrei.  [Applause].  And now we re moving to Lilia Shevtsova.  </P> <P>Lilia Shevtsova:  Thank you, Leon.  And, if I may, I would like, first of all, to return to our gratitude to you, Leon, not only for the fact that you ve collected us here, I mean the members of FOL, Friends of Leon, but also for the fact that, you, one of the few western analysts, have been, through the years, and that s not a cheap compliment, I m pretty sure that all my colleagues will join me here, you have been, through the years, the person that has been keeping the intellectual discourse on Russia on a really high level.  And, if I may, I would strongly urge all of you folks to read the latest masterpiece of Leon, On Liberty in Russia, which really provokes a lot of serious thoughts and conclusions.  So, thank you, Leon.  And, just remember, that members of FOB, friends of Bill, once helped him to become a president.  </P> <P>And now let me turn to my brief points.  I will say I will apparently limit them to few brushstrokes.  Firstly, on continuity and change, and here I have a bit different view from my friends, from my friend Andrei, secondly, on Putin s legacy, and, thirdly, on the role of the west, on the role of the west in Russia, domestic developments.  So, regarding the dilemma, continue and change, President Putin has recently demonstrated how he s going to solve this dilemma.  And, apparently, we have some arguments to conclude that President Putin will follow the Russian axiom, that means that the change of the Russian political regime could be the means or the key factor in guaranteeing the system s survival.  And, we ll have, perhaps, one year, or a year and one-half, to see whether this axiom, the change of the regime, is the means of the systemic survival, whether this axiom is true or whether the events, the developments, the political forces of Putin s successes will change the axiom.  </P> <P>My feeling is that, at least during the next year, and through the year 2009, apparently will have a lot of modifications on the surface, new balance of forces, new people, some serious shuffles on all levels, in short, the change of political regime.  This is the logic, because the system and these people, the political class and the business, and all the networks, cannot survive if the regime is frozen, the situation is frozen.  They will have to change at least partially, but slowly and gradually, and apparently President Putin will preside over the regime change, and over the annihilation of his previous regime.  It s just like Hegelian dialectic, the rejection of rejection, [indiscernible].  Leon, I m not sure that I translated correctly.  </P> <P>And the change of regime, and here I would underline and highlight it strongly, should not mislead us, because the change of the regime is the way for the system that includes bureaucratic authoritarianism, or you can define this authoritarian power in a different way, bureaucratic capitalism that Andrei Kortunov so deftly and skillfully has been analyzing, and assertive foreign policy.  These are the major components of the system.  So these elements, the system process will survive, it has potential to survive, and to self-perpetuate itself.  </P> <P>There are at least two factors, one systemic and the other situational, that explain to a great degree its resilience.  The systemic factor is the constitution.  So far, less constitution is in place, which justifies, endorses, legitimizes the concentration of powers in one hands, and the role of the president as the arbitrator standing above the free and the society and the system.  It s highly doubtful that your forecast will be true, or any element of political pluralization of the political sin would mean that the system will start its way to the state, or to the suicidal state ground.  I m not coining this phrase, I m stealing it from Arnold Tornby, there are systems that undermine themselves by the way of starting some kind of apertura, opening, the moment Putin s successor will start the open, they re done.  Just like Gorby with his law of unintended consequences.  The moment he started, he introduced several elements of free elections, the Soviet Union was done with.  </P> <P>Second point, with several subpoints, on Putin s legacy.  It seems to me it s fair enough, and Mike will correct me if I m wrong, because he s definitely going, I will be looking at his computer, he s going to put Russia into the global and comparative context.  It seems to me it s fair to say that Putin has done his job and has created his own coffin at least two years ago.  He has done his mission.  He s performed everything that he could.  And now, President Putin could be viewed as the hostage, and maybe victim, of his own logic, of his own network, of his own system, of his own legacy, and he doesn t know what to do with his own legacy by the way.  All these recent situation, developing, just have proved that those people at the top are at a loss, what to do with personified power.  </P> <P>So, several components or elements of Putin s legacy, and, by the way, he could easily preside over his legacy, being the hostage of it.  So, first element, Putin s consensus, this is amazing, this is a miracle, that, for the first time after Stalin, we have such a broad political and social national consensus in Russia that both Yeltsin and Gorbachev could have been jealous of that consensus.  But it s very important, what is this consensus about?  This consensus is about preserving, prolonging the status quo.  And this consensus includes a lot of very social and political groups, starting with liberals and technocrats, in the government and outside of the government, from independents, rallies, and the rest of the political and social scene, and the major part of the society.  We shouldn t avoid this, very unpleasant for us liberals, conclusion, yes, up to 70 percent of the society would like to support and prolong the Putin s consensus.  </P> <P>So different groups, various political forces, with antagonistic strategic interests, they support the consensus because they don t have alternative or due to other reasons, but we should also be very cautious when we are looking at the [indiscernible] of this consensus and status quo.  Of the desired people to have the status quo, it s very important, so the [indiscernible] of this status quo could be the following.  Well, you may add, if I m wrong, or if I miss something, the oil price, the fear of repetition of Yeltsin s bizarre chaotic period, so, in fact, the stability alone could be explained by the fact that Russian society is living in the pocket or in the shadow of Yeltsin s regime.  And people constantly compare Putinism to Yeltsinism.  And, also, the sense, well, the element, such element as acquiescence on the part of the political leadership towards the society, in fact, political leadership, political system, leaves society to survive by using different means, under one term or condition, don t meddle into politics.  And the society is pretty happy in this situation of lull, numbness, within the basket of Putin s status quo.  </P> <P>Second element of Putin s legacy, I will call it, tentatively, Mike could correct me, or just give me some fresh idea how to define it, so Putin s gimmick or invention know-how is, Putin s imitation democracy.  There are a lot of types of democracy, as we know, from the writings of my friend and colleague.  Putin s imitation democracy is imitation not by default, but by design.  And, so far, it s one of the major impediments on the way of Russia s transformation.  And this is one of the major factors that discredits the real democratic institution.  And, Putin, and this is his know-how, is the first Russian political leader who said that Russia is not a unique country.  So, he got rid of this uniqueness, uniqueness paradigm, and stereotype, Putin is saying and arguing, Russia is just like all other democracies, or, even better, just look at the United States and some other countries.  Well, so, we are only unique in means of implementation, the usual liberal democratic values, the standards.  We found our own means.  </P> <P>Element number three, or, component number three, also Putin s gimmick, at least partially he could be credited.  This is Putin s mobilization technique, in fact, with approval of the society, and major part of the political elite, even some liberals and democrats, it s hard to be liberal and democratic currently in Russia, and, at the same time, to be within the system, anyway, he s using the militarist syndrome, or militarist rhetoric, he s returning back to the traditional Russia matrix in order to justify the centralization of the state, and it s up to our colleague, Dimitri, Fyodor, Mikhail, to tell us to what extent he is relating, and to what extent Russian political elite is serious about returning to the old matrix.  </P> <P>And, final element, sometimes I m forgetting my elements, final, oh, Putin s final element and component, but maybe there is some other, I m talking about the really serious ones, the Putin s foreign policy doctrine, and, by the way, the fact that Andrei is sitting here with us, and Andrei is a well-known specialist on foreign policy, only gives credit to Leon Aron s understanding of Russian political situation, and Russian systemic development because by putting Andrei here, Leon says that foreign policy is the element of Russian political picture.  And I would say, Fyodor, Dimitri and Mikhail should be sitting together with us because foreign policy, under Putin, became the servant of domestic prerequisites.  And I will steal another phrase from another good friend, Robert [indiscernible] saying that, Putin has succeeded during several months and at least maybe a year and one-half, in mustering and in creating the foreign policy as a paradigm to be with the west and to be against the west.  But he has lost.  He has lost because at least one element of this pattern continued to be quite successful, in mobilization, the Russian society on the anti-western platform, but, as regarding the relationship between Russia and the west I won t say that he has been politically successful.  </P> <P>And the last moment, quite unpleasant from our western colleagues, on the role of the west, in Russia s domestic development, here I will be, again, I will use my brushstroke, I will be very crude, and I m not going to use any kind of shades, etc.  Of course the west is not a serious factor in Russian domestic development.  The west is not a key or crucial factor, definitely not, and I understand all domestic prerequisites, drivers, factors, that have brought Russia to the paradigm that we are in now, and that Georgy and Andrei so elaborately have discussed.  But the west, it seems to me, is creating quite a benevolent and quite a stimulating environment, international environment, for the self-perpetuation of the imitation democracy, and the Russian system.  </P> <P>And there are several factors in play.  I would say, firstly, lack of the western common strategy of embracing and engagement Russia.  Secondly, a lot of misunderstanding within the western political intellectual community, what s really happening in Russia, and schematic approach, and my friend Dmitri Trenin has been totally right, right in that the west should understand Russia.  Thirdly, both attempts, acquiescence of the Russian political regime, has been so skillfully, no, no, brilliantly demonstrated by the western political leaders, including the American president, and, the attempts of other political forces to demand Russia s isolation, building of the cordon cemetiere bore these radically diametrical antagonistic ways only help Russian regime to consolidate.  And, finally, it seems to me that Russian political regime has been extremely successful, these guys are very bad strategically, but they are pretty good tactically, in co-opting the western business, the western political elite, and western, even trying to co-opt western intellectual elite, the cream of the cream.</P> <P>Maybe I m pushing the bolt too further, but, several examples, I advise you all to read beautiful masterpiece, Gerhard Schroeder s recent book that has been translated into Russian and English, well, I just cannot quote, well, I ve got a quote, but I don t want to embarrass the German nation.  Second, terrific gratitude, with a bow, in the Japanese style, of the president of Shell, just recently, at the St. Petersburg Economic Forum when, what s the name of the guy, because it s such a difficult name?  Yes.  Thank you, Andrei.  So, with a bow, he s been waiting at the door to express his deepest gratitude to the Russian president for solution of the Shell problem, that after we kicked Shell out of Sakhalin 2.  And, he s the beautiful, brilliant, adjectives quote, from one of the members of the Valdai group, can I quote him, he s a good friend of many of us, I will save embarrassment, I m not going to mention his name.  Russia, the member of Valdai group, just recently fresh from Valdai, recent Valdai, maybe the last Putin s Valdai, sorry, Andy Kuchins, my friend, I saw your face, but, well, he knows whom I am quoting. Russia seems like an extremely open democratic and ultra-free, really free country, when you re standing next to the Russian leader on the veranda only 15 centimeters away from him, holding a glass of brandy and champagne, that makes a strong impression.  Really, this is a democratic leader.</P> <P>[Laughter].</P> <P>Well, and, you know, just read the articles from the British, unfortunately, I haven t read the pieces from the American newspapers, recently, but I ve read Independent and Guardian, and I will save embarrassment, because, well, in a different form it was the same song.  So, all this Shell, Gerhard Schroeder, behavior of Chirac during the G7, sorry, G8 summits, and especially at the EU Russia summits, all these could create an impression among the Kremlin elite that they have succeeded to co-opt nearly everyone.  We have them all.  </P> <P>And, really, the final thing, in the system that we are talking about, and Mike will be discussing, is the system sustainable?  Well, it has potential to grow, and it has potential to self-reproduce itself.  While it has potential to grant economic growth, but, again, using brilliant, Yevlensky s expression, this is the growth without development.  And what we have now is the system that do, sooner or later, not to bring further degradation of the Russian political elite, and we see it happening, but, sooner or later, it will bring us to what Andrei Illarionov has been predicted so far, crisis, or degradation, or regular rot.  The problem is, I m ending with a paradox, that I don t understand, and I don t know how it could be so, it s definite that this current reality, Russian reality, could be preserved and stabilized within the system, but the question is, and the question is very serious for all us Russian liberals, to what extent democratic system can preserve Russia in the current geographical format.  And I m ending with a favorite quote of mine, German poet, Goethe, looking at the German nation, he said, we, Germans, are constantly creating problems for ourselves and the world.  In 1945 the Germans ceased to create problems.  But it seems to me there is another nation that continues to create problems for itself and the outside world.  Thank you.  </P> <P>Leon Aron:  Thank you so much.  [Applause].  Michael.  You ll disclose the author of that quote, I take it, off-the-record, to some of us, who are very curious.  [Laughter].  The timing of this conference, not accidentally, there were many factors that went into it, but, in part, to make it very, very hard for those who do participate in the Valdai conference to be in both places because I think unfortunately we are now at the point that anything arranged by the Russian government is becoming quite an impediment to a true discourse about Russia.  I think Valdai has become one of those things.  And I don t want to say proud, but, I ve never attended, and don t intend to.  Mike.  </P> <P>Michael McFaul:  Well, I ve been invited and dis-invited to that esteemed meeting.  I actually don t have anything to say.  I feel like, in fact, I feel like I don t have, I haven t had anything new to say about Russia for about six or seven years, and, therefore, I m going to do two things.  I m going to show you some slides as a way to disguise my lack of new ideas, and I m going to try to provoke some of our panelists, both on this panel, it s a shame, I flew all the way from California last night to be here, and then to find out that Leon isn t even speaking, so I think that s absurd, and I m going to try to provoke him to say some things and not just moderate, but, too, I want to add some lead-in questions for my panelists, particularly on the economic side, but also on the foreign policy side.  You ll understand why I m going to do that in a moment.  The first thing I want to say, is, on predicting continuity and change in Russia, I would say Russia experts are just as bad as all social scientists in having really bad models and really bad predictive capabilities to anticipate revolution or democratization.  </P> <P>And, so, I damn you all, and we can go back and read all the silly things we said in the fall of 1999 when we talked about continuity and stability and the strength of oligarchs and the Russian weak states and after Yeltsin comes Yeltsin, that was a famous article written around that time.  I just remind you of all that.  We all said that.  Not everybody in the same way, but, there was a lot of prediction of stability because that s always your best option in terms of whether to predict continuity or change.  But, generally, I just want to say we re bad at this kind of predictive game, more generally, speaking about social scientists, economists, political scientists.  So, that s my first statement, we re bad at it and we ve got it wrong many times before.  </P> <P>Second, to try to get beyond that banal statement, we at least have to understand what the regime is, and then my approach today is kind of to think of the regime comparatively about trying to predict its change.  </P> <P>And, my bottom line, in case I go on too long, is that this regime is an autocracy, and let s call it that, let s not call it imitation democracy, and I ll show you why I believe that in a second, but it s a particular kind of autocracy.  It s a personalistic regime.  It s not a full-blown dictatorship.  And when you think about other personalistic regimes and what causes them to fail, the number one cause, if we look comparatively, is lack of economic performance.  And, so, for me, the central question is, does this new political regime that s been put in place by Putin today, rather masterfully, I think, does it have a negative consequence or a positive consequence for economic development?  </P> <P>I want these gentlemen who are going to speak after us to answer that question very specifically, and to get beyond just the correlation of rising autocracy and rising economic growth, but to try to get in and see, does this political regime have, within it, the components for sustained economic growth, or does it have it within it the components that will bring down economic growth, and, eventually, therefore, lead to the failure of the personalistic regime?  </P> <P>If I had more time, I would also want to ask the same questions about foreign policy.  Is there anything about this kind of regime that leads to a different foreign policy behavior than, say, whatever you want to call the Yeltsin regime or the Soviet regime, does regime type matter for foreign policy?  I have a hypothesis about that, that it does, and that it can lead to negative consequences, but I m not going to have time to get into that, hopefully the afternoon panel will take that question up.  </P> <P>So, first, just to be clear, Russia, the formal institutions of democracy have not changed, informally there s been tremendous centralization of decision-making, particularly, remember, there s been no new democratic reforms and a weakening of checks on executive power.  I hope that none of this is going to be controversial, this is just reporting.  </P> <P>These are just the various changes that have taken place under Putin.  I think this starts back in the fall, no, in the spring of 2000, and we could go back and chase that trajectory, we could have a long argument about whether this represents continuity with Yeltsinism or not.  I d be happy to do that.  I think it s important to understand that, actually, for predicting change, but let s just keep to the descriptive part for now.  So these are the components of Putin s personalistic regime.  </P> <P>Photos from outside our office in the spring, just to remind you that, to me, this stuff is striking, that managed democracy, actually, I thought, was quite brilliant.  You know, you let the Lilia Shevtsovas of the world go, and talk about and publish her articles, and you let the Gary Kasparovs of the world talk about rising autocracy, and, say, we re pluralistic.  This stuff actually kind of surprises me and makes me think that the regime is a little more nervous, that I would say, if I was advising the regime, then it should be, and I think has some of the seeds of its destruction, which I ll get to later.  </P> <P>Now, just to be clear, so we don t get into some weird argument about American democracy versus Russian democracy, I would be happy to be invited back, Leon, and tell you of all the pitfalls of American democracy and how the Bush Administration has done a lot to undermine it.  I d be happy to have that argument and present it.  I m doing some writing on it.  I don t want to do it here because here we re talking about Russia, and, to me, just to be clear, these are the classic definitions of autocracy, from the literature, these are all quotes not from Russia experts, and I think you can look and you can see where Russia might fit depending on the way you define it.  </P> <P>Now, what s interesting is, we need to, I think, develop a little more understanding of degrees of autocracy, which, I don t have an answer to today, I m going to have a banal one in a minute, and kinds of autocracy in the same way that we ve developed very precise notions of electoral democracy versus liberal democracy, and we ve got ways to score democracy; I think we have to do a much better job at understanding different kinds of autocracy.  For me, Russia is a competitive authoritarian regime.  It is not a full-blown dictatorship.  It is not Turkmenistan.  It is not Saudi Arabia.  Right?</P> <P>Elections have some degree of uncertainty.  We don t know, 40 percent, 35 percent, Unified Russia, we don t exactly know.  We don t know who is going to be the next president of Russia.  Those are good signs.  Those are signs that there is some degree of uncertainty in political competition.  So it s not in a 7/7 category of Freedom House, but it is an autocracy.  And, therefore, to talk about these elections, particular parliamentary elections as if they re a meaningful election, I think is wrong.  And I think the Russian electorate, by the way, is beginning to figure that out, and I think Andrei s point about falling turnout rates I think is the most important thing to observe in this next electoral cycle, is at the beginning of a long cycle where the Russian population begins to understand that the Parliament hasn t done anything for the last four years.  Why should I give up a day, Sunday, it s a Sunday, right, why should I give up my Sunday to go vote for these guys that I have no idea what they ve done for the last four years?  That is, I think, a real problem, and begins to delegitimate imitation democracy.  That s the problem, I think.  </P> <P>And, in fact, I ll skip that for now, I just spent a good deal of time in Morocco observing their parliamentary elections.  Morocco is, as you know, a monarchy, and, all the time, as I was asking, I was part of an international delegation to monitor the elections, and we were asking a set of questions about the status of Morocco s partial democracy, or autocracy, I would call it, competitive authoritarianism.  And, just to give you a comparison set, these are the questions we were asking about that monarchy, and in the back of my mind I always had Russia in mind because I ve observed every single parliamentary election in Russia since Russia became an independent state.  </P> <P>And, here s the comparison, equal access to the ballot:  easier to get on the ballot in Morocco than it is in Russia.  Level campaign field:  much more level in Morocco but that s because the King makes it very clear that the parliamentary elections don t matter.  So he makes it all fair for everyone. Interestingly, and I think it s an important positive sign, Putin still cares about the outcome of the parliamentary election.  And it d be great if he joined a political party and then got active in the election, that would be even better, he cares a little bit, the King doesn t care as much.  That s how you explain that one.  Real opposition competes:  in Morocco, yes, it s a PJD, it s a real opposition party, antithetical to the monarchy; in Russia, I m not so sure.  I d be curious what you all think.  Are real opposition parties competing, and do they have a chance to succeed?  I m not so sure.  </P> <P>Free and fair counting:  Morocco was fantastic, I actually think Russia will probably be relatively free and fair, although, I have no evidence or data to support that, I just think that s true.  Curiously, there will not be the same kind of monitoring that there had been in other elections.  Parliament picks the prime minister:  in Morocco, no, the King does; in Russia, no, the President does.  In fact, in Russia, rather than waiting until after the election and then deciding what the balance of forces are to pick the prime minister, the President does it before the election just to make it convenient and stable, as he says, I like to have a stable government before the elections .  That s actually antithetical to the way elections are supposed to work.  </P> <P>And then, finally, does the parliament influence the choice of the Prime Minister:  the King in Morocco has made it very clear before the elections that he will choose the prime minister from one of the top parties.  He was very explicit and he said he didn t say necessarily it would be from the top party, he was worried that the opposition party was going to win, and he didn t want to choose the prime minister from that party, but he said, very explicitly, the government will be formed from the parliamentary majority.  That, obviously, is not the case in Russia.  </P> <P>So, that s the system.  Is it stable?  Answer, short-run, yes; long-run, I don t really know, and I want to get to the long-run because the short-run I don t think is that interesting.  Just to put Russia in comparative context, these are the survivability rates of different kinds of autocracies, and Russia is in the middle.  Personalistic regimes, on average they last about 15 years.  It s not a military regime, which are easier to move back to democracy, and it s not a one-party state, curiously and interestingly, that project, if it was tried, it failed in Russia, and that s a good sign.  That, I think, and here I tend to agree with Andrei, the fact that that does not exist leads the possibility open for more rapid change being a personalistic regime.  Theocracy is not interesting for us.  </P> <P>What do we know about personalistic regimes, generally speaking?  Economic growth is the key to their survivability.  This drives the whole thing.  It s not ideology, it s not organizational capacity, it s not repression, and I would say all three of those nots are present in Russia, that s a positive sign, and I think the attempts to do any of those three would also fail.  If I had more time, maybe in questions, I would talk about why I m optimistic about any three of those attempts to sustain autocracy I think would backlash.  </P> <P>So, the key is economic growth.  Therefore, the real story is the story after our panel about what are the causes and what are the long-term prospects of this growth?  I m going to skip these slides quickly because we have a whole panel on it, but I think the Russian economic story is fantastic, Russians are richer today than probably they ve ever been in their 1,000 year history, macroeconomic story is particularly amazing.  All this stuff is true and we can walk through the numbers, maybe Anders and other people will, but that s not interesting; Ikea is there, it s not just the rich people, let s remember that.</P> <P>The really interesting thing to me is does any of this growth have to do with the kind of political regime that Putin has created?  And, again, I want you to remember the big comparative map about around the world.  On average, democracies and autocracies grow at about the same rate, over the last 40 years.  You know, we could argue about the data, and specifics, but, on average, they grow about the same rate.  So when somebody gets up and says, autocracies grow faster, it s a bunch of BS.  It s not true, systematically.  For every China, there s a democratic republic of Congo.  Right?  In the end, if you can t read that, China is this fantastic performer at the high autocracy side, and then there s about 40 or 50 autocracies that are really laggers, and, on average, they grow about as fast as democracies.  </P> <P>So, the real question is, that s not interesting to say there s autocracy and growth in Russia.  That s just such a stupid correlation.  We need to unpack it and we need to understand, is there a relationship between these things.  My quick answer is that, my intuition is that there probably is a relationship and it s negative, not positive.  That is to say that the causes of growth are independent of regime change, it just coincidentally happened at the same time.  If you want to get at really what caused the growth, it s devaluation, it s tremendous economic policy, sound economic policies, I think we have to, Prime Minister Primakov, let s not forget the incredible job he did, by the way, of setting the table, I think, as Anders writes about it in his fantastic book.  By the way, on this, I urge you all to read it, whereby all the economic policies were basically in place, Putin just took them off the shelf, the tax code, all these things.  Andrei was part of this.  This was all done before any change in the political system.  And, so, the puzzle, if they re connected at all, I think they re connected in a negative way.  I didn t know Andrei was going to be here, but I love to quote him on this, because, it s not, you don t, you shouldn t be impressed by 7 percent growth or 6.5 percent growth, you have to think about the counterfactual.  </P> <P>How could Russia have grown with a different political regime?  And my argument, and it s a, I realize it s counterfactual, but I think Russia is actually performing well below what it could have been.  And, the key indicator, and I ll just tee-up the panel for the next panel, I think is investment.  I think if you look at Russia s very low investment rates, fantastic compared to 1998, so, yes, if that s your measurement, really fantastic, but, really slow compared to Estonia or China or the region as a whole.  The only way you can explain that, I think, is the discount rate that investors, both in the stock market, and direct investors, put on political risk regarding property rights.  That s just, I think, a very simple and very clear argument.  </P> <P>Moreover, I would just remind you that when you talk about the Russian story being fantastic, well, it s only fantastic if you just look at Russia, if you put it in the context of these really economic powerhouses, like Georgia and Latvia and Kazakhstan and Armenia, Russia actually doesn t look so great, it looks pretty average, 9th, over this period.  And in 2005, Russia only grew faster than two countries in the post-Soviet region, Moldova and the Kyrgyz Republic.  And, remember, Kyrgyzstan had a little revolution in 2005, so, they should get a pass for 2005.  </P> <P>So, and then we could go into these other effects that I think come from the lack of democracy, rising corruption, insecure property rights, I m just going to skip these because I m anticipating we ll talk about these in the next panel, larger state, yes.  But, is it anymore effective?  I would say no.  And, just remind you, lots of ways to measure public goods, but murder rates I think is an interesting one, and the anarchy period of Yeltsin, lower murder rates than the stable, orderly period of the Putin era.  </P> <P>And then here, just on all indicators of governance from the World Bank, Russia s flat or going down under the Putin era.  In other words, the state autocracy has not led to more effective government in Russia, and I think that, in the long run, is going to have negative consequences for economic growth.  </P> <P>To conclude, the next president inherits all these things.  Right?  With none of the benefits that Mr. Putin had when he came in 1999.  Dual power structure is just inevitable.  There s only one personalistic regime that I know of, and maybe somebody could help me, I m sure there s others, but the only one that I know of where the personalistic regime, it s interesting, the person matters.  Right?  And there s only one place I know, Singapore, where the personalistic regime was set up and then the person who set it up went into the shadows.  That s Singapore, a little tiny, little place, very, very kind of special circumstances.  </P> <P>That is not Russia.  And I think the dual power structure of a president, very popular, who is quote/unquote retired, with a weak president coming in with none of the positives that Putin had, I think that creates, already, structural tension.  And the shadow of Putin is just not all the people that Georgy mentioned, running all these companies, the prime minister who is subservient to him, those are very important parts of the shadow of Putin that whoever the president will be, but, the shadow of Putin is also that Putin was the anti-Yeltsin, and that was so important to his popularity.  You can t be the anti-Putin, at least not in the first two years.  It s really hard, when the last president has a 7 percent approval rating, it s really easy to be the anti-status quo figure.  When he has a 77 percent approval rating, it s a lot harder.  I think, therefore, I don t have any predictions, I m too scared to do that, but I think the next era will be at least more interesting, if not more unstable than the last system.  </P> <P>And finally, long-run, there is no doubt about it, my colleague, Seymour Martin Lipset is always right in the long-run, then, in the long-run, I have no doubt about it that the forces of economic development, globalization, lack of alternative ideology in Russia, Russia will be democratic in the long-run.  No doubt about it, I m totally, totally optimistic about that.  I just don t know how long-run, the long-run is.  [Laughter].  </P> <P>Leon Aron:  Thank you so much.  [Applause].  Well, it s been extremely provocative, just as I expected.  Therefore, if I may prevail upon the questioners, not to make statements, but actually ask questions.  I would also encourage the panelists to go to each other s points.  </P> <P>Male Audience Member:  Anders Aslund, Peterson Institute.  I hear an underlying assumption here, which I think is totally wrong, that Putin will leave.  I see no reason for this.  Essentially it is because Putin says so, Putin always lies, go through his states, Yukos, democracy, etc., on all important issues Putin disinforms us.  Why should we believe this most important thing, particular to Georgy Bovt, but, generally, to the panel?  And, the other argument is that the Constitution says so, that perhaps goes more to Mike, in [indiscernible] book, by [indiscernible], she quotes Putin as Chairman of FSB in 1999, when they were discussing a third-term for Yeltsin.  She asked, what would the Constitution court say, and, Putin answers, the Constitution court will decide as is necessary.  So much for the constitutionality.  Thank you.  </P> <P>Georgy Bovt:  Actually, you said everything.  Whether it s any chance that Putin will stay for the third-term, I would say yes.  There is a chance, but, well, pretty small.  Whether it s important for him to step down, I think that he really wants to step down because he has some ideas in his mind about his mission for the Russian history.  He imagines himself to be not an ordinary president, but a president with a mission.  Part of this mission is to step down and to let democracy, so-called democracy, sovereign democracy prevail, and so on and so forth.  But, I also want to emphasize that when he do something about Russian politics, it s very important for him, with all his ideas in his mind, that his actions and the actions of his successor would be supportive.</P> <P>Recently he said that truth is more important than force.  Of course he has his own understanding what truth is about.  He definitely enjoys a lot of force in his hands.  But, this saying is very important.  He wants his regime to be accepted and if the successor will be weak, as Mr. McFaul said, there will be a real trouble for him as the creator of this regime.  But, I m not sure that actually he will survive as an active political figure after the year of 2008.  I think that this chance that he will not survive as an acting political figure is much bigger than the chance of him being elected for the third term.  </P> <P>Leon Aron:  By the way, we do have, since everybody was so disciplined, we have an essential chunk of time to, precisely the amount of time that this panel deserved, to discuss.  </P> <P>Michael McFaul:  You might say some things, too, Leon, to this question.  I think people would like to hear what you have to say, too.  </P> <P>Andrei Kortunov:  Let me make one more point regarding his intentions to the extent we can dig in his mind.  He keeps stating one important point.  He says that for the next president, the key tasks are essentially how to fight corruption and how to enhance the competence of civil service.  So, these are two profound tasks which, unfortunately for Mr. Putin, were not accomplished during his two terms in power.  And I think that Putin being a smart person understands that he cannot stand up to the challenge, that the system that he built is not capable of meeting these two challenges.  He cannot fight corruption.  He said many things about fighting corruption, but, in reality he was trying to avoid it, to avoid it for the sake of stability, and he couldn t tame bureaucracy.  From this viewpoint I don t think that Russia has a particular strong state today.  It s a big state in terms of sheer numbers, but it is not strong in the sense that it s not too efficient.  </P> <P>So, basically, my point is that Putin has exhausted his agenda and deep in his heart I think he understands that at this stage he has very little to say and very little to offer.  And maybe he believes, it s hypothetical, of course, but maybe he believes that a relatively unpopular president who has nothing to lose who will be overshadowed by Putin will do the dirty job, do it in four years, and then Mr. Putin, back in the Kremlin in 2012 for the social Olympics, and things like that.  So, at least I wouldn t exclude that this is something that he really counts on.  </P> <P>Lilia Shevtsova:  Well, strangely, I would agree with all comments so far, which says that at least we have liberty of various interpretation of this process.  Firstly, I m not sure that we should trust every word and sentence President is saying, because, well, what they re doing now, and acting, this is the part of the mystification game.  Secondly, I would urge us to be very cautious when we are discussing the question, who, because so ironically within the system of personalistic regime, which is quite mature in structure, the question who and who is in the driver seat could be less important, irrelevant, that the structure of the car or the model of the car he s driving.  </P> <P>Michael McFaul:  Just briefly, I don t have any great insights on this question, I guess I have to say I m struck, Anders, by, on the one hand, Putin s cynicism about democracy, his particularly flippant quote about since Mahatma Gandhi is gone there is nobody to talk to, which was a blatant, you know, just brazen, I could care less what you think of me, and, yet, at the same time, something in the back of his mind that he wants his regime considered legitimate, somehow this relationship with the west that is so strained, but, yet, has some kind of a relationship, and I hope Dmitri will talk about that later.  I don t quite get it, but it s not as simple as just saying, I m a Bhutto, I don t really care about the outside world.  It seems like he does.  And, therefore, I predict he ll step down.  But, of course, this scenario of 2012 and let the next guy do all the dirty work and him come in to save the day, I actually, I have no inside information, but that makes a lot of sense to me.  So, I guess I disagree that he s going to step aside of his own accord, but I have no data whatsoever to support that observation or prediction.  </P> <P>Having said that, I would just add two caveats to what s going to happen if he does step down.  The first is that this system is extremely centralized, decision-making is incredibly centralized right now, and that is going to be a real burden for even the most brilliant person to come in, let alone somebody who he just picks out of the thin air and says you are now president.  And I see that as actually a rather difficult thing to manager, where the government doesn t really matter, the parliament doesn t matter, institutions that can give you information about how the system is working have been all weak, and, that, I think, is going to be actually a quite difficult thing for anybody to come into.  I wonder if Putin understands that.  I wonder if he does, just how personalistic this regime is right now, and if he steps aside who can fill the shoes.  </P> <P>And then, second, I take the point about corruption, and I actually, I take, let me just say when Putin says that I see no reason to think that he s not genuine.  He wants to keep elite corruption, and, you know, if I want to seize your oil company, that s my prerogative, but he d sure like to fight petty corruption.  That contradiction, he wants to fight at the below, but then at the top they want to do whatever they see fit, I think that is the real story of the Putin era.  The problem is, I think, is that his strategy for fighting corruption is very, you know, circa 1950s.  It is not 21st century.  In the 21st century the best way for fighting corruption is to have independent media, and a genuine opposition political party.  Those are the two institutions, we know, from other places, that really fight corruption.  It is not a strong state or more and more bureaucrats.  Andrei is absolutely right.  This is not a strong state by any measure, in terms of its performance, it s really underperforming.  So, I don t see how an even weaker president, if Putin couldn t do it, how is a weaker guy going to be able to do this from this top down administrative way, and I think that, again, is another source of structural tension moving forward.  </P> <P>Leon Aron:  I have Mark Plattner, Padma Desai, Harley Balzer for now.  Mark.  </P> <P>Michael McFaul:  Leon, I m just noting you did not answer the question.  </P> <P>Mark Plattner:  Mark Plattner, Journal of Democracy.  I guess my question is aimed primarily at Mike.  It seems to me there is a fundamental contradiction in the idea of a personalistic dictatorship with term limits.  I m not sure if the contradiction is in your analysis, or in Putin s notion of what it is he s trying to build.  But, it does seem to me, precisely to the extent that power is rooted in the personality of the ruler, the notion that this can be passed on without fundamentally shaking the regime seems very dubious to me.  I wonder how you would respond to that.  </P> <P>Michael McFaul:  Just that I, I think that s absolutely right, and that s why I think it s, like I said, monarchies have their sons and daughters, parties have their selectorate within the party, militaries have generals, there s not an obvious way to hand over power in a personalistic regime like the one that Putin has constructed.  So, I think you re right, and, maybe that affirms Anders suspicions that maybe it s not going to go that way, but I think it s a contradiction and a paradox of the system.  </P> <P>Padma Desai:  I m Padma Desai, the Harriman Professor at Columbia University.  I do not want to be the devil s advocate, far from it, I do not think Putin is a democrat, especially the Jeffersonian type, we the people, kind of democrat.  He s not a Nehru type democrat, when  Nehru in the 1950s gave a vote to every adult Indian, man and woman.  You just have to be an adult, no qualifications required with regard to property, with regard to education, just go out and vote, that was the revolution, and that made him a democrat.  He s not in that mold.  But I do want to understand his emergence, and the emergence of the United Russia Party in the December, 1999 election.  What brought about that change?  Do you think the Russian public rejected Yeltsin type reforms, because we are talking about continuity and change, why did the Yeltsin type reforms did not continue?  What brought about this change?  Was the Russian public with him during the period from 1999?  </P> <P>Michael McFaul:  Let me go first, just, two things.  I didn t comment at all whether Putin is a democrat or not.  I was talking about the regime.  The regime is not democrat.  If we want to debate that, we can go into it.  I think it s really rather obvious.  But, you ask a more interesting question.  How did it come about in 1999?  And I ve written a whole book on that, Padma, so I ll send it to you, with Timothy Colton.  But the short answer is, this was about regime, this was, you know, five or six people in the Kremlin figuring out a way to protect their property rights.  The party of power was divided.  There was something called Fatherland, as you remember, and Mr. Primakov, Mr. Lishkov, television was divided, as you ll recall, governors were divided, and it was, in my opinion, the 1999 parliamentary election it was nasty and awful and all the kind of crap that goes with democracy, by the way, and competition, but it was a competitive election designed to protect the property rights.  Ironically, the mastermind of the whole thing, the man who created unity, Mr. Berezovksy, didn t work out that way.  So, you know, word to the wise, to Mr. Putin.  </P> <P>The second point about Yeltsin s reforms, I guess I would just disagree with you.  I would say the best moment for Yeltsin s reforms was between 1999 and 2002.  They did all the things that Mr. Gaidar and Mr. Illarionov and all these folks were trying to do, they just didn t have the political conditions to do them.  They had all the ideas, they worked them all out, sitting out of power, and that period was the period of rather radical, you know, all the things that Yeltsin couldn t do in the 90s they did.  Now, the second term, it stopped.  That s interesting.  Why that is, I want to defer to my, your panel, and you ll explain it to us.  It seems like the minute they tried a little bit of messing around with the pensions, there s a little bit of push backs, which is nothing, in my opinion, and they got scared and they ran away, and maybe when you have 7 percent growth you re allowed to run away.  But, that s interesting, why did it get off to such a fast and furious start in the beginning and then stop, but I m sure you ll explain it after our break.  </P> <P>Leon Aron:  If I could just add to what Mike said, I totally agree with that.  Padma, I also see it quite differently.  I think the 99 vote was the most pro-reform vote since 91.  The party, the Unity Party, at that time, positioned itself as a pro-Kremlin, pro-reform, well, you could say, pro-Yeltsin, in any case, pro-Kremlin associated with Yeltsin, Putin was still a relatively minor figure, although with an astronomically growing rating.  And, let s not forget this is when SPS did it best, 99.  So, no, it was a pro-reform vote, precisely because the people, I think, have begun to see the signs of growth, the recovery after 98, the first signs of economic growth, and, incidentally, 99 was, obviously with a very low start, but was a tremendous economic growth in 99, and then followed by 2000, 2001. </P> <P>And, I also agree with Michael on the fact that the dirty work at that time has been done by Yeltsin.  In other words, all the hard, well, not all of them, there are some reforms that are still with us, housing, education, medical care, but the institutions were put in place, you had the stock market, you had the treasury, all of those things, incidentally, about which I m writing in the paper that Lilia mentioned, in all those cursed 90s that we re just, the regime now just uses every opportunity to denounce, inherited and used it extremely well.  </P> <P>I have, now, Harley Balzer.  And, Harley, I m very happy that you were not the Valdai participant who stood next to Putin and drank wine.  I m sure you drank wine, but not.  </P> <P>Harley Balzer:  Not this year, I didn t get, once was all I got on that.  [Laughter].  They heard what I had to say and that was the end.  I can t help pointing out from Andrei s question about how we translate Just Russia.  If we translate it back into Russian, you can get Tol ko Rossiya, which goes right nicely with Lilia s analysis.  [Laughter].  But, my question goes back to the upcoming Duma election.  In 2003, we saw an enormous amount of media manipulation, a real effort to calibrate what percentage of the vote various parties were going to get, even to the point where Rogozhen was given lots of airtime and then two weeks before they realized they had overshot and they cut him off to try to hold down their totals.  Do you think we re going to see a similar effort to game it this time, or do you think that there really is going to be more willingness to let the parties sort it out for themselves?  </P> <P>Leon Aron:  Harley, anybody in particular, or anybody who wishes?  </P> <P>Andrei Kortunov:  Well, if I might.  I think that what happened, they really overdid it.  Right now when you talk to people in the Kremlin in charge of the election process, they will say, and I think they are sincere, that they wouldn t mind having a Rightest party in the State Duma, maybe even the Union of Rightest Forces, or another group because that would help to build a more professional legislature.  Their problem is that they cannot get these bloody democrats, you know, get together and somehow decide who is going to run the show.  So, I think that they might be at least, they might be less paranoid about the outcome of elections, and, indeed, Putin can afford the luxury of letting not thousand flowers bloom, but a couple of flowers blooming.  So, this scare that they had of the Orange revolution or something that would really put the situation out of their control is almost gone.  However, having said that, I m sure that if you make one step down, and interact with people who are really in charge, who, for example, decide what percentage a particular region should deliver to the United Russia, and what percentage they re allowed to give to the opposition, of course like they overdid a couple of years ago, they re likely to overdo it again because they need to report, they need to show that they re better than neighboring regions, that they are more efficient.  So, I don t exclude this excessive calibration at the lower level of the election campaign, which is not justified by any urgent political needs.  </P> <P>Leon Aron:  Anybody else on this, on this matter.  Yes, Georgy.  </P> <P>Georgy Bovt:  I d like to add, there is also contradiction in there mind because when you speak to them, they often, privately, confess that, you know, we experience a lack of ideas.  You ask them in response, where will you like to pick your ideas, these new ideas when you brainwashed all the media and ironed all the media up to the lower level.  There is no answer to that.  The same with democracy.  They privately say they prefer some competition, but when the act, in practice, they act in a way to avoid as much competition as possible.  </P> <P>Lilia Shevtsova:  One comment, as a warning, or, as the anticipation of suspense.  We, we ve been paying attention pretty often to situational factors, parties, political forces, etc., we should remind ourselves about the logic of the system, and the logic of the regime.  Yeltsin, at some moment, did think absolutely unbelievable for him during his presidency, and Leon wrote about it in his terrific book, several times Yeltsin, in fact, rejected the danger of the Siloviki coming to power, and, by the end of his term, he invited the guard dogs, the special political and social group to stabilize, defend and prolong his regime.  In fact, according to the rejection of the rejection, Yeltsin had rejected himself in his previous self.  And now the new regime, where we have a very specific cut-rate cabal of people with a specific mentality, specific function, the guard dogs are all in the country, they currently will need much more aggressive and assertive group of people to defend their regime.  So we need to have that in mind, and not a single opening, democratization, is at least logical within the structure.  </P> <P>Stanley Kober:  Stanley Kober with the CATO Institute, for Michael.  At the end of your remarks you said they don t have an ideology, and I m wondering if that s important.  What is the name of the youth group, the Counterparts of the Komsomol, Nashi, our guys.  That implies to me, our guys good, which means, their guys bad.  That s an echo of George Orwell, Animal Farm, four legs good, two legs bad.  That s what it implies to me.  Do you need a more elaborate ideology than that?  </P> <P>Michael McFaul:  A good question, I don t have a good answer.  I would say a couple of things, that, those around the Kremlin who have been in charge of creating Nashi, and various other projects, nationalistic projects, you know, they re doing what they think is necessary for managed democracy, or, now we call it sovereign democracy.  Pavlovsky, just the other day, had this long, always somewhat difficult for me to understand, article, [cross-talking].</P> <P>Okay, all right, so it s not just my bad Russian then, but where he says the essence of Russian foreign policy is containment to the United States, and, I understand the logic of that.  And I think in the time and the future that Lilia is talking about, to me that s the interesting question, that a weak president in the kind of conditions that I talked about, what is their options?  One option is Andrei s option, which is more pluralism, more competition, a way for Putin to get back into the game.  But, of course, the other option is a greater crackdown, more authoritarian rule, under the guise, and it would be under nationalistic slogans, and my country most certainly would be front and center in that war.  You know, we have the siege mentality, we re being surrounded by the United States, and let me just say parenthetically when I see this on the news I just wonder if anybody in this town is, never mind, we re not talking about the U.S., it s one hand clapping, I guess.  I see this image and then I look at just our weakness, American weakness, and know who strategy, and nobody cares about Russia; Russia is number 35 on their list of priorities, where in a lame duck present, and then I look at the press and it s a real disconnect, and maybe that, then, says we should be more worried about this.  I, myself, am less worried about it.  I, myself, when I look at voter attitudes, when I look at the ability of nationalism, I m a little more comfortable, and I think Russia is beyond that.  </P> <P>But that, you know, that s just really intuition, that has nothing to do with, we can bring up all sorts of historical analogies to prove it wrong, and you can tell I don t have a good answer.  It s there, but I don t think it s as threatening as the Nashi rally and the crap that you see on TV.  If those were your only two data points, I think you would be nervous, but when you look at all public opinion poll, and you look at the country as a whole, I think people are more immune, but, Andrei is shaking his head, so I m hoping he ll say why I m wrong.  </P> <P>Lilia Shevtsova:  For the first time I am disagreeing with my dear friend, Mike.  Please go to the Levada polls, survey of the attitudes of the younger generation between 18 years old and 25 years old towards different developments, not only to the west, but also human rights, etc., etc., etc.  It seems to me that at least the current political leader has done one absolutely unforgivable thing to Russia, this is the degeneration of the younger generation.  The results of the survey are simply devastating, and it seems to me they are creating the Frankensteins, and they still have to learn the lesson of the Frankenstein, in one case, at least, where [indiscernible] and they understand.  They don t understand breeding this Nashi, locals, etc., etc., what they are in fact creating.  </P> <P>Andrei Kortunov:  I d just like to echo Lilia, and it s not often that I disagree with her, but, here, I disagree.  I think that what we have to do is to distinguish between this quite superficial political allegiances which do exist in the younger generation and much deeper social values.  If you talk to them and if you reflect on them intelligently, indeed they might be a breed nationalistic, and they might be xenophobic.  However, if you look at their lifestyles, if you look at their employment patterns, if you look at how they travel abroad, if you look at how they use Internet, if you look at what fashion and movies they use, the system is, the picture is much more complex.  And I wouldn t discard the younger generation as indoctrinated just because they re different, they belong to a different social group, they are more cosmopolitan than we are, and in a way, even if we take people around this table, I bet that our kids are more cosmopolitan than we are.  And, of course, I think that this indoctrination, though it exists, it is incomplete, I think it is reversible, and I think that it is characteristic of particular factions of the younger generation.  So, I won t really say that it s that easy to change the mentality of the whole generation.  </P> <P>Lilia Shevtsova:  One sentence, hopefully you may be right, but, according to the survey the most successful part of the younger middle-class, people who are well off and working for Rosneft, etc., for the state sectors, etc., that cosmopolitan style is not the obstacle for their nationalistic, xenophobic feelings, so that the most xenophobic part the most successful, the most is xenophobic part of the society.  And, besides, we have to think about possible crisis when these people, who are now cocky and expanding in the world, and saying, Russia is back, what they might feel and how they will in fact solve their complexes in case of crisis.  It will be much more difficult situation than situation in Germany in the 20s.  </P> <P>Michael McFaul:  On this debate I guess the key point, Lilia, is about crisis.  So, when I see the Nashi guys, you know, I was at the other Russian meeting a year ago, and they were outside protesting, they didn t look very threatening to me, they looked like yuppies from Stanford.  That was why I was being, like, give me a break, you guys are not -- how many have been arrested, how many have done real, you know, they follow the Ambassador around and they throw, it just doesn t look serious to me, and the reasons who these people are, these are not the disenfranchised, these are not the people saying, you know, to think about other historical analogies, you know, those Jewish people have everything and I ve got nothing.  No, these are the people that are benefiting from the system and they see Nashi as a way to get ahead in the system.  And that, to me, is yuppies from Stanford, I mean, the same thing, except in times of crisis, and there I guess I agree with Lilia.  What happens when their opportunities then do become constrained?  And that, then I don t know what happens with them.  </P> <P>Leon Aron:  I couldn t help noticing that, in fact, this is something that Lilia said before when she was describing a regime where people don t meddle in politics but they re quite happy, those on top don t want change, this is, of course, Brezhnev, 1970s, underlined by oil as well, which, the reason I m reminded by that also by what Mike said now because what you ve described is a Komsomol leadership of the 1970s.  Absolutely not, this is just a way to move forward, I don t give a damn, and, in fact, when the crisis came, they ran away and they did extremely well for themselves, precisely the Komsomol leadership was one of the top elites that profited immensely from the collapse of the system.  Who knows.   </P> <P>We have now, right, thank you for your patience, and then Andy Kuchins, and then Andrea Loreal.  </P> <P>Female Audience Member:  [Indiscernible], I m elite trainer for Russian language and culture at the World Bank.  I have a different question.  I have a question about the grassroots movements.  I know that this is just a new thing in Russia, but, it means, it seems for me that it s emerging.  What do you think about their future?  Do they have any future, like, for example, this St Petersburg Narod from St. Petersburg, as I understand, [indiscernible], but it s also like in St. Petersburg in April, when it s this march, so on.  So, this is, do you think they have any future, can they change the political landscape of the country, or, they don t have anything just in the future?  </P> <P>Leon Aron:  To whom would you like to pose this question?  </P> <P>Female Audience Member:  I don t know, maybe Georgy.  </P> <P>Leon Aron:  Or anybody else, okay, we ll start with Georgy.  </P> <P>Georgy Bovt:  I ll tell her the story about my house in Moscow.  So the different families in different, we live in the center of Moscow, quite an old house.  We decided to organize, just to make some improvements in our house.  The first one was the elevator.  So we bought the elevator by ourselves.  Then we make a reparation in the staircase and some other stuff.  So, but, who was the initiator of that?  The initiator, the organizer and the leader was living on the fifth on the floor, and he was married to the Russian woman, and he was from the United States of America.  And that s very depictive for the activity on the grassroots level for Russia.  Passiveness is the first obstacle, and the administrative barriers and some restrictions caused by the political regime are on the second place.  That would be my answer.  </P> <P>Andrei Kortunov:  Follow this line, you spoke about house owners, I run a program supporting independent associations of house owners in Russia, and about six months ago we wanted to put together a meeting of the associations, and I thought that we would get something like 100, 200 applications to participate.  We got more than 2,000.  We had extremely active, extremely interesting event.  What is probably the most interesting is that the ministry, which used to ignore these associations, found it so important that the minister himself, Mr. Yakovlev, he came, he sat for the whole duration of the meeting taking notes.  </P> <P>I think that when we get down to issues which are of practical concern to people, and, indeed, housing is probably the most important issue, but, for example, look at students, I think it s pointless to appeal to students to take political positions because they are cynical, they might be very career focused, things like that, but look at what happened at the Moscow State University, the whole thing started when students of the Department of Sociology started complaining about the quality of the food and the prices in their cafeteria.  Then, logically, they shifted to more general issues about how the Department was managed, about quality of education, about corruption, then other departments started to get involved.</P> <P>So, I agree that, of course, there is a passivity, and there is a clear intention of state to impose the all-social contact on society.  We provide you with some stable increase in living standards, in exchange we d like to have your loyalty and your passivity.  However, since state itself has very limited in situational capacities, it cannot control everything.  So, if you take specific areas, I think grassroots movements are clearly important.  The question is whether civil society institutions, like in yours, can develop their own institutional capacities to stand up and to confront this challenge, whether they can do something beyond advocacy, whether they can really participate in solving social issues.  And, if they can, there is clear a chance for grassroots movements, but, of course, it s a very, very long road.  </P> <P>Leon Aron:  Chairman of our afternoon panel, Andy Kuchins.  </P> <P>Andrew Kuchins:  Thanks, Leon, and thanks to the panel.  First of all, I have a question about the evolution of the political system, but I d like to make a clarification and a comment.  In case anybody in the audience misunderstood, the quote that Lilia cited was not from me.  [Laughter].  Now, my comment along these grounds may not be so appreciated by Lilia and the panel.  But, I found your comments about the participants of the Valdai discussion group, frankly patronizing, condescending and insulting.  It suggests that the members of the group, of which I was a member, Fiona Hill, Cliff Gaddy, Cliff Kupchin, a number of others here in Washington and in Europe, are somehow not sufficiently strong enough and independent minded to weigh the information that is conveyed to us in our various meetings, and that somehow we are lackeys of the Kremlin, ala Mr. Schroeder.  And that was the clear implication of what you said.  And, you know, it s just not true.  </P> <P>Now, there is quite a diversity in the group, actually, and, in fact, in this last trip it included the likes of Mr. John Laughland, a so-called human rights defender from Great Britain, who wrote a pretty notorious column in The Guardian three years ago called, American s Chechen Friends.  You can go and look back at it.  But it was a scurrilous attack on the Carnegie Endowment and the work of the Carnegie Moscow Center, which I was directing at that time, and, of which, of course, you ve been a long-standing member.  In fact, I approached him about, I confronted him about this in the streets, and it was reported in Moscow news.  I am Mr. K, if anyone saw this report.  We practically came to blows.  But there s a fair amount of diversity in the group.  My point is, look, we go there, we get data points, and you weigh those data points with all the other data points and you come to conclusions.  So, I just wanted to say that.  </P> <P>My question has to do with the political system.  Fresh from my brainwashing trip to Moscow, I came away with the impression, before the trip I was more in line with Anders, and I thought there was a considerable chance that Mr. Putin may stay on.  After the brainwashing, I ve come to the conclusion that the likelihood of that is between 0 and 1 percent, and I m more likely to agree with Georgy Bovt that it d be more challenging, actually, for Mr. Putin to maintain influence for a long period afterwards than it is that he will actually stay on.  So, if indeed Mr. Putin does step down, clearly the political system is going to change, and some of you have talked about that, and Mike pointed out the dangers of dual power for sure.  </P> <P>My question is about the role of United Russia because I was struck, there were several things pointed to me that is part of the plan, and for those of you who haven t been in Moscow recently, there s some new posters around town that say, Plan Putina, Pobeda Rossii, Putin s plan, the victory of Russia.  Victory on what?  Over whom?  Not clear.  These posters are apparently put up by United Russia.  There are similar posters in Sochi, where we went down to meet with Mr. Putin last Friday.  They say Plan Putina, Plan Kolodyazhnova, I think the Mayor of Sochi.  So I imagine these sorts of posters are all over the Russian federation.  </P> <P>United Russia is having a party Congress in early October.  My sentence from a number of discussions, including with Mr. Putin, is in response to my question about his role, his future role in the United Russia party itself, is that part of the plan to manager this political dilemma that they have for themselves is that United Russia is going to play a more significant role in Russian politics.  I think it was Mr. Surkov, in February of 2006, who suggested that the challenge for United Russia was not to win the next elections, but, in fact, to be the ruling party of Russia for the next generation or two, like the LDP in Japan or the socialists in Sweden.  When I asked Mr. Putin if he shared this same vision of United Russia, he responded, first of all, I don t work for Mr. Surkov, Mr. Surkov works for me.  </P> <P>But, I was wondering if the panelists could comment about whether, you know, the political system will change de facto, because Mr. Putin has more political authority probably than any leader of Russia since Stalin.  He s likely to leave and try to stay nearby.  Can United Russia, can you imagine this developing into an actual ruling party along those lines, or, would you see it developing more along the lines of the communist party of the Soviet Union.  </P> <P>Leon Aron:  Thank you very much.  Andy, by the way, you and I will have a private chat about Valdai, but I certainly did not in any way try to imply that anybody was brainwashed.  Well, we ll discuss that.  Yes, Lilia and then Michael.  </P> <P>Lilia Shevtsova:  Andy, just to continue what Leon has just, I didn t want to imply that our friends within the group became the results of the Kremlin brainwashing mission.  We know what you re writing, just like our friends that you ve mentioned, who have proved that they are immune from the same virus.  It s very strange for me that you personally took it such in a painful way.  But you hardly would disagree that the Kremlin is trying to use different worms of brainwashing and co-opting not only the western business, but also intellectual establishment.  It s difficult to ignore.  That s why, it seems to me, it was just natural for us to point about that.  </P> <P>Michael McFaul:  Well, let me make one comment about Valdai, too, just for the record, because we were all indicted by you, Andy, I said, very explicitly, I was invited to Valdai twice, I went once, and I was not invited the last two times.  So, I wasn t saying anything about the fact that you went, I, obviously, chose to go when given the opportunity, but I was explicitly not invited this year or the last year.  Just so you know, so there was diversity, but some people were too diverse.  And I was told that, very explicitly.  I admire them, I was told that very explicitly because I needed to know whether I was going to be there or I was going to go to my trip to Morocco.  And they told me I was not invited this year.  </P> <P>On the parties, this is not a new project.  What you just described is exactly what was described in 2003-2004.  The association of Putin with United Russia is exactly what happened in 2003, very successfully, by the way.  But I m struck by the half-empty, not the half-full part.  They ve had seven years to build this party along the lines of the Japanese model or the PRI in Mexico, and I m struck by the lack of progress in doing that.  All the people that Georgy Bovt mentioned that are running these companies, if that was Mexico, they would all be prominent members of Unified Russia.  Right?  The government, nothing to do with the party, and the appointment of Zubkov, totally non-partisan person, reemphasizing.  </P> <P>So, if I were Putin and I wanted to buildup the party, I would have thought that he would, for instance, name somebody from the party to be prime minister.  That would have been a way to signal that, that the governors would all join.  So I think it s a project out there.  I actually think it kind of underscores how uncertain Putin himself is about how this transition is going to go.  This gets back to Mark s point.  They are kind of in uncharted territory here, a personalistic regime handing with term limits.  I don t think he s actually quite figured it all out, and I think the absence of a party like PRI in Russia today, after seven years of fantastic conditions to make it, and he hasn t made it then, so how, you know, to leave it for the last three months, to me, underscores how he hasn t quite figured out how to do it.  </P> <P>Leon Aron:  I have Andrei Illarionov, of who will be the last one, I ve just been reminded that we have to start the other panel at 11:30.  Andrei, please.  Sasha.  </P> <P>Andrei Illarionov:  First of all, thank you very much for a great panel, and I have one comment, short comment and two questions.  One short comment concerning this little discussion between Lilia and Andrei, just, it s very clear that Lilia is much more correct in some kind of understanding of the current mode among Russian youth, not only based on some kind of opinion polls, which is interesting, but also some kind of soft measurement, but just looking through the, some kind of, one of the really best of the best professionals that fill in to ministry of economic development and trade, minister of finance, or some kind of expert department of the administration of the president.  They are demonstrating that they are not only loyal, but they re very eager to work as hard as possible to strengthen that political regime that Lilia has described so accurately.  So, that is what, it s a very special and very interesting topic, what kind of development is happening in the minds of young generation, but, I think that, just, overall it s a very strong trend towards Lilia has described.  </P> <P>My two questions, the first one to Mike, you have provided very strongly statement concerning the personalistic autocracy, and actually a number of the Russian friends also talking about personalistic regime.  How this definition of this statement would go with the number of cases which it does not support this statement?  When the leader of these personalistic regimes says one, and looks like very genuinely, he s really some kind of, full-heartedly supports particular decisions, like, for example, some kind of regional governor s election or with bankruptcy of Yukos or who will get natural gas, Gazprom, and after that we, with great surprise, found that Rosneft took it, or, with his decree to fire several generals of FSB, and after that they all stay in the power, and one of them is recently commenting on this attempt on Anna Politkovskaya and so on.  To what extent all these, and actually many, many other cases, can some kind of contribute to this description of the regime as a personalistic.  </P> <P>And the question to Lilia, so you described the approach of the west towards Russia, maybe not always, but very substantial portion of western elite, business, political, and intellectually.  My question is, why?  Not only why the west, or this part of the west has chosen such an approach towards this current Russian regime, but why you, me, or others, we are to expect different approach?  And, what would be your recommendations, or some kind of, your expectations, whether you would see some kind of continuation or change in the western approach toward this political regime?  </P> <P>Leon Aron:  Thank you very much.  Michael, we ll start with Michael, and then Lilia.  </P> <P>Michael McFaul:  Andrei, on your first comments about who is right, I m going to agree with you, and Lilia is right.  I don t have a good sense of this, generally speaking, nationalism is something I don t understand very well, and, so, I think it s worth having a whole discussion about it again, Leon.  I encourage you to do it, and I think it s really important to understand.  So, I take your point.  </P> <P>Leon Aron:  Michael, in front of all these people, will you come?  </P> <P>Michael McFaul:  I ll come if I can fit it in my schedule.  On the second point, though, it s a good point for me to end, the kind of regime is personalistic.  Right?  The extent of its capacity is a different dimension.  Personalistic, if I had a 2 x 2 graph we could graph monarchy, and we could have a general statement about which of these systems have capacity versus not, but then within each category, I think it s very important to disaggregate that, and here I actually agree with your general tendency.  I think it s a personalistic regime with a very popular president, but who is actually rather weak as a decision-maker, and as a state does not have a lot of capacity.  That paradox I think we need to understand, and I think maybe you ll say more about this later in the day, because I d like to hear what you have to say, rather than myself, but where you re going I think is generally right.  And I think that s very important, you agree with that, then that says a lot about what s going to happen with a weaker president; with a less approval rating; with all the constraints that you see already on Putin, and then you put somebody else that s even weaker, I think that actually creates a more volatile situation.  </P> <P>Leon Aron:  Very good.  Lilia, last word on this panel.  And, oh, I m sorry, Andrei.  </P> <P>Lilia Shevtsova:  Andrei, in fact you ask a rhetorical question, but, I will risk to respond.  In fact, Andrei raised the question, did I expect, or did we expect anything different from the west?  And, the question itself implies already some kind of an answer.  Well, I would say that unfortunately there are a lot of analysis of the western policy towards Russian transformation and towards Russia in general, but so far, it s our problem, the problem of Russian liberals, and some of them are present here, that we don t have a comprehensive understanding, liberal understanding, of the western approach, of the western accountability and responsibility for the current relations between Russia and the west.  </P> <P>And, apparently we need to look for answers, and we need not to shy from some very sensitive areas, although our argument just recently, several minute ago, says that this area is very sensitive and we, apparently, have to discuss, unpleasant for us, issues.  In any case, my hope is that with assistance of Leon and other American colleagues, we Russians and liberals, the remaining, the left always are Russian liberals, will start sooner or later to analyze the western approach and what has gone wrong on the western side.  With you, and we hope, at least, we hope that sooner or later the west will understand that Russia is western global challenge.  There is none of that understanding, yet, unfortunately.  </P> <P>Leon Aron:  Thank you.  Andrei, final word.  </P> <P>Andrei Kortunov:  I want to say two words because Lilia provoked some other thinking, but, let me limit myself to just two comments on Andrei s comment.  I think that a couple of well-paid, highly positioned bureaucrats at the Ministry for Economic Development cannot qualify even as soft evidence.  They cannot represent the younger generation of the Russian Federation.  Their loyalty doesn t tell much about the political allegiances of future loyalties of the generation.  I don t have many acquaintances there so I m not in position to judge about what these people think, but, probably like you, I have to travel a lot in the Russian regions, and I interact with the Russian universities on a day-to-day basis, including hard and remote places.  </P> <P>My advice would be not underestimate, do not underestimate the common sense, the intelligence, and the ambitions of this new generation, people who are now in the, let s say, early or mid-20s.  It s an entirely different group of people with very different attitudes towards life.  They are very skeptical to the propaganda which they receive from Moscow and specifically from the Kremlin.  So, I won t really count on the level and degree of indoctrination that they have.  So, I still believe that if there is future, the future is linked to these people, and, of course, the real test will be a new crisis when and if we have one.  </P> <P>Leon Aron:  Well, thank you so much for the panel, which was every bit as good as I hoped it would be, and better.  We now have a change of scenery, and we have now an economic panel being set up, but, let me just applaud the panel.  [Applause].</P> <P><BR><STRONG>PANEL II:  The Russian Economy</STRONG></P> <P>Johannes Linn:  Ladies and gentlemen, can we please take our seats because time is very limited.</P> <P>Leon Aron:  Ladies and gentlemen if I could prevail upon you to start gathering, well, I m sorry, we ll give it another 2 or 3 minutes, but, no more.  Ladies and gentlemen, we have a terrific panel, we are starting, and those who will come, straggle in later, they ll straggle and come later.  </P> <P>Johannes Linn:  Good morning everybody, welcome to our session number two, could I ask everybody to please focus their attention on the front of the room?  Thank you very much.  I am delighted to be here today.  My name is Johannes Linn.  I am at the Brookings Institution.  We have an outstanding panel on the economic situation prospects in Russia.  I think we have basically two scenarios that we could ask our panelists to explore, there are probably many others that one could look at, but, the two scenarios is, number one, what I might call the optimistic or the upbeat one, which is Russia on the rebound, Russia on the rise, sustainable, almost indefinitely to the future, the new economic miracle in the making.  And that s probably the story one hears a lot out of official circles in Moscow these days.  The other picture, of course, is one of more difficult prospects, in particular, despite the short-term boost that Russia has received from its oil and gas resources.  Some people think the transition towards a marked economy is only partial, and, if anything, in reverse.  There is the question, of course, of the demographic problem that Russia faces with very severe issues of population decline and looking forward even labor force decline significant proportions.</P> <P>The question, therefore, to my mind, is, how Russia can maneuver between those two perhaps extreme perspectives.  I can t imagine any better guide through this maze that we see in terms of Russian future economic performance than our three colleagues at the panel with me up here.  They all are extremely well known, and I m sure known to you, so, I will be very brief in my introductions.  One is Anders Aslund, who is a senior fellow at the Peter G. Peterson Institute for International Economics, and is a great expert on, obviously, the former Soviet Union, Eastern Europe, and has focused much of his work in Russia, among others.  Padma Desai is the Gladys and Roland Harriman Professor of Comparative Economic Systems, and Director of the Center for Transition Economies at Columbia University, and a member of the Council on Foreign Relations.  Jonathan Schiffer is the V.P. and Senior Credit Officer in the sovereign risk unit of Moody s Investors Services.  All three have published extensively, worked for years on Russia and the region around Russia, and are often, at least two of them, often cited in the press, or speak in various ways through the media on the topics.  </P> <P>So, I look very much forward to hearing them, as I m sure you are.  We are a bit constrained in time because the previous session, which of course was really outstanding, ran over, we also have to finish, I m afraid, at about 10 to 1 because the lunch with John Bolton apparently has to start right on time.  So, I will be ruthless in restraining my co-conspirators up front here to maximally at 20 minutes, and with apologies in advance, I will send them signals sort of around 5 minutes before the 20.  With that, and no further introduction, Anders, word is yours.  </P> <P>Anders Aslund:  Thank you, Johannes, and, first of all, I would like to congratulate Leon on putting this conference together.  I greatly enjoyed the first panel.  Mike McFaul has really set out my arguments, most that remains to me is to peel out the dots between the points he made.  I will give you three major points today.  First, which I will elaborate on at length, that is, how great the economic achievements actually are, and how Russia is moving forward.  So I m very much on that line.  The second point I want to do comparatively briefly is the problems, both economic and political problems, a few that I will bring out.  And, the third is the new question, what are we to expect from Prime Minister Zubkov?  </P> <P>So, and the main point I want to bring out here, it is a big contradiction between economic pluralists, a quickly developing economy and society, and increasing authoritarianism.  In my view, which Mike McFaul ended with, is very much this control in the long run, and the question is, how soon the breaking point will come.  I do think that it s the economy that is likely to develop, to take over for reasons that I mention.  </P> <P>What Russia has departed from, and will never happen again, this is an empty shop in Moscow in 91, never again, and this is very firmly in the Russian mind.  I would say that you have here three major points, first of all, a critical mass of market reforms and privatization.  This is the achievement of Yeltsin and his reformers in the 1990s.  That s the most important achievement.  Then we have a conservative macroeconomic policy, which is an outcome of the Russian financial crash in 98, the crash itself, it taught people what must not be done, and I wouldn t give Primakov the honor of that, rather the reformers who proved right after the crash because they had warned of it, not least Andrei Illarionov who was the person who more vocally than anybody in the spring of 98 warned about the crash.  And, Putin did very well until 2003 with catching up reforms.  That s the point he can be given on it for, but nothing after 2003.  And, 6.7 percent GDP growth a year, that s no mean feat, and it s pretty steady this year, it will be 7.5 percent.  </P> <P>Something that is quite curious, but is not pointed out normally, that is, people tend to look up on how wealthy are they in U.S. dollars.  They don t look up on rubles.  And if you look up on current dollars, the Russian GDP has actually grown by 25 percent a year.  This means the GDP in dollars has quintupled from $200 billion in 99 to $1 trillion last year.  And what do you get in that case?  You get rubles.  And I think this is the best explanation to, for lack of Russian economic policy right now, and Russian foreign policy, which I m not going to go into.  And this is what it looks like.  It looks beautiful, in particular if you are in power.  </P> <P>Of course, the high oil prices help.  You should notice here that the high oil prices took off after 2003.  So when Putin s economic and political policy really deteriorates, that s when the oil goes to his head.  </P> <P>But, what I would still maintain as the fundamental thing, it s the long-term growth we are seeing.  This is Goldman Sachs BRIC Report, which has attracted a lot of attention.  They put, for Russia s growth, 131 percent from 2006 to 2016.  That means that the Russian economy by 2016 would be like the French GDP.  So this is a substantial move.  Russia is coming and my main argument is that this is not likely to be stopped even if there are a lot of stupid policies around.  And here you see it in another fashion.  </P> <P>Which are the growth drivers?  Apart from what I ve already mentioned, you have remonetization, the end to per GDP should almost double.  You have huge profits in the GDP, that s why you have 53 billionaires according to Forbes in Russia, and more Russian youth go to university than in the European Union as a share of the young population, and the number of enterprises, legally registered enterprises, actually increased steadily by over 7 percent a year.  Investment is not a driver, but nor is it very low.  </P> <P>One consequence of a long destabilization is that the money supply is still very small.  Russia has now a bit over 40 percent of DTP in money supply.  You can say that 70-80 percent would be normal.  This means that enormously releveraging, it means that Russia can have a big housing boom, a big construction boom for a long time.  This statistic s usually taken somewhat lightly, it is from the statistical yearbook, but here in the U.S. it s talked about 12 percent of GDP going into profits, according to the official statistic yearbook, it s 37 percent of GDP that goes into profit.  That means that the billionaires in Russia can both enjoy a pretty good standard of living and invest rather substantially in their enterprises.</P> <P>This is exaggerated.  But, anyhow, profits are huge.  Somewhat unexpectedly, this is UNESCO s statistics.  The Russian student population has increased sharply, and is, according to the UNESCO statistics, their share has even doubled since the end of communist.  Young Russians invest in their education.  The UNESCO statistics here show that more young Russians go to university education, than in Europe.  This is, of course, showing that Russian youth have middle-class ambitions as was discussed in the last panel, and this will mean something for the future.  </P> <P>Something that is almost never discussed is how many registered enterprises there are.  And this is increasing steadily, regardless of the economic policy, by 7 percent a year.  If you have to be registered individual entrepreneurs, Russia has an enterprise density which is about the same as in Western Europe.  It s not true that Russia doesn t have small enterprises any longer, or medium-sized businesses.  They are all there.  Russia is, in this regard, becoming increasingly normal for a west European capitalist society.  </P> <P>And capital investment is not high, 20 or 18 percent of GDP, but it s about as high as in the U.S., and we don t complain much about it here.  Admittedly, Estonia, Latvia 35 percent of GDP, Russia should be up there, but it s not all too bad.  Investment in fixed asset is increasing in recent years by about 12 percent a year.  So we are seeing, Russia is moving forward as we would like to see it.  </P> <P>Foreign direct investment is often pointed out, that is very low.  This year will be the best ever, and it s steadily increasing, nothing to write home about, but still healthy attendances.  </P> <P>The macroeconomics I ll go through fast and foreign external account, and I apologize to my co-panelists here that we have not coordinated, so I fear that they will cover a bit of the same ground.  But, it s pretty stellar all through.  Budget revenues are of course booming because of the oil.  Expenditures, remarkably, are not really rising as a share of GDP, budget surplus has been solid and rising with the oil price.  As you can see from this, Russia will probably have 7.5 percent of GDP in budget surplus this year, again.  The one concern has been that inflation is high, at about 9 percent, but it s moderating.  The external account has been incredibly strong.  Exports have dropped in seven years, so have the imports, but from a much lower level.  </P> <P>So, Russia had, last year, trade surplus of $141 billion, and that means that trade surplus of 40 percent of GDP and the current account surplus steadily 10 percent of GDP.  I ll just go through this quickly.  We have huge reserves and minimal foreign debt.  So with foreign debt is nothing to be concerned about at all any longer, below 9 percent of GDP at present.  </P> <P>What is often brushed over is the social situation, which is, of course, improving also.  Unemployment has halved in six years.  The poverty rate has also halved.  Inequality stays constantly almost as high as in the U.S. if you measure it by [indiscernible] coefficient and we are normally not so massively concerned about that.  </P> <P>So, you can say that Russia is [indiscernible] consideration close to full employment, primarily [indiscernible] pockets of unemployment.  </P> <P>So over then to the worries.  The energy curse, one is this the Dutch disease, this is very much under Andrei Illarionov s top theme of what the worries are, but I ll just touch briefly up on them.  The salaries have, of course, gone up very sharply in this period.  The energy production is now near stagnation of the strong growth, and re-nationalization is taking place.  The private share of GDP that was for many years about 70 percent fell to 65 percent in 2004, very much because of Yukos confiscation.  We have the political answer today, the presidential elections that are supposed to take place in March next year.  </P> <P>So, oil and gas production, here we are seeing that the oil production is lower, now rising between 2 and 3 percent a year, after the Yukos confiscation.  And, the theory is this, the gas production, that is currently falling, at the same time as everybody wants to buy more Russian gas, and gas is the basic fuel of Russian economy.  So if there is any bottleneck that one would be concerned about, that s it.  And, the problem here is that rather than reacting positively, the Russian government is now effectively posing an under investment in energy because Yukos was destroyed, and Sibneft was stalemated when bought by a gas Gazprom.  Russneft seems to be about to be confiscated.  State funds acquire companies instead of investing in the real world, and the remaining private companies are afraid of investing because that s not quite appreciated.  And, large foreign projects have been impeded by a partial nationalization, which of course the owners are thanking the Kremlin for, Sakhalin Shell and Kavykta, TNKBP.  And, on top of that, the taxation of oil is very high.  </P> <P>The greatest damage has been renationalization.  What we have seen since the end of 2003 has been a quick renationalization.  I ll quickly go through many of the cases.  Rosneft confiscated Yukos after President Putin at least half a dozen times had promised loudly and firmly that the company should not be nationalized, bankrupted or confiscated, after which it was all those things.  </P> <P>Next, Gazprom has bought Sibneft, they are a big machine building company, Sakhalin 2, and Kavykta, with various degrees of voluntariness in these transactions.  </P> <P>The Vneshtorgbank is buying lots of banks all over.  </P> <P>United Aircraft Corporation has effectively taken over the successful private aircraft producers.  </P> <P>United Shipbuilding Corporation has merged all Russia s shipbuilding.  </P> <P>And, in automotive, Rosoboronexport, the Automotive Export Agency has seized Avtovaz.  And, also, took VSMPO-Avisma for about one-quarter of what it was valued on the stock market.  </P> <P>We are now seeing on the Russian stock market, oligarch discounts on companies that are perceived to be in danger of nationalization, Lukoil, Norilsk Nickel and TK-NBP are the most notable examples.  So, the question is, of course, who is next?  </P> <P>And then you wonder, why do they do this?  I can only see two motives, power and corruption, and I offer to yourself to judge the balance of them.  And the most striking example of evidence corruption today is Minister of Communications, Leonid Reiman, as publicized by The Financial Times and Wall Street Journal last year, owns large telecommunication assets that he has appropriated while minister was senior official, and The Financial Times now value these assets at $5.9 billion.  That s money even in today s Russia.  </P> <P>And, on the politics, Mike McFaul discussed this, of course this is an authoritarian state, here you have the Freedom House line, here goes the line between semi-free and unfree, which Russia passed in 2003.  And, this of course means that the political risks are greater than understood.  We do not know what political system Russia will have in a year s time, which is not all too great.  </P> <P>What will happen with the succession?  I ve already said it, Putin succeeds Putin.  And, on his, a possible third term for Yeltsin, read these words from Yelena Trigobova s book from 2003, I tell you the Constitution Court will make such a decision as is necessary, then it will, of course, be constitutional.  </P> <P>And, look up on Putin s behavior.  This is a man who is pursuing a campaign for his third presidential term, and many of his top people are already calling for a third term, and there s no reason to expect his demise, we have total personalized power.  </P> <P>Quickly, who is Mr. Zubkov?  Key figure in the KGB-St. Petersburg group, connected with Igor Sechin, Viktor Ivanov, he s father-in-law of the Minister of Defense.  Even if Zubkov himself doesn t seem to have any KGB background, he s personally very close to Putin since long, an old style Sovkhoz director, and he holds financial files on everybody because of his position.  So, what is the conclusion?  It could hardly be worse.  If you want to have the worst prime minister, I think that Zubkov is a good candidate, but, I would be interested to hear others who have more insights.  </P> <P>So, look up on what to expect from Zubkov from the recent past.  Prime Minister Kasyanov until 2004 did substantial reform.  Prime Minister Fradkov did nothing.  And the positive side of that is that he didn t do much damage.  And, Prime Minister Zubkov is a strong man, so we are likely to see action, and, that action is not likely to be good, so what would I expect?  The St. Petersburg KGP group is reinforced, remaining reformer likely to be ousted, Gref is the candidate who is mentioned everywhere, unfortunately. </P> <P>WTO entry has been delayed and is likely to be more delayed.  More re-nationalization, more industrial policy, about which President Putin has spoken extensively in the last year, more resource nationalized, as we are seeing with the new law on strategic resources, and, as a consequence, also more corruption.  This is Russia going in the wrong direction, and I don t think that we should turn away from saying that.  </P> <P>So, finally, my conclusions, even so, I think that this substantial economic growth is likely to continue, and macroeconomics is still holy in Russia.  The energy curse breeds bad politics and bad policy, the faster the energy price moderates, the better for Russian policy and politics.  The Zubkov appointment suggests that Putin is opting for his worst personal features.  And, we have all the time, the underlying increasing tensions between modern economy and obsolete politics.  So what do we have to expect?  I leave you with this picture from The Washington Post before the last summit, remember how you used to look into my eyes.  And, finally, I would like to advertise my book, which is coming in November, published by the Peterson Institute.  Thank you very much.  [Applause].  </P> <P>Johannes Linn:  Thank you very much, Anders.  I think you answered my questions in one way, anyway, let s hear the alternatives, Padma, would you like to stay where you re seated?  </P> <P>Padma Desai:  Thank you.  Thank you very much, Leon, for inviting me here.  Anders is a tough act to follow, but maybe I can bring the temperature down a little bit, and try and answer five questions.  As Anders pointed out, the macroeconomic performance is solid, whatever criteria you take, but the macroeconomic performance is unbalanced, dominated by the energy sector.  The second question, therefore, related, is this performance likely to continue, the question which Michael McFaul raised in his morning panel, its sustainability?  The second question: is that a growth strategy, underlying this performance?  Of course it is dominated by the energy sector, and what is the purpose of the energy sector dominated growth strategy?  The third question, I think I define the purpose in terms of maintaining and asserting Russia s national interest.  And whoever succeeds Putin, the next leadership, and, perhaps, the leadership after that, will continue with that goal, asserting Russia s national interest.  Fourth question, can national interest be maintained and promoted under a liberal system?  In the old days, we used to, economists used to ask the question, does an authoritarian system or a democratic system promote economic growth?  China vs. India?  And the answer was not clear, after all the regressions and everything.  Today, in the context of Russia, the question is, does this marvelous economic performance, which Anders pointed out, will it lead, ultimately, to a liberal system?  Do we have a hope arising from that?  So we turn the question on its head, how long, that is the question which Michael raised in the morning?  And, finally, what role can the west, western business, play in this evolution of solid economic growth leading to a liberal system?  </P> <P>So, I think these numbers are very clear.  The annual inflation rate is low, 8 to 10 percent; budget surplus, the Economist Intelligence Service gives 3 percent, but I think it s close to 6 percent; then you have the current account, 6.8 percent of GDP; your foreign exchange reserves, including those in the stabilization fund, they are over $450 billion, third after China and Japan; foreign capital inflows, $59 billion from January to August of this year, it was about $42 billion in 2006; the poverty rate has declined from 30 percent in 1990 to about 10 percent currently; and the Ruble is very strong.  And that leads to, if you are holding Rubles, you are at an advantage, and the latest information shows that Russian public, the depositors, are putting more of their deposits in Rubles in the banks, rather than in terms of dollars or Euros, other currencies.  </P> <P>So, the overall performance is strong and steady, but it is energy-sector led growth.  So whatever indicator you adopt in terms of the energy sector, whether it s contribution to budget revenues or expert earnings, close to 60 percent of export earnings come from the energy sector, that is oil and gas.  </P> <P>Now, that is also, when we talk about unbalanced growth, if you take production, of course it s led by the energy sector, also heavy industry, you talk about nickel and steel, so the question arises, with more details on the unbalance in the system, so far as consumption is concerned it is less unbalanced than before because there is a lot of imported consumer goods coming into the system.  All across the board, if you see also not only more consumer goods coming from outside, because the trade balance is positive, but also in the retail sector, in the housing sector, a lot of internal development taking place.  Russia is third now after the United States and China in the acquisition of mobile telephones.  The Ikea revolution, the furniture, what is the most coveted item?  It is a sofa bed, by Russian families, and Ikea, therefore, is expanding in cities outside of Moscow.  </P> <P>So, if you take the consumption aspect, then, the growth picture is less unbalanced than it was before, and less unbalanced than what it is in the production sector.  Low contribution of light manufacturing sector, domestically, and here I, I haven t seen Andrei s work on the Dutch disease, but, the Dutch disease, 1960s, taking place in the Netherlands, that the natural gas discovery led to a phenomenal rise, real rise in the value of the guilder, and that damaged Dutch manufacturers.  Is that what is happening in Russian manufacturers?  I build a model, as we economists do, looked at the data, and came out with the results, and my results suggest that Russian manufacturing sector is not suffering from the Dutch disease.  It has lots of other problems, of whether you can lay off the labor, whether you can introduce better technology, whether you can organize your workspace better.  These are some of the problems bothering Russian manufacturing sector in my work, rather than the strong, real ruble.  </P> <P>I have a place here in my -- is the growth likely to be sustained, which was the question Michael raised.  In the next three to five years, my forecast is that oil prices, currently at $80.00 per barrel, of course they are not going to last, much of it is speculative demand, so, an oil price of $30.00 to $35.00 a barrel, that is what it would come down to, and remain, in the next three to five years.  Why?  Because in the end, China, there is a structural shift in demand by both these countries for oil and for energy in general, there is also a shift in demand for some of the basic metals, which Russia produces, you talk about steel, you talk about nickel, and, so, there is an advantage there, for at least in the short-run, growth is likely to continue.  </P> <P>Now, the next question of the growth strategy.  I would be careful about using the term nationalization.  Nationalization, in the sense, if I were to define it strictly, the state seizing the asset, of course Yukos was destroyed.  It was beyond nationalization.  But, the control, the better term is probably the control by putting Kremlin watchdogs in some of the energy producing sectors.  For example, the plan to build a giant oil cartel before Putin steps down, Russneft, and it is going to be producing a half a million tons of oil every day, that cartel.  And that is the design, along with Gazprom, which is the world s largest natural gas producer.  So, that is one aspect of the energy sector.  Gazprom itself is, of course, 51 percent state owned.  And then there is this story about these three episodes which we read about and ponder over, Sakhalin 2, where Shell, Mitsubishi and Mitsui, that was the only privately-owned company, foreign company, operating in Sakhalin 2.  And it was Gazprom taking control, 51 percent ownership.  </P> <P>But, remember, as the negotiations were proceeding, Shell raised the cost of the project, doubled it to $20 billion.  Now, this is a production sharing agreement, so the more the costs rise, the further down the road is the date pushed before the state can start earning something from the project itself because of this production sharing.  Most of the production will go into meeting the costs which have been risen.  So that was one of the reasons.  And, similarly, Kovykta, the license was not taken away from BP, but Gazprom got 51 percent, and Shtokman, of course, Gazprom is going to retain the production control, and production licensing, with Total coming in really as a service provider in the sense of technology provider.  But what is happening here is that there is a whole hierarchy, which I will not develop here, the other sectors, if you take automobile and aircraft manufacturing, where there is more [I m missing some of the pages here, sorry], there are more participation by foreign participants.  General Motors in the automobile industry, and then you go down the hierarchy and you come to the retail sector, you come to the banking sector, where the freedom for foreigners to operate is even larger.  So there is a cascading hierarchy of state control with Gazprom and the energy sector at the top of the hierarchy.  </P> <P>Now, maintaining and asserting national interest through ownership of an industry and activity, a sector which is earning huge foreign exchange.  Remember Churchill, right, Russia is a riddle wrapped inside a mystery in an enigma, but there is a key, and the key is national interest.  He said that 60 years ago.  If you read my book Conversations on Russia, while we are all advertising our books, why not, Martin Malia, the historian, says, Putin is in the Petrine traditions.  I said what is the petrine tradition?  And he says, the tradition of Peter the Great.  If Russia wants to satisfy its national interest, it has to be a strong state.  That is the petrine tradition.  But, Martin then develops the theme saying, but Putin is a modern man, how different he is from Peter the Great.  I will not go into developing that.  </P> <P>The big theme, which I suggested, if I may be given 2 more minutes, can the economic growth lead to the emergence of a liberal order?  That is the question here.  I think that there are some constraints.  The top constraint is in my view Russia always will have geopolitical interests, but a reformist leadership come to power in Russia, and this is what I ve written in my writing, Russia will have, unlike Europe, and unlike Japan, will have its geopolitical interest, with regard to China, with regard to its southern border, and, therefore, a national interest will, to that extent, be more aggressively defined than would be the case with a country like Brazil, which is also growing fast, or a country like India, which is growing fast, but they are devoid of this kind of assertive geopolitical interest.  And that, therefore, is a constraint in the development of this kind of a liberal order.  Russians have the victim versus the aggressor perception, which I will not go into, and that also partly is the reason for the assertiveness.  But, that s a huge theme.  </P> <P>The rule of negotiator, external engagement in the process, I think this is very important for the emergence of Russia as a liberal order.  Keep them engaged, keep negotiating with them.  Across the board I feel that the, and I ve written about that, also, that the proposal, proposed plan by the Bush Administration, I should be careful talking about this in this city, of the defense system, putting some units in Poland and the Czech Republic, it is a very counterproductive move.  It s going to lead to an arms race, and that kind of a plan is counterproductive to the emergence of a liberal order.  Business, economic, economic interest, engagement, should continue.  I cannot develop this point.  </P> <P>But I want to leave you with a personal impression, I lived in the Soviet Union in 1964, way before some of the participants here, from Russia and here, were probably school-going children, I traveled extensively, I saw the Orwellian system in place, the fear, the way people ran away as soon as we tried to make contact, and that was at the height of Indo-Soviet friendship, Nahru and Khrushchev.  Today, 43 years after that, Russia is a very different country, my friends.  </P> <P>And, so, if you take that long historical span, another example, Vietnam, when I saw the American helicopter going away from the U.S. Embassy in the 70s, it was heartbreaking for me as I watched it, my God, what is happening, the communists are taking over.  And I felt upset at that, as I feel upset about what s going on in Iraq today, but, 40 years later in Vietnam, also, guess who is the most popular person in Vietnam?  Who do the crowds want to embrace and touch?  It s Bill Gates, my friends.  So, history takes it own course.  I m not going to give up on this evolution.  Give them two generations, you asked how long, two generations.  [Applause].  </P> <P>Johannes Linn:  Thank you very much, Padma.  I m sorry, I was being ruthless here, I apologize to you personally, but, unfortunately our time is limited, and, we have Jonathan Schiffer waiting to be projected here.  There we are.  Great.  Jonathan.  </P> <P>Jonathan Schiffer:  I have the luxury of having had my colleagues say many of the things that I was going to say, so I hope you won t have to prompt me to stop, because I don t think there s that much left to say.  But I will start by saying that Russia s growth has occurred in a very, very favorable global environment.  Low interest rates, which made it easy to borrow, very high commodity prices reflected in the current account and cheap cash, lots of abundant domestic energy helped industry develop, kept unemployment down, lowered budget expenses, spare or idle capacity in many key sectors, which allowed the Russians to quickly and painlessly increase their output, and excess labor, until now, you mentioned this at the beginning, a cheap Ruble and a fairly weak bureaucracy.  That helped lead to these wonderful results that my colleagues have mentioned.  </P> <P>But to come back to, to intentionally come back to a point that the Professor mentioned this morning, a lot of this growth was based or driven by domestic consumption, not by investment.  Here you can see a slide, which gives you this idea.  And real wages were the driver of all of this, even higher than driving private consumption.  The results of all this were that you had, if you compare, please delete China from that because the statistics for China are not quite fair, because it leaves out the peasantry, which is 80 percent of the wage earner, or, the earners, so, those figures for China are a little bit distorted.  But, if you compare Russia with Kazakhstan, you ll see that what drove GDP growth in Russia is wages, it outstripped, tremendously, GDP growth.  In Kazakhstan this is not the case.  Growth in Kazakhstan, for instance, was driven more by investment.  And this, again, raises the question that was raised this morning by the Professor.  </P> <P>The results of all this, according to one investment bank s calculations, now these calculations are subject to all sorts of definitional quibbles, but according to one investment bank s calculation you ve got a 20, 21 percent of the population is now what they, this investment bank, considers to be middle-class, 30 million people earning at least $6,600 per annum or more, that compares badly, of course, with western middle-classes, but, nevertheless, it s a lot more than a lot of us thought would be the case several years ago.</P> <P>It s a rather strange middle-class, in the sense that a lot of the middle class, at least half of the middle class, comes from government and state enterprise officials and employees, which is rather unusual.  It s also the case that all of this is driven by public sector or quasi-public sector, when I say state enterprise I mean quasi-public sector.  Salaries, wages in the first half of this year, for instance, were up over 17 percent, real incomes were up over 11 percent in the first half of this year.  This is way above the growth of GDP, this is way above the growth of labor productivity, which means that it can t continue indefinitely like this.  There will come a point in time where it will have very, very negative effectives for the running of the economy as a whole.  </P> <P>Now all these favorable circumstances, or most of these favorable circumstances, now seem to have changed.  And that means that whoever is the president, and whoever is running the parliament, and so on, are not going to have as easy a time of things, for purely economic reasons, I won t go into the political reasons, I m not qualified to do so, but, for purely economic reasons they face a much more difficult global environment.  Interest rates are going up, not down, well, the general trend is up.  Commodity prices cannot, as Professor Desai said, cannot remain so high, and certainly won t go up as much as they have.  This means, and I ll get to this in a second, the trade deficit will probably shrink in the future, [cross-talking], trade surplus, thank you, will probably shrink in the future.  The capacity utilization surplus that existed in the past has now been replaced by bottlenecks in various sectors.  As was mentioned by the moderator, labor supply is rapidly becoming a problem, which puts pressure on wages, which we have seen already there is pressure on wages.  And, as Professor Desai mentioned, and Mr. Aslund as well, the Ruble has appreciated a lot in real effective terms, it helps a little bit in terms of inflation, but it creates some problems, although, I agree with Professor Desai, it s not quite the Dutch disease.  </P> <P>And, finally, there s actually, as ironic as this may seem, if you speak to Russian officials a lot of them are worried about energy supply to the domestic economy.  Some of them talk, I don t know whether it s alarmist or not, but some of them talk about energy shortages this winter.  That means that the price of fuel is going to have to rise.  </P> <P>So, there are some problems, as was pointed out by colleagues, there s been a phenomenal trade surplus, and a phenomenal current account surplus.  A lot of that had to do with prices rather than volumes.  Export volumes haven t grown as quickly as one would have hoped.  It s very difficult to increase rapidly export volumes in oil and gas because it s very costly to do so.  I think, and perhaps we re just using different base points and different definitions, there has been a problem with the rate of investment, and I will come into that in a second.  And there have been a set of disincentives to the energy sector.  Gazprom makes two-thirds of its profits from the one-third of its output that it sends abroad.  Two-thirds of its output makes only one-third of its profits.  And this, if you think about it, Professor Desai said take the long view, if you think about this in the long term, this was one of the key core essences of the Soviet growth model, cheap energy inputs.</P> <P>And this has got to change.  And when this changes, this key core aspect of the Soviet growth model will go, a lot of enterprises will be restructured because of the pressure that we put to lower the size of the labor force.  Many, many things will change.  There may be, there will certainly be disruptions of labor markets, but, there may be other kinds of disruptions as well.  In any case, this cozy model of growth, which goes all the way back to the early days of the Soviet Union, is going to have to change.  In simple terms, the tariffs that are charged for gas inputs are going to have to rise tremendously.  It was said several years ago, or one or two years ago, that the forecast for Verizon tariffs in the next three years would be between 13 and 15 percent, now the discussion is between 15 and 25 or between 20 and 30 percent.  This is really going to be a shock to the way that the economy functions, and a real break with this aspect of, quote, the Soviet growth modeler, which was taken over, in a sense, by the Russians.  </P> <P>Some analysts consider that this will lead to a change in the size of the surplus and the budget because the budget gets a lot of its resources, as Professor Desai said, from oil and gas exports.  There may be a smaller budget surplus, if at all, in the next coming years, and there may be a smaller current account surplus in the coming years.  As in, ports are growing much, much quicker than exports, and as the price of oil may not go up, and may not stay as high as it is at the moment.  </P> <P>So, what does that leave us with?  Well, sorry, I ll just come back for a second.  What s that leave us with?  That leaves us with the idea that there has to be a tremendous amount more capital investment, the point that the Professor raised.  This is a very serious problem in Russia, it would be a very serious problem anywhere, but it s a very serious problem in Russia because historically the rates have been a little bit low, and Russia is a very capital intensive economy, it s based on heavy industry, except that there s been a growth of small and medium enterprise, but it s based, broadly, on heavy industry.  It takes a 16 percent rise in capital investment to add 1 percent to the capital stock of the country.  So you need a lot of investment.  Gas needs to spend about $14 billion capital expenditures every year from now until the year 2020 just to keep output where it is now.  </P> <P>So, I think this may throw up some problems, because, in the past, economic growth was much faster than domestic energy consumption.  In the near future, the demand for energy from this rapidly growing consumption driven domestic economy is going to rise faster than the increase in production of energy resources.  This will create some strains.  The Russians will try to solve this through raising the tariffs, their inputs.  They will also try to solve this problem by making the banking sector function as a banking sector should, that is, as a financial intermediary.  </P> <P>Russia has, ever since, well, this transition, Russia has always had reasonable domestic savings rates, but, as we all know, a lot of the money went out of the country.  The banking sector is doing very, very well now.  It s doing extremely well now, but, until the present time, most of the source for investments in the economy is from enterprises reinvesting their own profits.  We have seen a small up tick from a little bit less than 6 percent to a little bit more than 9 percent, the amount of investment that comes through the banking system.  But it s clear that the banking system has to provide a lot more, and the authorities are aware of that, and they have liberalized certain aspects of the banking system.  </P> <P>You can now, it s much easier for non-residents to buy bank shares.  You can buy up to 10 percent equity stakes without the permission of the central bank.  It s clear that the state banks, the two big state banks, will grow quickly, but it s also quite possible that foreigners will start buying up some of the private sector banks, and they have already done so.  Deposit insured is in place, and although it is a question as to when Russia will join the WTO, so far the Russians have negotiated that foreign banks cannot open branches in Russia for seven to ten years after Russia joins the WTO.  So there is some space there for the Russian banking system, now flushing cash, to start to play the role that a banking system is supposed to play, mediating between savings and investment.  The return on equity for the Russian banking system is 25 percent at the moment, compared to 12 percent in the rest of the economy.  So the banking system is in good shape to play this role.  </P> <P>Structure investment, as both my colleagues have said, still energy sector heavy.  </P> <P>There s been a shift in budget spending, away from paying debt, which is, Anders said, has been paid down, in the public sector, at least, towards more of the so-called national projects, which are supposed to contribute to the growth pattern.  </P> <P>You know about the consolidation that goes on in the energy sector.  </P> <P>It s too soon to say whether this spurt in state-led development will continue, but, from the last two or three years, we can see that there has been an increase in capital investment, led by state enterprises and state-owned enterprises.  So, so far, the amount of capital investment has grown commensurate with the task before it.  Whether that will continue is a fair question.  </P> <P>For me, as a representative of a credit rating agency, tasked with analyzing debt, my job has become increasingly easy in terms of the central government, which has less and less debt, but has become increasingly more difficult in terms of the growth of private sector debt, most of which is held by what we call quasi-state enterprises, the Gazproms and the Rosnefts, and so on, which has grown extremely rapidly, as you can see.  We have to decide, I didn t realize I d get to that stage, [laughter], we have to decide to what extent the central government will bail out these quasi-state enterprises.  It looks, at the moment, as if Russia is a little bit addicted to the following kind of analysis, the Ruble appreciates and external borrowing then brings a lot of money into the country, some of which goes through the banking system into investments in the real economy.  Foreign currency reserves grow, money supply grows, interest rate drops, there s a growth in credit, as was mentioned by Professor Desai.  This tremendous growth in household demand leads to more capital investment.  It creates certain problems for the interest rate, which my colleagues have said is stubbornly high.  It certainly creates some problems for me in analyzing the rapid growth of this quasi-state corporations.  The only real problem from the perspective of a debt rating agency would be if the dollar appreciates, which I m afraid is whistling in the dark at this particular point in time.  </P> <P>I think that the Russians have done a good job in taking the stabilization fund out of politics, or, trying to take the stabilization fund out of politics.  I think this was a very smart move, given the political uncertainties of the coming period, and given what I think will be a little bit more difficult economic circumstances.  I think it was extremely wise to, in effect, adopt the Kazakh model, which they adopted several years ago, and not make this discussion of, when does the money stay in the budget, when does the money go to the stabilization fund, not make this part of the Duma s everyday debate.  And I think the government has done a pretty good job of sequencing their actual reforms.  </P> <P>People didn t speak much about it, but I think it s very important in a large country, it may seem obvious, but, nevertheless should be mentioned, is their approach to fiscal federalism.  There was a shift of resources to the central government, a rather large shift, 10 percent of tax revenue to the central government, I believe.  And then there was the attempt to build, there still continues to be the attempt to build, state champions, and husband energy resources, run down the debt, rebalance the tariffs, which I think is the immediate goal now, meaning, raise the price of energy to industry, continue with banking reform such as I ve outlined, the currency is now convertible, capital markets are developing.</P> <P>Then the key question is, will all this promote capital investment?  I think to attempt an answer to the question that was raised in the earlier session, I think the Russians can go on with this state-led zaydbatsu chebble approach for decades.  That would seem to be what happened in other situations.  They are now faced, I don t want to contradict myself, they re certainly faced with a more hostile external environment for the reasons that I mentioned, but it takes a while for all these inefficiencies to show themselves.  I don t think we should, I mean, any economist will tell you that to have Gazprom owning newspapers and what have you is probably not wise, and they should divest and concentrate on core activities, and, in fact, they should invest in the gas industry for a start.  They ve borrowed, now, $37 billion dollars and their output isn t going up very much.  But, nevertheless, it takes a while for this to play itself out and to run an economy down.  We ve seen how long it took in Korea and Japan, and we saw how long it took for the Soviet Union to run down.  The Soviet Union s rate of growth started to drop in 1960, 61, 62.  It takes a long time for these things to work themselves out.  </P> <P>So, yes, Professor, I think you re absolutely right, from my point of view, and perhaps Anders will disagree, investment is the key.  I think the government is attempting to meet this in a variety of ways.  I think, in the long term, they ll have to find other solutions because it is inefficient, but I think the long term is the long term.  Thank you.  [Applause].  </P> <P>Johannes Linn:  Thank you very much.  Provided we all promise to move fast from here to lunch and to John Bolton, I think we have about 10 minutes for question and answers.  I ll start with three and see how far it takes us.  The hand was up here, another one here, and then a third, and we ll ask a fourth one here.  So, that s it for now.  Let s see, if you keep it short, we may get more in.  </P> <P>John Cauffee:  John Cauffee, retired State Department.  I have a question for any panelist because I m astonished that no one has yet mentioned the staggering demographic decline of Russia and what that means for every dimension of society, including the economy.  </P> <P>Johannes Linn:  That was my question, too, thanks for raising it.  We had one over there.  Yes?  Can you introduce yourself, please, and stand up where the microphone is, and everybody can hear?  Thank you.  </P> <P>Eve Burger:  I m Eve Burger, I m with American University, Georgia University Law Center.  I m wondering the impact of global warming on the economy, and also, our northern neighbor also has oil, gold, water, the rule of law, and a lot less polluted country, and I m wondering how the Canadian economic performance compares with the Russian, and sort of stay away from percentages because Canadians, obviously, are starting at higher numbers because their economy is bigger.  </P> <P>Johannes Linn:  We ll ask Brookings to organize Fiona Hill to give a presentation, but we ll see whether.  There s a third point?  </P> <P>Claire Beamer:  Hi, I m Claire Beamer, a graduate student at Georgetown University.  My question is probably, mostly directed to Padma Desai, but, certainly, all panelists.  So, if and when the oil prices drop, will the economy suffer to the point where the government will seek to gain revenue through taxation of private citizens more?  And, if so, would this existentially or fundamentally transform the current social contract?  </P> <P>Johannes Linn:  Thank you, and then we have a fourth question here.  </P> <P>Andrei Illarionov:  The last two years have added, Andrei Illarionov, yes, the last two years have added another new so-called damned Russian question.  In addition to who is guilty and what is to be done and who is Mr. Putin and who is Mr. Fradkov and who is Mr. Zubkov, just another question, whether it is possible to have sustainable economic growth with political autocracy or dictatorship, with state-led industry, and so on.  Several panelists have tried to answer this question, but it seems to me this question will be debated for years to come.  So I would be glad to hear everybody from this panel, including Johannes Linn, and probably Michael would maybe join as well, just how long is long in this case, because we had all these predictions, with all these factors that have been mentioned, everybody, just with Padma, with Jonathan, with Anders, that, just, it does not look sustainable, just that we need to, probably we have to expect a substantial slow down in economic growth.  And what we have seen, it was about 6 percent in the beginning of the Putin Administration, and in the last three years it s 7 plus, and this year it s going to be 8 percent.  So it s going, it looks like, in the opposite direction compared to all these predictions.  So, my question would begin, this is something for Russia, [inaudible], to what extent it s possible to have a sustainable economic growth, very high, with no political democracy with political dictatorship.  </P> <P>Johannes Linn:  We have, because the questions were short and to the point, I will take two more.  Two more questions, anybody at this stage?  Yes, there s one back here.  I can t see around the corner, so, if there s some around the corner, come over this way so we can see you.  But, there was one here, so, basically let s take those two and then answers and then prepare to lunch.  </P> <P>Mitchell Pullman:  Mitchell Pullman, Contractor for Department of State.  I d like to go back to your statistics on business growth in Russia.  I d be interested to know a rough idea of what percentage of those businesses are actually producing anything and what percentage are just businesses on paper or shell organizations.  </P> <P>Jerry Hammond:  Jerry Hammond, at the Center for Strategic International Studies.  I wonder if you could comment on Mr. Schiffer s analysis, the rest of the panel, because my question before you started was whether this would lead to a more liberal economic order with low, if FDI isn t a possible investment source given the threats of nationalization and renationalization, where does capital investment come from, and, Schiffer suggests that it comes from state-owned enterprises.  One other alternative is that you have to liberalize the economy and stop the nationalization so that you get either domestic investment or foreign investment.  And who is going to invest if you re afraid that you re investment is going to be nationalized.  So, I guess the question is, is that model really a sustainable model for the decades that Mr. Schiffer suggests?  </P> <P>Johannes Linn:  Thank you.  Let s go the opposite side, let s start with Jonathan, and, the opposite way around the table, and then Padma and end with Anders.  </P> <P>Jonathan Schiffer:  Can I address the last one, since I remember it the best?  I just want to correct, I probably mis-spoke, or didn t give a clear enough explanation.  I think that the central government does expect the state enterprises to lead a lot of the investment strategy, and does have this idea of national projects to create infrastructure in four big areas of the economy, and so on.  But I also think that all the terrible stories, they re not stories, all the terrible events surrounding the energy sector aside, I think that the government has the right idea.  If they say that there are 40 sectors of the economy that are strategic, or 30 or 20 or 50 or whatever, once they give clear signals where you can invest and where you cannot and how much you can invest and how much you cannot, I assume that there will be a lot of foreign investment, as well as domestic investment, outside of those areas that have been put in the flashing red zone.  Clearly, energy is one such area.  But, that means if you re building a chocolate factory, or if you re in the service sector, or, if you re in many, many other sectors of the economy, whether you re a non-resident or resident, you should be able to invest and take advantage of what is, I think, a pretty strong consumption boom, and continue to do so for the future.  </P> <P>So, I don t think that the states, or the central government s strategy is just to have state-led investment.  I think they expect and they assume and I think they re right that they will get a lot of investment in non-strategic areas of the economy by people who invest in such areas.  And I think that s occurring.  So, I probably didn t develop that thought as much as I should have, but that s my initial response to you on that particular point.  </P> <P>Jerry Hammond:  But then you have to have a conference that that strategic list will remain constant and won t be changed [cross-talking].  </P> <P>Jonathan Schiffer:  That s correct.  You do.  That s correct.  That s the whole issue.  I mean, that s true for many areas of economic policy.  If you change your taxes every three years people are, entrepreneurs are upset about that as well.  So, yes, absolutely, that s true.  If you re saying that there s a slight credibility issue, well, maybe you re right, but, I think it s about, it took them an awfully long time to make this list, and I think they ought to stick to it.  But I do think that that was behind their thinking, we re going to make the list and we re going to send a signal, and then we re not going to change the contours of this list, and once we do that, people will invest where they see that it s safe to do so.  I hope they stick to the list, and I assume people will invest in this way.  </P> <P>Johannes Linn:  Thank you, Jonathan.  Padma?  </P> <P>Padma Desai:  The demographic, it s a serious situation, I have written about it in The Wall Street Journal, running out of Russian s last year, in response to President Putin s proposal of giving $9,000 plus to women who had a second child, and so on.  I think this, and then there was this report that last year there were 142,000 children born in Russia, which is probably the highest since the disintegration.  I don t think that is the route to go, raising the birth rate.  This is, the women of Russia are no different from women elsewhere, I like to think, and, so, the route to go, really, is to develop proper thinking and then implementation of immigration policy.  There are up to 4 million illegal immigrants in Russia.  We are battling with an immigration policy, I mean, they need to develop a systematic policy there.  </P> <P>The taxes from citizens, I think the social contract of the Soviet days is already being changed.  The free entitlements of everything, medicine, free rides in trains and buses, and cost-free housing, that is, the thinking is already changing, and the implementation, as slow as it is, will come into play.  But I think there are two issues here.  One is, there is the buffer provided by the stabilization fund of $200+ billion, how long can it last, that is the issue.  The second one is, what is the personal tax rate, I mean, personal tax contribution in the budget in Russia?  When I tell, [cross-talking], it s very low.  It s very low.  When I tell my Russian students that I pay New York City taxes, state taxes, federal taxes, and it s a huge rate, they re surprised.  I think as the economy develops, more and more people are employed, our personal taxation, the contribution to the budget will increase.  </P> <P>Finally, if FDI is not a source, I don t want to give up on foreign direct investment as a source for, I mean, Shell has stayed in Sakhalin 2, BP has stayed in Kovykta, Total and the Jergen Company are coming in on Shtokman.  I was looking at this survey by, what is it, which I mentioned to you, Ernst & Young, and 90 percent of foreign investors want to continue operating in Russia.  So, this is the last frontier to be conquered, sort of our western frontier, and, I tend to remain hopeful.  Why is Gazprom not able to invest?  Because Gazprom is doing other things.  Gazprom is, of course, borrowing, but, investing in acquiring assets from Shell, from, it s, from grabbing assets from BP in Kovitka.  And, so, the question which I would like to ask everyone, my Russian colleagues, and my colleagues here, is, has this process stopped consolidation in the energy sector?  2008, is this the end?  </P> <P>Johannes Linn:  Thank you, Padma, we want to give Anders 1, 2 more minutes.  </P> <P>Anders Aslund:  Three quick points.  The demographic decline, hardly exists.  Mr. Cauffee, you asked about this, the demographic decline hardly exists.  Russia is in a decline in its population of less than 3 percent.  While half the post-communist countries approximately have seen 10 to 30 percent decline in the populations.  So Russia is the normal and stable country in this group.  And the reason is what Padma said, immigration.  You have lots of Russians and non-Russians who speak Russian and know the country who are happy to immigrate from poorer countries.  So when we discuss the demographic problem, keep migration in mind, and, in real terms, Russia has probably increased its population.  It s likely, nativity is low, yes, but the real problem here that we should discuss is alcoholism.  That is the killer of young men.  That s the issue.  </P> <P>Second, business group, is it real?  Yes.  </P> <P>Third, Andrei s question, is it sustainable?  No.  Something has to give, and the question is, what will give?  My assumption is that we are two strong governments here, but you know it better than I, macroeconomic stability and 7 percent growth.  So if the growth is not maintained, they will have to liberalize.  That s my assumption, because with no state ideology behind this move, which, for example, Mike pointed out, whereas this here is problem, as Jonathon elaborated very well, is the gas sector, because Gazprom, I think, is the weakest part of Russian economy, and Gazprom is focused on one thing, the stock price.  The greater the shortage of gas in Russia the easier it is to liberalize the price in Russia, the higher the price will be.  So Gazprom s management has an objective interest in getting a serious gas shortage, and, therefore, they don t invest in production.  Thank you.  </P> <P>Johannes Linn:  Thank you very much.  I m just, my last point to answer Andrei, my sense is that, don t expect a lot of pressure on politics from economics for a while to come.  I think the only sort of environment which I think the pressure will come if oil prices were to drop dramatically and I m not even sure that Padma s got it right in terms of her drop that she s predicting.  The internal reason that I see is really the greediness for power and money.  If the regime is reasonably balanced on that front I think it can sustain itself for a long time, basically for the reasons that Anders has mentioned, because there s a lot else going on outside that area of greed for power and lucre.  So, that is my prediction, for better or worse, it s going to go on for a while.  </P> <P>With that, many thanks to everybody, and, especially to the panel.  [Applause].  </P> <P>Leon Aron:  Ladies and gentlemen, one technical note, please.  We have to move very quickly through our delicious luncheon line.  In the back, by 1:10, 1:15 at the latest, Ambassador Bolton is speaking at 1:15.  Yes, we have two lines.  You ll eat on your laps.  </P> <P>[End of session]</P> <P><BR><STRONG>Luncheon and Keynote Address:</STRONG></P> <P><STRONG>U.S.-Russian Relations:  Yesterday, Today, and Tomorrow</STRONG></P> <P>Leon Aron:  Ladies and gentlemen, if I could prevail upon you to at least sit in your seats, Ambassador Bolton very graciously told me that he doesn t mind if you eat while he is talking, but I really would love to get the show started.  About 2 minutes for everybody to take their seats and then we ll proceed.  </P> <P> . . . Bolton for being so flexible and patient.  John Bolton is a very good friend and a colleague of mine.  He also, I think, is the only one, at least I know in the institutional history of AEI, who went from a Senior Vice President to Senior Fellow.  Usually it s either the other way around, those things don t intersect.  John began a very, very rich and intense public career as an Assistant Attorney General, that s not the beginning, I m sorry, I take the middle of it, in the Reagan Administration, then, under Bush one he was Assistant Secretary of State for International Organization Affairs, then he always, that s one of many good things about John, he always comes back to AEI in between.  And, so, he did come back, that s where he and I got to know each other.  But then we again loaned him to the government, first as Undersecretary of State of Arms Control and International Security, and then we loaned him to the U.N., as the U.S. Ambassador.  Throughout it all, John has been just a marvelous colleague and a very, very sharp analyst.  I hope that for all that you re doing for us, John, I hope this is also an opportunity for you to take off the hat of the public official who has account for every word and just let yourself go, as a private analyst in the non-profit, non-government, non-party think tank.  Ambassador John Bolton.  [Applause].  </P> <P>John Bolton:  Thank you very much, Leon, it s a great pleasure to be here, and I think the size of the turnout is testament to the work that you and your team have done, and it s something that I ve always welcomed at AEI, the opportunity to have a chance to talk to Leon to gain his insights into what s going on in Russia, and the politics as they play out in a whole range of issues.  So, I m delighted to be here, and I know from what I ve heard, this mornings session was really outstanding, and I m sure the afternoon will be as well.  </P> <P>I wanted to spend a few moments talking about the U.S.-Russian relation, especially because that ll be one of the topics this afternoon as well, and to try and put it in a little bit of context, context defined in the United States as a relatively short time back, but looking ahead to the future as well.  </P> <P>And if I could just take the period of the Bush Administration, because, my general conclusion is that the Bush Administration came in with a real intention of creating a new strategic framework between Russia and the United States, and that while progress was made on that front, somewhere in the period 2003-2004 we lost track of what we were trying to do, and, whether it was because of Iraq or whether it was because of domestic developments in Russia I can t say, but the path since then has been more divergent than I would have like to have seen, or the Administration would have liked to have seen.  don t think that the divergence that we ve seen in the past three years roughly is unbridgeable, or irreparable, but I think it will require a more sustained effort in bilateral relations and some changes in Russia itself.  Obviously that s beyond America s control, but I think these are potentially important times.  </P> <P>So let me just start with the background.  What President Bush had in mind with Russia was what we called a new strategic framework looking to break out of vestigial Cold War patterns of thinking about the two countries, patterns that were fundamentally outmoded and had been since the collapse of communism, but it still dominated the policymaking bureaucracies in both countries.  He saw the opportunities for a new framework in three broad areas, strategic offensive relations, strategic defensive relations, and nonproliferation.  I m going to leave aside here the entire are of economic relations between the two countries, which is a large and complex topic, but to focus on the political military side of things because that, I think, has the most significance in this relatively medium-term period that I want to talk about.  </P> <P>The first issue that we raised with Russia was the question of the ABM Treaty of 1972, and it was the President s very strong view that the Treaty reflected a relationship between the two countries that no longer existed, and that needed to be discarded because not only did it fossilize a relationship that was outmoded, but it retarded both countries in their ability to defend against the contemporary nuclear threats, threats from rogue states with a relatively small nuclear arsenal but that could use or potentially threaten the use of these weapons in very disadvantageous ways.  </P> <P>Now we had an extensive series of negotiations with our Russian counterparts, both in the foreign ministry and the defense ministry, to explain that what we had in mind for missile defense was not the star wars version that President Reagan originated, but what we called a limited national missile defense, national in the sense it would cover our entire territory, but limited in the sense it was not designed to protect against a Cold War style first strike by Russia.  We used the phrase over and over again that our limited national missile defense system would be to defend against a launch of handfuls, not hundreds, of missiles, the sort of launch that a North Korea or Iran might be capable of, but certainly nothing comparable to what Russia s force would be able to achieve; to show that even if you still believe the logic that led to the ABM Treaty in the first place, which we didn t, but even if you still believed it, that was not the kind of missile defense system that we were putting in place, or that we hoped to put in place.  </P> <P>I thought by the end of 2001 when President Bush gave notice under the Treaty that we were withdrawing, that we had made that case sufficiently convincingly that Moscow did not see our withdrawal as a threat.  They didn t like it, their missiliers still calculated in Cold War terms, but they acknowledged, as President Putin said, I think very accurately, we ve got bigger fish to fry than the AMB Treaty, if you want to withdraw that s your business.  President Bush then turned with President Putin to the second element of this new framework dealing with strategic offensive weapons and in a remarkably short period of time for arms control negotiations we signed the Treaty of Moscow in May of 2002, which, essentially, committed both sides to a reduction in their operationally deployed strategic nuclear warheads from the then current range of about 6,000 H down, to a range of between 1,700 and 2,200 over a ten-year period.  </P> <P>Now, frankly, this was something the United States was going to do anyway, and something we felt that Russia was probably even ahead of the United States in doing because of the constraints of the economy as it stood then.  And, on the U.S. side, I can tell you, many people said, look, what do we need a treaty for?  Why don t we just say we re going to do it, that s what we re going to do, and we will do it, and the Russian s can rest at whatever level of operationally deployed warheads they want?  But it was President Bush who said, look, President Putin feels that he needs a treaty, he feels he needs this for his own domestic reasons, the treaty is only going to be effective for a limited period of time, it doesn t constrain us, we ll have plenty of off-ramps, as we called them, and in order to show that he was serious about accommodating President Putin s needs, he was prepared to put the agreement in treaty form, which we did, and which was subsequently ratified by the parliaments of both countries.  </P> <P>In addition, while we were proceeding at the strategic level, we had, I think, really excellent cooperation between Moscow and Washington in the campaign to overthrow the Taliban in Afghanistan.  I think there was enormous sympathy in Russia for the United States after the September 11th attacks, I think many in Russia felt they were under threat from Islamic fascists, they had had similar terrorist attacks, not that devastating, but, in the streets of Moscow and subway stops and the rest.  So, this was something that we also thought augured well for cooperation on a range of fronts, not just in the war against terrorism.  </P> <P>And we then turn to what, over the longer term I think is now the most decisive element for the United States, and that s efforts against the proliferation of weapons of mass destruction, and, specifically, the main focus in 2002-2003 was Iran, where we worried that Russia was providing know-how, technical knowledge, possibly equipment, on the ballistic missile front, and certainly was engaged in nuclear cooperation with Iran through the construction of the Bushehr reactor and possibly other aspects as well.  I felt, myself, heavily involved in those negotiations, in that period, 2002 and 2003, that we were making enormous headway and that Russia s views on Iran were not all that different from the United States.  We certainly worked on a variety of proliferation matters, Andrei Illarionov will remember the global partnership that we foraged in the G8 meeting at Kananaskis in an effort to get additional resources brought to bare on the destruction of chemical weapons in Russia so that both Russia and the United States could complete their obligations to destroy their chemical weapon stockpiles, and there were a variety of other positive steps as well.  </P> <P>But, for whatever reason, and I don t fully understand why, and perhaps other panels have covered this, or will, in that period, 2003-2004, as I said before, whether because of Iraq, whether because of domestic events inside Russia, I think the perceptions of the threats that we faced in the world, and the Russian perception of the benefit of cooperation with the United States changed.  I think that the pattern that we ve seen since then, especially in the area of proliferation of weapons of mass destruction, has not been cooperative.  In the case, for example, of North Korea, where the Russians are a full participant in the six party talks, where I don t think there s any chance that North Korea is going to give up its nuclear weapons capability voluntarily anyway, and where, indeed, we may find that they are outsourcing to other countries around the world that have a little spare space for it, the role of Russia has been, I would say, passive but unhelpful.  Unhelpful in the sense that as one of the five legitimate nuclear weapon states I think that it s disappointing that Russia did not take a firmer line against this developing North Korean capability.  </P> <P>It s not surprising that the United States and Japan did, and it s not surprising that China acted as more of a protector for North Korea than any of the other participants.  But I have to say that if you look back at the period 2002-2003, had we engaged with Russia on North Korea then, I think we would have received a more positive reaction, one more in line with the U.S. concern about North Korea being a threat not simply in northeast Asia, which it is, but a global threat, because of North Korea s propensity to sell anything it can to anybody who will buy in exchange for hard currency.  That s why North Korea is the world s largest proliferators of ballistic missile and ballistic missile technology largely into the sensitive Middle East, that s why it sells drugs in its diplomatic pouches, it s why it counterfeits American money, it s fundamentally a criminal regime.  And that kind of regime operating as close to the Russian far east as it does, but also because of the potential for disruption in the Middle East, I would have thought would have captured more of Russia s attention.  </P> <P>But it was in the case of Iran that Russia s role, I think, really brought it into sharper contrast with the United States, I think to both of our misfortunes.  And I can t really give conclusions as to what has driven Russian policy here, because I well remember in my own discussions with many senior Russian officials, including from what was at that time the Ministry of Atomic Affairs, Minatom, and people outside the Russian government, where, there was an appreciation that an Iran developing a nuclear weapons capability that it could marry with sufficiently long-range and accurate ballistic missiles in the near term posed a greater threat to Russia than it did to the United States.  </P> <P>I think from earlier conversations between Presidents Bush and Putin, we had a sense that President Putin was on that same wavelength.  But, manifestly, in the past two years, it has been completely different.  Now, whether this is because of Russian economic interest, the potential of not only completing the Bushehr reactor, but the construction of up to five additional reactors that might bring in up to $10 billion of revenue, the streams of revenue that might come from supplying the fuel for these reactors, whether it s advanced conventional weapon sales, whether it s some other geostrategic logic that Russia s pursuing, clearly, in the international discussions about Iran, and certainly in the context of the five permanent members of the Security Council, Russia has emerged as Iran s principle defender and protector.  </P> <P>And, indeed, the contrast just this week remains highly visible with a new president in France and a new foreign minister, Bernard Kouchner, a socialist, I hasten to add.  Kouchner says this week that although he certainly wants to try and resolve the Iranian nuclear weapons program diplomatically, that, ultimately, we have to be prepared for the use of force if the choice is between the use of force and an Iran with nuclear weapons.  And just today, Sergey Lavrov, Russian foreign minister, has criticized Kouchner s remarks, and, in effect, again, come to the defense of Iran.  </P> <P>I don t think that this current position of Russia on Iran is dictated by their own strategic interest or by an inevitable logic, nor do I think Russia s cooperation with states like Syria, to which it has also sold substantial high-end conventional weapons, or Russia s role in the Middle East, generally, is something that we have to accept as inevitable.  I think that, to put it simply, I think Russia needs a higher class of friends in the world than North Korea, Iran and Syria.  And I think that through efforts by the United States and others to continue to try and address what I think is at bottom a legitimate Russian concern, that is to say that it feels excluded from western security structures and feels vulnerable to Islamic terrorism and simply to being, in effect, alone in the world with a declining population.  </P> <P>I don t really think, although this bears watching, that Russia s views, for example, of the near abroad are nearly as dangerous as some others have argued.  I think there s a large measure of political rhetoric in what Putin has been saying about his interests in the recreation of the Soviet Union.  I don t think it s going to happen, in any event, I think that there are conflicts in Georgia and Moldova and in other former Soviet states that we need to continue to press the Russians on, but I think a lot of this is for domestic political consumption.</P> <P>And I want to say, I think the Russians actually have a very good point on the question of how to deal with Serbia and Kosovo.  I do not think that there is any utility in forcing Kosovar independence.  I think that continued negotiations between Serbs and Kosovar Albanians is the way to go, I think this has been Russia s view for a long time, and, I have to say, I was happy to hear Russia articulate the position that it s not for the Security Council to divide up member nations, and, in a convincing enough way that I think if we had tried to jam something through the Security Council determining the final status of Kosovo, that Russia, quite likely, would have vetoed it.  I don t think that s the role of the Security Council, either, particularly when you ve got a country like Serbia, which is making efforts, and successful ones, to be a democracy, to have the Council step in and say, we ve decided you re going to have a different set of boundaries, is inappropriate.  </P> <P>So, that actually in this case, perhaps for their own historical reasons more than anything else, I think Russia has made more of a contribution on this score than it gets credit for, and I think it s in part reflected in the division within western Europe as to what the fate of Kosovo ought to be as well, as opposed to the reflexive anti-Serb American policy that has continued unabated for the last ten years that may have made sense when Yugoslavia or Serbia was ruled by Milosevic, but which makes no sense in the face of an emerging democracy in that country.  </P> <P> So, let me just conclude by saying that while the course of U.S.-Russian relations has not run smoothly in the past six or seven years, I continue to believe that there are fundamental interests that we have in common and that we have, for whatever reason, missed an opportunity, but one that is not gone completely, and that we need to pursue whatever the outcome of the 2008 election in this country, or the election in Russia, for that matter.  But the final determinant here may well be the course of governance in Russia itself.  As I mentioned before, this is not something the United States is going to have any influence on, but if Russia returns to a quasi-authoritarian, pre-communist, quasi-czarist, call it whatever you want kind of political system, and that is not open to democratic change and freedom of the press and individual liberty, it s going to be very hard for us, I think, to overcome that internal political fact to cooperate on broader issues like common efforts in missile defense and the continuing global war against terrorism.</P> <P>So, this is an extremely timely subject, I m glad Leon put this conference together.  I appreciate all of you coming and expressing your interest in the subject, and it s obviously something I intend to follow closely in the next year or so.  Thank you very much.  [Applause].  </P> <P>Lean Aron:  Ambassador Bolton very graciously agreed to take a few questions, so, I ll just stand here as an arbitrar.  Yes, Andrei.  </P> <P>Andrei:  I ve got a feeling, maybe a wrong one, but, just, the impression, generally speaking, that is generally rather positive to the current Russian Administration, with some reservations about the possible changes and directions, but nevertheless at the very helpful member of these corporation efforts with the U.S. Administration.  From this point of view, how would you comment, or how would you react to the comments that have been heard this weekend from the small guys meeting with the Russian President who has said, who has suggested to western participants to give up this stupid transatlantic solidarity?  </P> <P> John Bolton:  Well, I m not sure how much transatlantic solidarity there is anymore, so, I m not quite sure how far it extends in any event, and, I don t, I certainly didn t want to leave the impression that I thought things were hunky dory between the United States and Russia, or that we were enamored of the regime.  I do think, as I think the Iran case demonstrates, but, I do think that there are broader common interests between Russia and the United States because of their statuses, nuclear weapon states, because of the interest they have in the emergence of China, whether that will be well or ill for both of us, and a variety of other steps as well, that I think we have to take into account no matter what happens in Moscow.  </P> <P>There are obviously a lot of things that President Putin has said recently that I don t find helpful at all.  I m erring on the side of him being in the campaign mode already in Russia.  If I m wrong on that, then, obviously, we ve got a very substantial difficulty, although my sense is that the people who have the greatest difficulty would be those living in Europe, not in the United States.  </P> <P>Charles:  Mr. Ambassador, those of us who teach and who have followed Russian/American relations could make a case for treating Russia as a potential friend.  We could also make a case for treating Russia as a potential enemy.  What I don t understand is the policy of the Bush Administration, which does both at the same time.  </P> <P>John Bolton:  You ought to speak to somebody who is in the Bush Administration, then.  </P> <P>Charles:  But you were there, so maybe you can help us understand it a little better.  My question is this, I listened to Vice President Cheney blasting Russia, then I see President Bush inviting Putin to Maine as the first foreign leader to be treated at the family estate, is this, I m trying to guess here, and I d like your help, is this because we are confused, or, we re trying to confuse them about what we re trying to do?  </P> <P>John Bolton:  Well, you know, there is a quotation that I just saw in a book published recently attributed to President Nasser of Egypt who said, you Americans never do anything that s stupid and simple, you always do things that are complicated and stupid, and it leaves us confused as to whether there s not something in there that we ve missed.  So, I just leave you with the thought that perhaps the Administration reflects the divergence of opinion within the American population as a whole, which is that there s no love lost for the increased authoritarianism of the Russian government, and that we see common interest with the Russians that merit closer cooperation.  I don t think that it s entirely inconsistent with American interest to hold both those thoughts at the same time and to do what we can, which I think is limited, to see Russia move in a more democratic orientation, while at the same time protecting against the possibility that they won t.  </P> <P>Male Audience Member:  Mr. Ambassador, about two years ago, AEI [inaudible, not using a microphone]. </P> <P>John Bolton:  That s about as close as we re going to get, I think.  [Laughter].  </P> <P>Male Audience Member:  [Inaudible, not using a microphone] he said, I would like to point out something.  The first thing is, there is not a single representative from the Russian Embassy here.  That s to be expected.  And then he noted that there was not a single representative from the U.S. government there in that specific capacity.  David Kramer [ph.] was here, sort of hiding.  My question for you sir, is, what should we be doing with respect to Chechnya, and whether you agree with Dr. Prozinsky s [ph.] [inaudible]?  </P> <P>John Bolton:  Well, I don t think there s much, if anything, we can do about Chechnya.  The real question, it seems to me, for the Russians is whether what they ve gone through in Chechnya and the harm they ve caused themselves by that military campaign was worth holding on to that particular piece of territory.  It s not a pretty picture any way that you cut it, and we can either, in the government, talk to the Russians about it, as the President and others did on many occasions, but the idea that any kind of substantial action by the United States could have affected Russian behavior I think is, the chances of that were slim and none.  </P> <P>George:  George [indiscernible], Brookings Institution.  Mr. Ambassador, I ve been heavily involved with North Korean affairs for a number of years and I think this is a very good example of opportunities lost in Russia/U.S. cooperation.  Since the beginning of nuclear crisis, Russian government had urged the U.S. Administration insistently and repeatedly that the pressuring of current regime and trying to change it won t solve the problem, and repeatedly insisted that instead the engagement policy should be followed, exactly the line which U.S. government is now following for the six party talks.  </P> <P>John Bolton:  Sadly.  </P> <P>George:  But, anyway, the price was too high because North Korea have acquired nuclear weapons or nuclear devices, and I agree with you, will keep it, at whatever cost.  So, judging by this example, well, why Russian government sometimes has the feeling that U.S. government simply doesn t hear it, and if this is any kind of lesson, what are we supposed to do in the proliferation issues in the future, especially in North Korea?  Thanks.  </P> <P>John Bolton:  Well, let me say, in my conversations with Russian officials on North Korea, for a long time I had the feeling that they simply did not believe that North Korea could have an effective nuclear weapons program, that they didn t consider the North Koreans technologically capable of it, and they didn t see it at the same level of risk that the United States did.  I think that that perception of the threat obviously colored the steps that they were willing to take.  We now know that the North Koreans do have a nuclear weapons capability.  But, let me give you one example where I think even with respect to North Korea, Russia, China and the United States could cooperate.  We know that in October of last year the North Koreans tested a nuclear device, not very successfully, by the best we can estimate.  The International Atomic Energy Agency does not do nuclear weapons, contrary to the button on computers that says the U.N. s nuclear watchdog, it protects against diversion of nuclear materials from declared peaceful nuclear facilities.  It does not have anything like, in it s staff, the knowledge of nuclear weapons that Russia, China and the United States, the three nuclear powers, the three legitimate nuclear powers in the six party talks have.  </P> <P>So, I propose the following as a verification step.  Let s have those three countries insist, as part of the verification North Korea has to offer, that we can back drill into the site of that October nuclear test, and that we have access, we, the three of us, have access to all the data about that test, which will tell us whether it was plutonium or uranium based, which will tell us what the problem was, which will tell us at least a little bit about how much nuclear, how much fisson material was in there.  That s one example of how the three nuclear weapon states could cooperate actively to find out how many weapons North Korea has, how much plutonium or enriched uranium it has that hasn t been fashioned into weapons, and what its uranium enrichment program looks like.  If Russia and the United States and China could cooperate on that, that would be a major step, because, I think if you put that to North Korea, they would reject it, which would be a further proof, in my mind, why they re never going to voluntarily give up their nuclear weapons. </P> <P>Male Audience Member:  [Inaudible, not using a microphone].  </P> <P>John Bolton:  Well, they ve been, they just came out, they were at Yongbyon, which is probably the least significant part of the North Korean program.  </P> <P>Toby:  Thank you.  John, I have two questions for you.  You ve been one of the main proponents of the idea that international treaties and international rules don t apply to the United States.  </P> <P>John Bolton:  That s not right, Toby, as you well know.  </P> <P>Toby:  Well, I do think that s right, but, anyway, well that s been the policy of the Administration, and, in fact, maybe it s not your theory, but, in fact, it has been, and that s how it s perceived abroad.  What do you think other countries learn from a selective application of adhering, not adhering, ratifying, not ratifying treaties, first?  </P> <P>John Bolton:  Why don t you give me a concrete example, since I think your overall formulation is wrong, give me a specific example?  </P> <P>Toby:  Finding the ABM is one, the Russians told us they didn t care, so it was fine.  </P> <P>John Bolton:  But wait a minute, wait a minute, I mean, seriously.  The ABM Treaty, as written, has a clause that provides for withdrawal on six months notice.  </P> <P>Toby:  Most of them do.  </P> <P>John Bolton:  And we gave six months notice, and we withdrew.  We fully complied with the terms of the treaty.  </P> <P>Toby:  Well, my question to you there is, is there any treaty that has that provision that if the Russians withdrew from it you would be concerned about?  That s my first question.  My second is the statement you made which is interesting that the conflicts in the post-Soviet era with Russia are not the ones that concern you most.  I think many experts believe that that s the area where the Russians are most touchy, and where there s likely to be the most difference between us.  Maybe you re comparing it to Iran.  But I just wondered if you d thought about that in terms of Ukraine or Belarus or any of the other countries, and why you came to that conclusion.  </P> <P>John Bolton:  Well, on the first question, the Russians have threatened recently, they have suspended their cooperation with the conventional forces in Europe agreement, and at least implicitly threatened to withdraw from that, that would suit me just fine.  I think the CFE is about as outmoded a treaty as one can imagine, and I think it would be a recognition that that kind of agreement, which is a classic Cold War arms control agreement, doesn t reflect the current environment.  The fact is that it was the Russians that wanted a treaty of Moscow linked to Start One, linked to the verification provisions of Start One.  So I would find it incomprehensible that they would want to back out of that, since it would be a change from the position that they ve held consistently.  So, the one that they have said anything about, CFE, I don t think would have the slightest effect, politically or militarily, on the ground, on the Eurasian landmass if they withdrew from it.  </P> <P>In terms of the states of the former Soviet Union and Russian designs there, I don t doubt that there are aspirations in Moscow that we would find troubling.  But, I have to say, looking at concrete developments with the single exception of Belarus, which might be the only state that would actually improve by coming under Russian control again, I just don t think amalgamation of the other former states of the Soviet Union is in the cards.  And, therefore, I would look at what I think are larger issues more important for the United States, like the threat of weapons of mass destruction in the hands of rogue states, and the efforts that we ought to be, that we should, I wish we had, more cooperation with Russia in solving.  </P> <P>Female Audience Member:  Mr. Ambassador, as you know, the United States has an increased strategic interest in central Asia, and this is not necessarily welcomed by Moscow or Beijing.  In light of the Shanghai Cooperation Organization s announcement that they plan to extend the organization to include an energy sector, what do you see as a successful model for engagement with Russia, given the tensions between the two countries right now?  </P> <P>John Bolton:  Well, I think that there is a lot more that the United States can do in the central Asian countries, and that we should be doing.  But, I think the odds of accomplishing that are remote, as long as we are more insistent on standards of political purity there, than on strategic interests.  I think that it is an anomaly that after we got cooperation from Uzbekistan, among others, in the wake of 9/11, that to put military forces there, really incredible development, if you think about it, that we ve since turned away from them and essentially said, because their human rights standards are insufficient, that we re going to seed the field to Russia and China, two notable paragons in the field of human rights.  I just find it counterproductive to our own interests, but I don t, frankly, see it as likely changing, and I think that s, for well or real, I think that s the reality.  </P> <P>Jill Doherty:  There is a theory, and it s been expressed here today, that the essence of Russian foreign policy now is actually the containment of the United States.  Do you agree with that?  </P> <P>John Bolton:  Well, I think it s much more Russia centric.  I think in Putin s mind, it is much more the reassertion of Russian interests in various places around the world.  I don t see it as directed as containment at the United States.  I think it s a policy that s possible because oil is at $80.00 a barrel, which is another reason, among many others I can think of, to increase the use of nuclear power and other forms of energy in this country.  But I don t see it as that comprehensive.  I think it s, I don t see it as comprehensively directed against the United States, I think it has much more to do with Putin s vision of Russia.  I don t deny that they take the opportunity, where possible, to stick their thumb in our eye, and I would say the Middle East is perhaps the best single example of that, but, I don t think that s more than aspects of the policy, I don t think that s what is its central conceptual underpinning.  </P> <P>Leon Aron:  John, thank you so much.  </P> <P>John Bolton:  Thank you very much.  [Applause].  </P> <P>Leon Aron:  We shall now clean up and then, it s to you, Andy.  </P> <P><BR><STRONG>PANEL III:  Foreign Policy and U.S.-Russian Relations</STRONG></P> <P>Andrew Kuchins:  Ladies and gentlemen, we re going to start the next session in just the next minute or so, so please grab a coffee and get a seat.  </P> <P>Ladies and gentlemen, welcome to the final panel today, which is devoted for foreign policy and U.S.-Russia relations.  Let me just take this opportunity to first of all congratulate, and also to thank, Leon Aron for organizing this meeting today, and bringing together such a terrific group of commentators and a not trivial moment, and a moment of great interest in Russia, so much interest that we could barely get lunch, as the line was so long.  </P> <P>We heard from Ambassador Bolton about some interesting aspects about Russian foreign policy, and U.S.-Russian relations from his standpoint.  One of the issues that he brought up is, the theme of this conference continuity and change, we certainly have seen change in rhetoric, Russian foreign policy, and we ve also seen some change in policy, and I think there is some question as to what extent the rhetoric may be outstripping the policy.  Ambassador Bolton suggested that some of the rhetoric we ve heard recently actually may be fueled by domestic political reasons.  I d be interested to hear some of our panelists comment on that.  It s already become a clich�, of course, though, that Russia is back.</P> <P>Russia has recovered from its economic malaise in the 1990s with incredible rapidity, and we are seeing changes across the board in politics and foreign policy on a wide variety of issues.  Here in Washington, particularly since Mr. Putin made his quite noteworthy speech in Munich in February of this year, in case we had forgotten about Russia, we got a wakeup call.  There are many questions that we have as to where is this change going?  How extensive is the change?  I have to say that we could not have gathered a better panel than we have here this afternoon with our distinguished guests.  There s been a very strict division of labor, I should advise you about, in that each of the speakers is going to speak sort of about everything.  So, in light of that clear division of labor, I think we have agreed to follow the alphabetical order of our panelists, so that means we ll lead off with Fyodor Lukyanov, who is well-known as the Editor of Russia in Global Affairs, one of Russia s leading journals.  I say one of, Fyodor, because I still have some allegiance to the Carnegie Moscow Center s Pro et Contra.  [Laughter].  Anyone, Fyodor.  </P> <P> Fyodor Lukyanov:  Thank you.  Leon Aron used to organize brilliant conferences in a very right time, and now, of course, what to discuss, if not to discuss Russian foreign policy.  So I would like to thank the American Enterprise for the invitation and I would like to thank alphabetical order for the opportunity, the owner to open this panel, and to open this discussion, which, actually was started in the first session because as Lila Shevtsova absolutely correctly said, Russian foreign policy and Russian internal policy just now are very hard to separate from each other.  </P> <P> Any discussion about Russian west relations today is emotionally charged, and now attempts are being made to impart also something like ideological dimension to these discussions.  Some people speak of a conflict between democracies and non-democracies, of a confrontation between liberal and authoritarian capitalism, and of a new ideological division of the world.  These factors complicate understanding, which, absolutely sure must be based on an analysis as unbiased as possible, of the real logic of the parties.  </P> <P> Now I will try to distance myself from my personal preferences and assessments and briefly answer the following three questions.  First, can we speak of Vladimir Putin s foreign policy as an integral and consistent phenomenon?  Second, does Russia s foreign policy rest on what can be described as an ideology?  And, third, what factors will influence Russia s foreign policy conduct after Putin steps down as president.  </P> <P> So the first question is about President Putin s foreign policy.  It can be divided into two unequal periods.  The first one lasted from 2000 to late 2006, and the second one has been going on since late last year.  The first period was actually the continuation of the policy line that Russian leadership had been conducting since the breakup of the Soviet Union.  Without going into much detail, I can say that this policy aimed at integration with the western system, all the views of forums and conditions for such integration differed at different times.  In practice, this manifested itself in the following, in a majority of international issues, Moscow both under Yeltsin and Putin, occupied positions that differed from those of the west, or were directly opposite to them.  But, in the long run, the Kremlin made compromises, and accepted western arguments.  The compromises boiled down to either saving face, or cosmetic repairs of the initial model.  </P> <P> The second period is marked by the renunciation of the integration idea, and by a transition to a concept according to which Russia should retain the freedom of action and seek to consolidation of its independent positions on all issues.  This is a time of, we can say, strategic breakthrough to a basically new status of Moscow and the international arena.  </P> <P> By the way, Vladimir Putin and George Bush have approached the end of their terms with, to some extent, similar results.  Both countries experience now serious difficulties with allies.  The only difference between them is that Washington takes this as a big problem, while Russia doesn t.  </P> <P> The difference in approaches is due to Moscow s disappointment, the west s desire to conduct one way, rather than two-way dialogue, and of course the fundamental changes in the economic situation.  This does not mean that on any issue Moscow takes a position opposite to that of the west.  But, when it comes to its status on the international arena, or to its immediate security, or basic principles of the international order, Russia outlines red lines as Foreign Minister Sergey Lavrov recently put it, and makes no compromises.  So, in this line, I m pretty sure that neither on Kosovo issue, nor on CFE Treaty we cannot expect compromises on that front from Russian side.  </P> <P> Most likely this is what can be called Putin s foreign policy, because his former policy line was mainly inherited from his predecessor, while the present one was formulated by Putin himself, and, secondly, because as far as one can judge, this policy is in line with the personal, psychological features of the president.  </P> <P> The second question is about Russia s foreign policy ideology.  A year ago we pointed out, in this wonderful, how, that Russia s foreign policy is dictated by pragmatic, above all, commercial interests.  Dmitri Trenin, in particular, brilliantly proved that Russia s business in the foreseeable future is Russia.  This is still true today as well.  Russia has no ideology, yet, there have emerged new tendencies.  The economic pragmatism is undergoing transformation and taking on an ideological tint.  </P> <P>Under Vladimir Putin, competition was a key notion characterizing the outside world.  This is easily seen from foreign policy sections of the President s addresses to the federal assembly.  Yet, the content of this notion is changing.  First, competition is now applied not only to the economy, but also to politics and the ideological sphere.  Second, during the first few years of Russia s independence, and during the first few years of Putin s rule too, competition was viewed as a threat because Russia recognized its own noncompetitiveness.  Now the Russia ruling elite regards competition as a chance.  Competition under international arena or to put it otherwise, multi-polarity, is a means for countering the monopoly of the west.  Earlier, multi-polarity meant, for Russia, inability to make a geostrategic choice, whereas now it means a deliberate unwillingness to make it.  The Kremlin believes that the highly competitive international environment offers more chances for those who are not bound by unnecessary commitments and who act depending on the situation.  By the way, this position is not very distant from the current position of the American administration.  </P> <P> The following two basic factors shape Russia s approach.  First, the international situation is highly unstable.  International system is in a state of continuous transition from the Cold War stability to a new status quo.  It remains unclear when this status quo will come and what it will be.  However, the present situation is temporary, and there is no sense in adapting to it.  On the contrary, one must maneuver and take risks for creating prerequisites for more advantage position in the future world order.  </P> <P> Second, from Russia s point of view, the west has largely weakened itself over the last few years by making ill thought out or ideologically motivated decisions.  Quite a number of problems that have arisen over the last 15 years were from the Kremlin s point of view caused by the implementation of erroneous approaches.  Those approaches stemmed from the feeling of indisputable moral and intellectual self-rightness, which led the west after the collapse of communism.  </P> <P> In the first panel we have discussed the question, what west did wrong towards Russia, what was wrong?  From my point of view, to discuss this question separately from the question of, what was wrong globally, it s quite senseless because the current Russian foreign policy to a greater extent is a product of international environment, which was created, first of all, by the west, by the United States.  And, of course, Russia now is trying to use all those weaknesses, which was demonstrated, and use any wrongdoings west conducted in recent years.  On the whole, the ruling elite in Russia views the United States as a factor of international instability.  </P> <P>Mike McFaul mentioned the article by Mr. Pavlovskii, published last week, in The Moscow News.  He said, by the example of the United States, we see what can happen if force is misused, even in that most experienced democracy on the planet.  In Pavlovskii s view, there is a universal demand for checking the American expansionism.  Checking the U.S. is the global function of Russia s policy for the next few years.  I agree with Mr. Bolton saying that this is not the main objective of Russian policy, the containment of the U.S., but, at the same time, analyzing Putin s speeches and Sergey Lavrov s speeches, and this article by Pavlovskii, I would say that something like, basis for new ideology using unpopularity of the United States in the world is there, maybe, not as a main goal of Russian foreign policy, but as an instrument, this America, so to say, containment of the U.S. could be used in the near future.  </P> <P> And its forecast for the development of the global system, Russia proceeds from the assumption that things have not been developing the way it was expected after the Cold War.  This is evident from the new growth of the role of national states, and the universal rise of protectionist ideas in the world, together with the significance of the military force factor.  Returning to the premise that Russia s business is Russia, we can say that it remains valid, only now the Kremlin believes, in spite of globalization, that in the present conditions a country cannot develop itself without simultaneously consolidating its international positions.  </P> <P> And, finally, the third question, namely, what will change in Russia s foreign policy after March, 2008?  The appointment of Mr. Surkov, sparked off discussions about the future technical or interim president, while Putin remains in the shadow.  Under such a president, Russia s foreign policy will inevitably change.  The present aggressive model, I would even describe it as a better ground model, requires an absolute leader, both formally and informally.  The division of functions between the nominal head of state and the real leader will either cause Moscow to moderate its activity or will cause failures in the entire system.  Such a model may require an increase real role from the foreign ministry.  </P> <P>However, diplomats will find themselves in a difficult position, as they will not know who they should be guided by and who they should appeal too.  If things develop this way, the style of Russia s policy now actually set only by Vladimir Putin, and possibly it s content may grow more moderate.  However, before that happens, the last few months of the incumbent presidency will possibly be marked by even tougher and more assertive actions aimed at boosting the bets as high as possible and completing this so-called strategic breakthrough.  Then the next leader will be able to pose as a peacemaker and initiator of moral constructive cooperation, starting the bargaining for more advantageous position.</P> <P>Meanwhile, Vladimir Putin will assume the role of an informal coordinator of communications with the west on key, especially on delicate issues.  If the next president is not just technical, much will depend on the new leaders personality, and there is absolutely no sense in trying to guess who will be the new leader, yet we can expect that the basic principles of the aforementioned Putin s policy will remain in force.  First of all, because, in the next few years both Russia and the whole world will remain in a dynamic state and it will be simply impossible to fix profits.  The outlines of Russia s policy for a longer term and of a more stable situation in the world, will most likely begin to show up only in the next decade.  Thank you.  [Applause].  </P> <P> Andrew Kuchins:  Thanks very much, Fyodor, that was a very interesting opening presentation, particularly the framework in which you set out with the first and second periods of the Putin foreign policy and how those differed and how the second one actually reflects much more his natural inclinations.  I suspect there are some other factors at play, but, it s a very good setup for the rest of the discussion.  Let me turn now to our man from Pskov, the Chairman of the Foreign Affairs Committee of the Federation Council of the Russian Federation, Mikhail Margelov.  Mikhail Margelov, it s great to welcome you here in Washington again.  </P> <P> Mikhail Margelov:  Thank you, Andrew.  I should say that it s always a pleasure to speak after Fyodor Lukyanov because he puts everything in order and you can only initial every page of his prepared speech and just sign the last one and you re done.  When I m asked to say something about the Russian foreign policy, I immediately recall the old joke, old Soviet joke dated approximately 1981, the guy runs around the red square, 1981 version in the Kremlin, distributing the leaflets, crying, take the leaflets, take the leaflets.  People come up to him, take the leaflets, in 10 seconds, KGP officers grab him, put the handcuffs, take one of the leaflets and see that it s just, nothing is written there, it s just an empty page.  They ask him why.  He says, and why should I write, everything is crystal clear.  </P> <P>So, I think that when I m asked the question, what is the Russian foreign policy, I can say that, well, everything is crystal clear.  I mean, it s not ideologically driven.  We do not want to make the whole world happy under the red banners of communism.  We are driven by our understanding of national interest.  Is it right or wrong?  I don t know, you re here to decide.  But, anyway, Russia is back.  It s quite clear, and is it bad for the world or it is good for the world that Russia is back?  </P> <P>I remember that in early 90s everybody here in Washington, DC and in Moscow were saying to me that one of the nightmares of the west, of the collapse of the Soviet Union, could be the unpredictable nontransparent and weak Russia.  Let us try to look at Russia today.  It is strong.  It is becoming stronger.  Strong Russia, for me personally, does not mean scary Russia.  I don t think that being strong it is necessarily to try to be frightening everybody.  I think that when we critically talk about the rhetoric s and the Russian foreign policy, I don t think that we have to pay much attention to what is said in Moscow news by this event commentator.  I think we have to talk about real politics, about what really happens in Russian foreign policy, vis-�-vis, the rest of the world.  We have to talk about real achievements and real losses of the Russian foreign policy in Russian EU relations, Russia s role in the Middle East, Russian/American relations, and other serious things.  I think we ll be just losing time if we try to imagine what really happens in Pavlovsky s head, or any other s head.  </P> <P> Anyway, so, let us see what is happening in Russian foreign policy today.  At the very beginning of 2000-2001, it was declared by Russian President Vladimir Putin that maybe the main goal of the Russian foreign policy was, and I believe still is, to create at least neutral or friendly environment on its borders.  I think that Russia has managed to accomplish a lot moving in this direction.  </P> <P>Let us see what were the achievements of the past seven years.  Russia managed to finalize talks with China about the Russian/Chinese border, and the Russian parliament managed to ratify the Russian/Chinese border treaty.  I think it s one of the greatest successes of the Russian foreign policy in the far east, and I should say that for me personally it was, to my mind, one of the most difficult ratifications in the Federation Council because there was a lot of complaints, a lot of concerns from my colleagues from the far east, from Siberia region, saying that we are betraying Russian national interest, the Chinese are coming, and so on and so forth.  I was trying to say to them, that, okay, the Chinese are coming, economically, to Russia, and Russia is coming, economically, to China, so maybe it s not that bad.  </P> <P> Russia is improving its relations with the EU, ratifying the Russian/Latvian border agreement.  It s not the case with Estonia, but Russia is not to be blamed for that.  That means that Russia is trying to organize its life within its national borders, and maybe for the first time ever in its long-lasting history, Russia is not pursuing an imperialist policy, and for the first time ever in its history, Russia is facing the task of creation of a sovereign national state, not an empire.  We headed enough, as you all know.  Maybe, if we understand that, and if we understand that for the Russian Federation the current time is the time of the search of its national identity, the search of the national identity as a national sovereign state.  It s very different from what is happening in the European Union, for example.  That s one of the reasons why we say in Moscow that Russia is not aiming at joining the European Union because for many people in Russian political elite draining the supernational institution will mean the loss of certain part of sovereignty, and sovereignty is a very popular word, as you probably know, in Moscow today, some people even talk about sovereign democracy.  I wonder if we can invent sovereign economy.  I doubt that, actually.  </P> <P> So, anyway, if we look at Russia from their perspective, from the perspective of the state, which is trying to position itself, and the world arena, as serious and real participant of the international politics, maybe that will explain to us many steps which Moscow is undertaking here or there.  </P> <P> Russia is, again and again, saying that it has economic interests almost everywhere in the world.  If you look at the map of foreign visits of the Russian President, Vladimir Putin, for, let s say, during the last five, six years, you will see that he managed to cover almost the whole globe, and almost, I think almost all the trips were, to the large extent, economically driven, because every time the Russian President goes anywhere, he is accompanied by a large group of businessmen, representing both state-owned corporations and private corporations, and I think that that explains why Russia is so active in the world arena.  Russia is searching for new markets.  Russia is searching for new supplies for its economy.  I think the fact that Russia will be buying uranium from Australia now shows that we know how to buy uranium, as well as how to deliver polonium to some other parts of the world.  </P> <P> So, I think that if we are serious about Russia as a serious player in the globe, we have to say that Russia is participating in a lot of so-called docking mechanisms to the international framework of international security and stability.  I just would like to mention that Russia is participating in counterterrorism action group which was created as a result of the G8 summit in Evian.  Since 1995, Russia is supporting missile technology control regime, MTCR.  From 2004, Russia is participating in a proliferation security initiative.  And so on and so forth, we can name many docking mechanisms of that kind.  </P> <P> Russia is and will be facing the same problem as America is facing after we all elect our new presidents.  We see that nonproliferation regime is not as strong as we wanted it to be some years ago.  We see that for many countries in the world it s so tempting to acquire nuclear technologies, to acquire nuclear materials, and to acquire maybe missiles, because they are in the market.  I was in Iran at the end of February of this year, and Iran reminded me, by the way, of Moscow in 1981.  It is a gray, gloomy city with people full of cynicism towards the regime which is ruling the country; with the people who do not have the right to express their indignation towards what is happening inside the country, but, the country s military is very strong.  </P> <P>Sorry to say that here in Washington, DC, but as a result of the military operation in Iraq, Iran has become the strongest power in the Middle East.  It was counterbalanced by a bad guy, whose name was Saddam Hussein, who was really bad, but his regime was secular.  What we see now in the Middle East, we see that Ayatollahs and Islamic, not only Islamic, but I would say, I would not be quoting Ambassador Bolton about Islamic fascism, but, I would said that radical Islamic leaders are dominating over the Middle East, and we see that if something bad happens in Iran that will, to my mind, mean, that it will lead to redrawing of political map of the Middle East.  We have inherited the political map of the Middle East from the post-British, post-French colonial era, post-colonial era, but, my question is, is the world ready for redrawing the political map of the Middle East?  Are we ready to see the new Kurdistan?  Are we ready to see other new states which may emerge?  </P> <P>So I think that Middle East will sustain one of the priorities of the Russian foreign policy under the new presidency, as well as the Iranian dossier will sustain one of the painful and really serious problems for my country.  I truly believe that you can hardly find any responsible politician in Moscow who would love Iran to have a nuclear bomb.  Islamic world has already got one nuclear bomb in Islamabad and Russia is not to blame for that.</P> <P>But the problem to my mind is that not many people here understand that having Iran as our neighbors, sharing the Caspian Sea with Iran, Russia has to be very careful dealing with Iranian regime.  We have to play chess with them.  We do not have the right to play soccer or even American football.  We have to play chess.  That s why we are supporting all the diplomatic efforts and we are very critical about any ideas of any military operation in Iran.  We all see, unfortunately, that military operations in the Middle East are, I mean, recent military operations in the Middle East, are not, and were not very successful, neither in Somalia, nor in Lebanon, neither in Iraq.  I don t think that the operation in Afghanistan is very successful.  </P> <P> So, anyway, with its relations with other neighbors, I mean the European Union, I think that Russia will be facing the challenge of all the energy issues, if I may say so, in our dialogue with the European Union.  Russia is under the fire of criticism for so-called energy imperialism, and stuff like that.  But, many people in Moscow ask, if we really want to get the fair price for our oil and natural gas, even from our brothers in Belorussia, isn t it fair?  I think it is fair.</P> <P>So, I think that Russia s relations with the European Union under the new government, under the new presidents, will be driven by the fact that European Union is Russia s largest economic partner, and the level of interdependence between Russian economy and the EU economy is very high, and you have to keep in mind that the Russian economy is much more dependent on its relations with the EU than EU is dependent on Russia as a source of hydrocarbons.  </P> <P> To my mind, for the largest part of the Russian political elite, the so-called European choice, is a given fact, and, it s quite obvious that even if we pay attention to all the discussions about those funny theories of Eurasianism and other things like that, for Russia as part of Judea Christian heritage, and for Russia as part of the European civilization, it s very important to stress again and again our European identity.  </P> <P> Russia is a member since 1996, and the Council of Europe, the oldest European organization created in 1949, and may I remind you that the United States of America have the status of observer, there.  I think that for Russia institutionally it is more than enough to be part of that largest European organization, so membership in the EU is not even considered today, and I don t think it will be considered in the near future.  </P> <P> A couple of words about Russian/American relations.  I think that both Moscow and Washington are to blame today for the fact that we failed to work out the new positive agenda of Russian/American relations under the presidency of Vladimir Putin and George W. Bush.  We still try to discuss the issues, which we were discussing successfully, or not very successfully, during the years of d�tente.  We say that we are cooperating and can cooperate together on the Middle East.  We can cooperate together on nonproliferation.  We can try to combat the new challenges and new threats.  And that s all.  That s all.  </P> <P> I don t think that these seven, how many, about seven years of Russian/American dialogue were totally useless, but we failed to create what we were calling in 2001-2002 strategic partnership.  No one is talking about strategic partnership anymore.  I don t think that we have the right to talk about the Cold War because my firm belief is that the Cold War is something that may occur between two different political systems, and the Cold War, to my mind, is based on ideology.  We don t see the disputes between Russia and America are based on ideology.  Both Russia and America we believe in free market and I think that more and more we shall be facing, on the one hand, competition in the economic sphere, on the other hand we shall be seeing more and more cooperation.  </P> <P> I had a unique experience this summer when the President of U.S./Russia Business Council, Gene Lawson, and I, we traveled along six or seven cities in the U.S., meeting business communities and talking to local politicians.  I could see different as what you hear and what you see in attitude towards Russian/American relations when you come to think towns here in Washington, DC and when you see real America outside the District of Columbia.  I could see very many examples of economic interdependence, which, to my mind, grows.  When you come to Detroit, and when you see the steel factory acquired by Alexei Mordashov, and you hear from the local officials in Detroit that 500 people more get jobs in Detroit, it s something serious, while I think it s something serious, keeping in mind the decline in that part, the economic decline in that part of the United States of America, but, unfortunately, such examples are unique examples, and we do not have the system, we do not have the real solid ground which we can call the new Russian/American agenda, which gives us a chance to feel secure, irrespective of who becomes the president, both in Moscow and in Washington.  </P> <P> I think that we manage to create several, I would not call them docking mechanisms, but maybe communication mechanisms, between Russia and American political elites.  I think that Primakov/Kissinger initiative is one of the good examples of how old warriors of the Cold War can try to talk about strategic issues.  It s kind of nice to have.  </P> <P> We, in the Federation Council, value highly our relations with the U.S. Senate.  For the last five years we have the Federation Council, the U.S. Senate working group, which helps us to know more about the Capital Hill, and which helps to educate the American legislators about what is happening inside Russia, something similar as I think exists between the Duma and the House of Representatives.  But, still, I mean, it s not enough.  It s not enough.  I think it s homework for us for the next couple of years, how do we secure the transition period during the election campaigns, both here and in Russia, and how we manage to preserve all the positive background that I think we do have in Russia/American relations.  </P> <P> I also think that another bad thing that we see both here and in Russia is that foreign policy is used as one of the topics for election campaigns.  We all remember the famous Cox Report published here in 1999, criticizing Bill Clinton and the Gilman Commission for losing Russia.  Today, democrats are criticizing George Bush for losing Russia again.  Some time will pass and another president will be criticized for losing Russia again and again.  In Russia, Russian foreign foreign policy is being criticized domestically all the time.  Yeltsin was criticized for the foreign policy of Kozyrev, who was trying to please the west, and after that Yeltsin was criticized for the foreign policy of Primakov, who was trying to confront the west.  Now Putin is criticized for his foreign policy, both domestically and internationally.  Nothing is new.</P> <P>And, at the end of my remarks, may I thank Leon Aron for this great opportunity to swallow some last drops of summer, coming from rainy Moscow to sunny Washington.  Thank you.  [Applause].  </P> <P>Andrew Kuchins:  Thanks, Mikhail.  I don t understand how we keep on losing Russia, it s such a big place, how can you manage to lose something so big.  [Laughter].  You know, I have to ask you a quick follow-up question, Mikhail, as you mention that we both believe in, that we don t have any ideological differences, and we both believe in free markets, you didn t mention anything about democracy.  </P> <P>Mikhail Margelov:  Easily.  I can mention, and I m serious about that, we heard a lot this morning about how bad Russian political system is.  I don t think that our system is ideal, but, I truly believe that the largest part of the Russian population has the right to have democratically elected government, has the right to have democratically elected parliament, and I truly believe that people in Russia believe in rule of law and democracy.  The problem is that if you saw law and order here, these two words are indivisible.  If you come to my constituent, to the city of Pskov, and if you say law and order, people probably will tell you, order should prevail over the law.  That s the problem of our Soviet background.  </P> <P>Andrew Kuchins:  Thanks.  You know, when we say law and order here, now we think Fred Thompson.  [Laughter].  Let me thank both Fyodor and Mikhail for remarkably non-Pavlovskian  presentations, so concise and clear in their formulation, and also for the explanation of what Mr. Pavlovsky was trying to explain in his last column.  I read it, and like most things I read or see of Mr. Pavlovsky, I found it entirely incomprehensible, and I assume that s his MO, appear incomprehensible and people will assume you re a genius.  Let me turn next to Rajan Menon, from Lehigh University, and, more recently, from the New America Foundation.  Delighted you could join us here, and get down on the Metro liner.  Good to see you.  </P> <P>Rajan Menon:  Thank you very much.  Leon, thank you, and to AEI.  When Leon invited me to come here, I pointed out that my recent work had not been on Russia, and that I might be out of touch.  He said, well, why don t you, in effect, he said, why don t you come and demonstrate your ignorance before a distinguished audience of 100 people.  I ll try to disguise that.  [Laughter].  </P> <P>One of the catchwords for the U.S./Russian relationship has been whether it s a cold war, whether we believe it or not, this has become the bumper sticker.  I d like to say that while Russian/American relations are not good, to put it delicately, they are far from being, as Misha pointed out, a cold war.  Ideologically, Russia, unlike the Soviet Union, even in its most decrepit times, poses no counter to western liberal democracy.  Now, bear in mind, I didn t say American liberal democracy, this idea is not owned by the United States, but there is no countervailing force.  </P> <P>Much has been made of nationalism, as you know, Andrei Kortunov and Lilia had a discussion about this, and I m fully in Lilia s camp on this.  It seems to me it s possible to have impeccable tail ring and a voracious appetite for shopping and still be a nationalist.  On the other hand, that kind of nationalism is not some countervailing ideology, and, in fact, we re not lacking for nationalists, even in the United States, to be honest.  In terms of its capacity to articulate a countervailing force to the United States, this may be the policy of the Russian government, but, in the short-run, I don t think it s a feasible policy, because, in all tangible measures of power, be it economic or political, the possibilities are not present.  </P> <P>There has been a lot of data provided on the upswing of the Russian economy, but you ll notice that at the end of the presentations, at least one, there was a discussion, quite candid and fair, about how political trends are tending in the opposite direction.  Now, call me a self-serving political scientist, but I believe that politics drive economics.  And, so, the question becomes, if you have the political pathologies that have been mentioned, is the economic growth rate sustainable, especially if oil, which is now at $81.00 a barrel, I think, today, goes lower.  Show me a Russian economy that s humming along when oil is at $31.00 a barrel and I ll concede that something significant has happened.  This is not, by the way, in any way to deprecate or undervalue the economic upswing that has happened in Russia.  That is a good thing for the Russian people, and I think for the American people.  But I think we should keep it in perspective.  </P> <P>I think that there remains a gap between Russia s perception of itself as a world power, and its actual possibilities, which is what gives rise to the rather shrill and, I think, counterproductive characterizations of U.S./Russian relations.  Now, as Michael McFaul said earlier, I m fully prepared to discuss the limitations of U.S. foreign, the war in Iraq, which I never supported, and which I think is a blunder, but here we re talking about Russia, so I m not here waving, as it were, the American flag.  The Munich speech is a classic example.  I viewed it less as a resurgence of Russia, although Russia is back in some ways, but a clarion call, if you will, for pervasive frustration.  After the Munich speech, President Putin made an illusion, comparing the United States to the Third Reich.  Now, we can speak of all manner of Russian goodwill toward the United States, but when the leader of a country that s a global power does that, even the most vociferous critic of George Bush really has to wonder what is going on, does President Putin really believe this, or, is it for domestic consumption, and if it is for domestic consumption, what does that tell us about the trends in Russia if this in fact is playing well?  </P> <P>However, words do matter, and I think what both sides have to do before they talk about arms control is to engage in word control.  I think both sides have been reprehensibly inept in terms of allowing this shouting match to obscure what I think are still significant interests.  Radical Islam wetted terrorism, the potential breakup of the Iraqi state, which is not just a problem for us, but I would argue even a bigger problem, in some ways, for the Russian Federation, given the possibility of the long reach of radical Islamic forces in places like the north Caucuses, and, of course, North Korea, Iran and Pakistan.  In Pakistan we have, for the first time in history, the possibility of an event that we have no knowledge of how to manage or understand, let alone control, and that is the possible breakdown of order within a nuclear armed country.  Now you might point to the cultural revolution as one prior instance, but I would argue that the circumstances are wholly different and the collapse of the Soviet Union that happened, all things considered, in a rather orderly way are different as well.  </P> <P>So we have these common interests.  The question is, can you isolate those common interests from the retributive I ll kick sand in your eye in the sandbox kind of thing that both sides, frankly, are guilty of, this is not just, by any means, the Russian Federation.  </P> <P>Let me talk a little bit about, I guess the term near abroad is now not an acceptable term of art, but Russia s southern neighbors, shall we say, the post-Soviet states, a term which they hate.  To me, whether one likes what Russia is doing or not, I m not at all surprised by this.  I ve always felt that by virtue of history, geography, culture, and demography, Russia will try to maintain its preponderant position there.  I don t find it surprising anymore than our historic policy in Central America.  Imagine for a moment that Russia had the capacity to insert its power in a neighboring region, and really make a frontal attempt to challenge our historic preponderance there.  Now my point is not that Russia should be given carte blanche to do whatever it wants, but, that we should keep this in perspective as something that s not entirely surprising or bizarre or strange or even attributable, I should say, to Putin, because many of these policies go way back to the Yeltsin period, call me a neo-realist, or whatever, but I think that this is balance of power politics.</P> <P>But both sides face a challenge here.  The challenge for the Russians is, how to play this game of seeking overweening influence, which they need for their security, at a time when the game has changed.  The old days are over because you will have now, with the opening up of the post-Soviet space, whether you like it or not, the EU, OSCE, multinational corporations, CNN, NGOs, the National Democratic Institute, you can say all you want to about what they re up to, whether it s to stoke a cultural, what is it, a color revolution, which I think is a wholly simplistic way of looking at things, but the question is, can you have a policy that s subtle enough that doesn t just bang the fist and say, well this is our area, we won t permit this, or we will decide the terms under which this happens, or, can you have a policy that really tries to recognize that the world has changed.  </P> <P>In our case, the trick is to recognize historic Russian interests, but, to make sure that our interests in the region are pursued, but to find areas of common interest.  This is the dialogue that s been wholly missing.  The question is, are we going to allow as it were the tail to wag the dog?  Are we going to have crises in the so-called near abroad that upend Russian/U.S. relations.  Ambassador Bolton said well he doesn t worry terribly much about that, he must have other things that he worries about, but I do, and the candidate there, I think, would be Georgia.  </P> <P>The Russians have to be very careful not to get sucked into quagmires, be it Georgia, be it Moldova, be it between Armenia and Azerbaijan, we, for our part, have to be very careful in what we promise, or what we imply we can do for these countries, because we could very well put them in a position where they think that we are underwriting certain policies, when push comes to shove, they will find that we do not.  </P> <P>Now, let me turn to some miscellaneous items.  China.  There is a great deal that s been made of the so-called Russian/Chinese partnership.  Again, I don t find this surprising because you have a uni-polar world, and as I think a few other pointed out, and Misha before him, that it is Russian policy to make this world less uni-polar.  I think any country that faced the situation would be doing exactly the same thing.  That said, I think there are major constraints on Russian/ Chinese relations, and we should not engage in too much heavy breathing.  This, by the way, is apparent to mean discussions in Moscow, and I m just not here speculating about it; when Misha and Dima and I have had our exchanges, both in Russia and Moscow, as part of a small group that we belong too, this has been apparent, there s been a division among Russians on this.</P> <P>On the one hand you can point to the SCO, the Shanghi Corporation Agreement, as a case where the Russians and the Chinese are cooperating to nullify or reduce the American presence in central Asia.  You can look at it another way, however, what SCO has done is to institutionalize, to legitimize, and give permanent footing to Chinese interests in central Asia.  If you take the long haul and look at the trajectory of the two countries, strategically and economically, if I were a Russian, to me it s an open question about who will be more preponderant in this region.  And the challenge that Russia faces, it seems to me, is not that the west will erode its power, but 40 or 30 years out what central Asia will look like in terms of the relative to the footprint of China versus Russia.  </P> <P>And then of course there is a Russian far east.  Now, in a discussion that I had in Moscow, a well-known political scientist, Sergey Karaganov said, don t threaten us about China, we re not worried about your threats, we have got the Chinese problem under control.  In the same meeting, another Russian pointed out that it was a problem.  If you look east of Lake Baikal, actually in the Russian far east, you have about 7 million people in Russia, and that number is declining.  In the three provinces adjoining Russia, the three Chinese provinces, you have 138 million.  Now that doesn t mean a doomsday annexation or conquest of the Russian far east, but, it s not a good position to be in, and Russians have written extensively about this, Russian experts are divided on this, with the writings of Vilya Gelbras for example, and it s pretty clear.</P> <P>Arms transfers, again, a distinction between those who feel that it s a way to shore up the historic relationship and to give it some concrete bases, and others, like Alexei Arbatov  who s told me this publicly and privately, that this may prove to be a very short-sided and dangerous policy.  So I think there s a Russian policy debate about this that is blurred when one sticks on labels like the Russia/China entente and so on.  Now, that said, there are many things holding them together, and I happen to believe that a Russia/China relationship, that s a stable one, is actually good for the world, because the alternative is certainly very, very bad.  </P> <P>Iran, now, I think that the two alternatives that have been posed by hawks on Iran in the United States, an air strike, and some, if push comes to shove, an invasion, are both obtuse and dangerous.  The air strike won t solve the problem because, obviously, the Iranians have learned from the Ocerok [ph.] experience of the Iraqis.  An invasion, well, there are many problems with that, least of all where the troops are going to come from, but there are many, many other difficulties.  So Iran policy is not perfect, and I think we re in a bit of a muddle, but the Russian government, it seems to me, has got to go beyond.  You d better not invade Iran, this would be foolish, we won t allow this to happen, and put some alternative strategy of its own on the table if it wants to avoid the worst case scenario.  </P> <P>Let s assume that the centrifuge capacity of Iran goes from 30 percent enrichment capacity, which is what some believe, but then, the worse case scenario happens, and it goes to 90 percent.  Both we and Russia have a problem, it s not just our problem.  There is only one country in the world that s ringed by nuclear weapon states, from the DPRK in the northeast, to potentially Iran in the southwest, of Russia, that is, and that is Russia.  So, it s our problem, but it s also their problem.  </P> <P>One Soviet analyst said to me, well, we can live with a nuclear Iran, another turned around and said to him, this is ridiculous, we can t do that, it s a problem.  But, then, what is the solution?  If invasion is off the table, as it should be, if air strikes are off the table, what is the Russian response, especially if carrots and graduated diplomacy don t do the trick?  We have no answer, but I would argue Moscow has none either.  </P> <P>On the other hand, in the case of the DPRK, I think the Chinese and Russian position, that engagement graduated diplomacy is the way to go, has been proven correct if the agreement that Ambassador Hill negotiated sticks.  I know that Ambassador Bolton, who was just here, thinks it was the biggest mistake, perhaps of all time, well, maybe not all time, but, a big mistake.  I m much more sanguine about it, and I think it shows, the six party talks, that when Russia and the United States work together in areas that are manageable where there are converging interests and not swing from enmity to total embrace.  We have this sort of romantic idea that we must be one, hugging each other, or, the alternative is that we re shooting at each other.  It shows that we can do good things.  </P> <P>Just a couple of points on Afghanistan and Iraq.  The disaster that Afghanistan faces is due to our near criminal negligence toward that country from 1989, when Soviet forces fully withdrew, to 2001.  We walked away and we reaped a bitter harvest.  But it is also due to the disastrous, and far more disastrous, Soviet invasion of Afghanistan that left the country traumatized, battered and shattered.  This is a problem that is both ours and theirs.  We are stuck there now, locking forces, with NATO divided on what needs to be done, with no one willing to fight except the Dutch and the Canadians and the British in Helmand and Kandahar.</P> <P>But the question is, what happens if Afghanistan implodes, or what happens if there is some return of the Taliban, at least in the southern parts of Afghanistan?  It s our problem, it will be a failure, we re to blame because we decided to mount this misadventure in Iraq, but is it not also a Russian problem, and are we talking about this, and if we re not talking about this, why aren t we talking about it?  Again, it s a question of isolating areas that we can focus on, rather then expecting the whole relationship to change, as it would.  That s not possible.  </P> <P>The final point on democracy.  I don t think it should be the foreign policy objective, or high priority of the U.S. government to democratize Russia, or to make the democratization of Russia, must test of our policy or our attitude toward them.  Why?  Like George Kennan, I m very skeptical about our capacity to achieve these grand social experiments.  We simply don t know enough about a lot of countries, and even if we did, I think the idea of taking countries as if they were so much clay, and shaping them into beautiful shapes, is a recipe, I think, for great heartache and disappointment. But, I think in the current Russian climate, however well intentioned this may be, let s take as a given that the objective is not to undermine the Russian government, all I can see happening is a massive backlash that plays into the hands of the very authoritarians and nationalists that we are so concerned about.  </P> <P>There is another factor, and that is consistency.  It seems to me that we hold Russia, a country about whose trajectory, by the way, I am worried, and have been pessimistic for a long time, on the political front, to a standard that we don t apply to Saudi Arabia, for example, a country where women cannot drive, let alone vote.  Right?  And, so, it seems, oh, we ve never held this standard to China, even in the worst era of this cultural revolution, which is when we began engaging them.  So, to make this the driving force of our foreign policy it seems to me is mistaken.  In the long run maybe democracy will arise in Russia, but, of one thing I m confident, however ingenious our policy, it will not be because of us, except at the margins.  Thank you.  [Applause].  </P> <P>Andrew Kuchins:  Thanks very much, Rajan, for your very thoughtful remarks, and I m very glad to hear you raise the topic of Afghanistan.  We had a quite interesting discussion last week with a highly placed Russian official on the Afghanistan issue.  The question was put to him, who ll remain nameless, because this discussion was off-the-record, but, the question was put, can you imagine that there could be cooperation between the Shanghi Cooperation Organization and NATO over Afghanistan?  His response was very interesting, I thought.  First of all, he said, the Shanghi Cooperation Organization is not a military political organization.  It is an economic organization.  That is the first time I ever heard the Shanghi Cooperation Organization described in such terms, and those are Chinese terms, actually, I haven t even heard the Chinese describe it so straightforwardly, but those are more of the Chinese interest in the Shanghi Cooperation Organization.  That was quite [cross-talking].  Let me finish.  Let me finish.  And then I said, the Shanghi Cooperation Organization is not the proper analogous organization to work with.  They said, three years ago we, the Russians, had proposed working through the CSTO, to NATO and Afghanistan, but we never received a response.  It s an interesting exchange.  </P> <P>Here s the situation, the bases are loaded, Lukyanov is on third, Margelov on second, Menon on first, it s about 73 degrees outside, a breeze blowing about 10 degrees from the southwest, you re up, bottom of the 9th.  </P> <P>Dmitri Trenin:  Well, thank you so much, and thanks for putting me last on the last panel.  I learned a lot about Russia.  It was worth the visit to Washington.  So, let me confine my remarks to just a few points.  I agreed with a lot of things, I disagreed with some things, but, I think I walk away a more informed person, maybe a slightly more confused person as well, but certainly more informed.  I think I would draw certain distinctions first, and I think that you invited us to do that.  There s a serious distinction between style and substance in Russian foreign policy, and style, which is more muscular, or assertive, as people describe it, it has a lot to do with the experience of the principle architect of that foreign policy, Mr. Putin himself.  I think he considers himself to be the most successful international politician anywhere today, and that is showing, and I think he also considers him to be superior to so many of his peers, and that, I think, trickles down to some of his minions.  He has had incredible luck, Mr. Putin, in the eight years as president, but he has also had some real achievements, from his point of view.  I think he would put at the top of the list the fact that he recentralized Russia, something that people elsewhere would not, thinking about the means of that recentralization, would not necessarily consider it an achievement, but I think for Putin that would be at the top of the list.  </P> <P>The word Chechnya was mentioned here.  Now the problem as far as the Russian government is concerned, there is a problem in the north caucuses, there isn t, at this point, much of a problem concerning Chechnya.  They consider themselves the victors.  Dagestan, Ingushetia, you name it, but, Chechnya, they ve been, they see themselves as victors, after a very humiliating defeat in the mid-1990s.  That is an important psychological boost.  </P> <P>Mr. Putin is clearly measuring himself up against his peers, and I think we have a problem with global leadership, and that, I think, also adds something to the way Mr. Putin steers Russian foreign policy.  </P> <P>There is an element of the need to assure the power handover, or the power transfer, so that this does not create a temptation for anyone either inside or outside to become an actor in this transition game that Mr. Putin is so masterfully playing at this point.  </P> <P>I think there s a little bit of overkill here.  This style is ties in with the rise of Russian national consciousness, which reveals itself in nationalism that we all know and we are concerned about.  </P> <P>When so much is going for the Kremlin you re bound to have some hubris, and Anders, I think, mentioned that, but anyone knows that it s a recipe for blunders anywhere in the world.  </P> <P>Now to substance, I m grateful to Fyodor for quoting a phrase that I like very much, the Russia s business, Russia s business being Russia, which means, basically, farewell to the empire, we don t consider Belarus or Turkmenistan or whatever as parts of the future hold.  So we ll deal with them as strong a power, as strong a player deals with not so strong players.  That s the essence, from empire to great power.  They used to be one, for 500 years, they are now separate.  One is history, the other is very much the reality.  </P> <P>But there s another thing that I like to repeat, that Russia s business is business, it s basically, never before has money played such an important role in Russian foreign policy as it does now.  To be sure there is geopolitics, and there are nukes around, there are many other things, but money has never played such a big role as it does today.  </P> <P>Finally, Russia is no one else s business, that s very clear, the motto, very clearly the motto of the Kremlin today.  They wondered, in the 90s, about, who is Russia s friend, who is a potential ally, they don t care about that anymore.  They basically accept Russia as a strategic loaner.  A country of Russia s size, Russia s ambitions, Russia s history, would have to walk alone, and that would mean some privileges, that would also mean some problems.  But that s something that I think that the Russian government clearly understands and accepts.  </P> <P>Again, Fyodor said, very correctly, that Russia s foreign policy is based on a view of international relations as a very competitive game.  They understand that they cannot compete with the United States, or with the European Union, on a full range of issues.  So the recipe for victory, for getting your way through, would be focusing on what you would call comparative advantages.  You have energy, and they need energy.  That s your comparative advantage.  You have nukes, and they don t, even if you don t ever think of using them, parading them could boost your stock in the eyes of, well, at least you think it would boost your stock in the eyes of so many people around the world.  </P> <P>I agree that success also breeds something which is not necessarily an ideology, but a certain sense of a mission.  Russian leaders, the President and the Foreign Minister, have been talking recently about Russia s mission, and they sometimes even coach that in religious terms.  That shows a new element in Russian foreign policy.  It will be interesting to see whether this is just a thing that you do for sure, or something that you re prepared to put your money on.  </P> <P>As to Russia being a countervailing force to the United States, I think there is a lot of opportunism here.  I don t think that there s a consistent policy of opposing the United States every step of the way, Rajan is absolutely right, that would drive Russia out of business, and they simply cannot afford a policy of this kind.  But, showing the rest of the world that the United States is not the only country with a strategic air force could be useful from their standpoint.  </P> <P>But, I think more globally the Russian leadership proceeds from two premises, no entangling alliances, and that means alliances with the west.  They bring this matter up repeatedly, and they say that the alliance that we struck with the western powers back in 1907, 100 years ago, entente, led to Russia s involvement in the 1st World War, and then in the, led to the Bolshevik revolution that basically destroyed Russia.  It s a very interesting argument, but I think that they use it specifically with reference to Iran.  They think they cannot afford to join any western coalition that would take on Iran in a forceful manner because of where they sit, because of the composition of the Russian population, because of many other very obvious things.  </P> <P> So no entangling alliances, and, at the same time, no fatal attractions, and this is China.  It s interesting that Mikhail started his list of Russian foreign policy achievements with the conclusion of the sign of Russian treaty on the border, on the mutual border.  This is exactly the way President Putin would want to list his achievements, putting that at the top of the list.  Nothing could be more important.  If you think if you have a strategic and historical view of your own country, you would think of that as your eternal whatever, eternal achievement.  Other things, you know, they re good for one day or two, or a year or two, with China we re talking hundreds of years, at least hundreds of years.  </P> <P>Someone said, I think, during the morning panel, that we may be going back to the matrix, to the old matrix.  I would say we re going back to the very old matrix, not the matrix of the Cold War, and make no mistake about that.  I was a young officer cadet in the early 1970s when my general, not a very clever guy, and not a guy very much liked by us officer cadets, quite frankly, a stupid guy.  [Laughter].  He is no longer with us.  But, he said something which is still ringing in my ears, he said, our fathers hoisted the red flag over the winter palace in St. Petersburg, we did the same over the Reichstag, you guys will have to hoist it again, one day, atop the White House in Washington, DC.  </P> <P>Andrew Kuchins:  Are they planning to do it today?  [Laughter].  </P> <P>Dmitri Trenin:  I m telling this story only to underline one thing, one shouldn t trivialize the Cold War.  The Cold War was a deadly thing.  It was a deadly engagement.  It s a great thing that we kept it cold on both sides, but it was never meant to be cold, it just happened to be cold.  When we discuss the current tensions in relations, a bit frosty here, a bit cold there, chilly, whatever, ladies and gentlemen, it s nothing like the Cold War.  Now, why am I saying it s very old history, because it s, in some ways, the Russian leadership has exited the 20th century through two doors at the same time, through the door marked 19th century and the 21st century.  </P> <P>So you get this idea of business and what Fyodor was very well describing, this post-modern foreign policy thing, you know, everything is fluid, and, you know, Internet age, and no alliances, no permanent alliances, whatever, and, at the same time, you go back to the 19th century to the balance of power thing, to great game, which is no longer great, and that kind of stuff, and you merge the 19th and the 21st and you get this very strange combination.  </P> <P>How would I interpret Russia s foreign policy today?  I agree with Rajan that Putin s Munich speech was born out of frustration, I think personal frustration also because the President himself felt extremely aggrieved by all their tax against him, especially in the wake of the Litvinenko case, when he was branded as the poison in chief.  </P> <P>But there s something else here.  There s a sense of what I would call America fatigue, spreading, or having spread in the Russian government.  They are close to giving up on the United States, at least for now, believing that no useful business can be done with Washington, at least for the time being.  They see Washington as distracted and basically the bureaucracy, even when the President is more or less open to Putin, the bureaucracy is not there.  And, they see the United States as raising obstacles to Russia every step of the way, especially in the former Soviet states.  On the other hand, there is a strong disdain for the European Union.  So, this combination, I think, has produced a somewhat weakened and distracted America, and disorganized European Union.  </P> <P>I would interpret Putin s change of heart as follows, having tried, in vain, to rub Washington the nice way, and you would recall the visit here by Mr. Valoshin and those litanies and all that stuff.  They started rubbing Washington the nasty way, the wrong way, basically with the same goal in mind, the objective has not changed, to send the message that Russia matters, and try to reengage, reconnect, but on certain terms.  I think that those terms are very clearly spelled out by Putin himself.  The first set of those terms, accept us as we are.  We re not going to change under your pressure.  No way.  Accept us as we are.  Second, treat us as equals.  We may not be equals 100 percent, but the way we deal with each other, say Iran, say ABM, say something else, on those narrow areas where we have common business to do, we can only accept equality, nothing less than equality.  And, thirdly, let s do business on the basis of common interest.  Where we have shared interests, let s do business there.  </P> <P>That s , nyet, et one vsyo.  Can I have 5 more minutes?  Eto mnogo.  [Laughter].  3 more minutes, how about that?  Good.  </P> <P>There was another issue of regime and foreign policy.  It s interesting that the Russian autocracy used to be a friend, and even Soviet s totalitarianism, an ally of the United States, Russia is, there s no question about the nature of Russia s political regime.  It is authoritarian, and frankly authoritarian, and one shouldn t talk about managed or somehow, whatever, diluted, or whatever, democracy.  But I would stress something else, be it as it may, Russia having ceased to be pro-western, and it was somewhat pro-western in the 1990s.  It s not pro-western today.  It s not anti-western, but it s, it could be close in some areas.  But it s much more western in terms of its domestic, in terms of its society, in terms of its economy, in terms of its business environment than it was, let s say, 10 years ago, and we had Anders and others showing things that would help make that conclusion.  I would stress that there s a distinction between western and pro-western, and that distinction needs to be taken into account.  </P> <P>I would say that Russia perhaps is not, I would slightly disagree with Mikhail when he said that the Russian elite is still on the European choice.  I think that they have made a choice, which could be described as an American choice.  They want to build something like an America, but, upside down, built from above.  A sovereign democracy in the thinking of the Kremlin there is only one country that can be described as a sovereign democracy, seriously, and that s the United States.  From their perspective the Europeans are not sovereign, the Chinese are not democratic, so, it only leaves the United States, that tells you something about the model.  </P> <P>So, I have no time whatsoever.  [Laughter].  </P> <P>Andrew Kuchins:  That s correct.  [Applause].  Well, to me, Russia has not taken the European choice or the Chinese choice or the American choice, Russia seems to be taking the Russian choice, that, to me, seems to be the fundamental truth of what is going on.  </P> <P>Okay, we have, you ve been a remarkable audience, this is late afternoon, it s been a long day, I see nobody sleeping, nobody snoring, that s a testament to your discipline and attentiveness and to the tremendous presentations from all four of our panelists.  So, let s open this to questions and discussion.  We ve got Leon right here, I ve got Mike back there, Arnold, a lot of others.  I better start making a list.  Leon, you re the maestro.  </P> <P>Leon Aron:  A couple of questions to different people.  One to Fyodor, sometimes chronology could give us clues to the black box, we don t know what s going on inside the black box, we know what comes later, and we could see, we could have a chronology of that.  You mentioned 2000 to 2006, and then 2006 something changed.  Now, I would put it earlier, but in any case, why 2006?  And, is it all plutonium, and he was upset and whatnot?  That s the question to you.  I also have a question to Dmitri, and I would like here maybe some sort of interpretation of something.  There s something that Putin said that was not widely commented on here, or even noticed.  He had a very interesting meeting with the teachers of history, and he said things there that were probably, well, I m searching for a euphemism, the strangest things he said.  One of them was, and I have a pretty good memory for those things, so, it s almost a quote, in the early 1990s, they told us, you have a democracy and we ll control you.  Now, Dmitri, or anybody else who would want to comment on this, if that is true, if that is how he thinks, then, the reverse is also true, in other words, we will not have a democracy, and, therefore, you will not control us, in other words, that connection, I think the panel slightly got away from I think something that was seminal to our early discussion in the morning, which is, the connection between foreign and domestic policy.  So, those two questions.  </P> <P>Andrew Kuchins:  Your questions and comments, then I ll turn to the panel to address those in turn.  I ve got Mike back there.  Can you get him a microphone, please?  Mic to Mike.  </P> <P>Mike McFaul:  Thank you.  Mike McFaul from Stanford.  First, Mikhail, on the campaigns, as somebody intimately involved with one, and I know everybody else is involved on Russia, I m struck by the opposite, nobody is talking about who lost Russia in this election campaign.  So, rest assured, you don t have to worry, we re not going to lose it a third time, nobody is paying attention.  That s what you need to worry, that nobody is paying attention, except for us here.  My question is about debates on foreign policy.  If we were having a discussion about American policy towards Russia, and you asked me to comment on who thinks we should be looking for cooperative, win/win situations with Russia, and who thinks that we shouldn t because we can t trust the Russians, we should only think of terms of zero sum, I could march through the list and I could talk about the President, I could talk about the Vice President, I could talk about Condi, I could talk about several mid-level people, and we could talk about the contours of the foreign policy debate about Russia.  It d be pretty interesting.  There s a big debate, serious debate within this Administration.  I don t get a sense of any foreign policy debates in Russia, listening to this panel.  And I m most interested in the one about America, are there some that look for win/win situations, and others that only think of the world in real politic zero sum terms?  But, choose any issue, choose Aphasia, choose Iran, choose missile defense, tell us something, are there any debates in Russian foreign policy?  Help us to get inside the black box because right now it just sounds really monolithic and only one guy matters, Putin.  But, from what we heard earlier this morning, Putin is not going to be President of Russia, well, Anders said he might still be, but everybody else said he wasn t going to be, so, I m interested in, what are the debates about?  </P> <P>Andrew Kuchins:  Arnold, then we ll go to the panel.  </P> <P>Arnold:  It s too bad, but like in most conferences like this where you start with politics, and then economics, and then foreign policy, usually there s not an opportunity to bring them altogether, which we haven t done today, except a little bit at the end here.  That s too bad because Fyodor Lukyanov started us off with the framework, which really helps us unite them.  The key to this framework, whether we re talking about 2006 being the right date, or 2005, 2004, was the abandonment of the integration with the west enterprise by Russia.  I agree with that.  That s the crucial development.  It s also the crucial development, in my opinion, for the development of Russian domestic policy.  We had an interesting moment, Fyodor laid down the proposition that the abandonment of integration, integration with the west in 2006 was crucial to the change in Russian foreign policy, Mikhail talked about the European identity of the Russian elite even with the existence of the present foreign policy, and Andy Kuchins asked at one point, what about democracy? </P> <P>Well, this is the question, the question is whether abandoning the western integration enterprise, is it now having an interactive effect, both in foreign policy, and in domestic policy?  In domestic policy we can see what it s leading to.  I agree with Dmitri Trenin s characterization of where Russia is today in foreign policy, I mean in domestic policy.  In foreign policy it s leading to a situation in which Russia is being perceived as and is becoming increasingly unattractive as a potentially cooperative member of the community of industrial democratic states, it s enhancing its own self-isolation in the world, or, if not self-isolation in the world, enhancing its association from a political point of view what are the most unattractive countries in the world.  So the two are linked.  </P> <P>I think the west has to accept a great deal of responsibility for the abandonment of western integration, which has been the turning point, but without an effort for Russia and the west to rejoin forces, to rejoin forces both ideologically and in foreign policy, then I believe that Russia s prospects, both in foreign policy, and in domestic policy, are dyer indeed.    </P> <P>Andrew Kuchins:  Thanks, Arnold.  By the way, last week at the Valdai meetings, I also asked, what about democracy, and I felt as though I had the plague.  It didn t go over well.  Let me turn, we ll go in reverse order, actually, and each person has 2 minutes to respond because we have a number of other questions and comments in the audience.  So, Dmitri, why don t you go first?  </P> <P>Dmitri Trenin:  If you try to describe the thinking of the Russian leadership, as certainly I try to, the word democracy does not come up, because it s basically seen as a ploy by chiefly the United States to advance geopolitical and other U.S. interests.  It s not that this leadership is rejecting democracy on principle, it doesn t have an ideology that would require it to do so, but they are not thinking in terms of democracy at all.  They re thinking in terms of managing society, they re thinking in terms of governance, they re thinking in many, many, many terms, maybe the rule of law in some ways, when you need to protect, they will have to eventually think in terms of protecting the property that they own.  Law is something that people understand.  But, democracy is too nebulous, and the way it s used does not sound very serious to these people.  </P> <P>Let me also say that I absolutely agree, Arnold, I put forward that thesis myself some time ago with regard to Russia stopping its integrationist movement, and, again, we can discuss for a long time how and why and who is responsible for all these things.  I agree that it has important implications, but let me see that if there s a hope in Russia, that hope, I think, was revealed in the second panel.  We do have a society that is changing, and those changes will not be without consequences for domestic politics.  That will not be without consequences for foreign policy.  The idea that Russia can be equidistant from any country around the world is ludicrous, absolutely, arrogance and cynicism, including cynicism about democracy, self-defeating, having Mr. Lugovoi in Russian parliament would make that parliament, in the eyes of the international community, worse than a joke.  There are things that people in the Kremlin should be thinking very hard about.  Official anti-Americanism is not a problem for the United States, but it is a problem for Russia itself.  There are many, many, many things here.  And, I think that sometimes people will have to learn from their own mistakes.  Unfortunately, I think it seems like this is the case.  </P> <P>Rajan Menon:  Where s Mike?  Mike, sorry to have disappointed you, but I can t produce for you something that doesn t exist.  I mean, I think you put your finger on it.  If you read the debates, some of the writings of some of the most fertile minds in foreign policy, you see a debate.  The question now arises, what s the attraction, what s the importance of this, and this is a commentary on the evolution of the Russian political system.  I think it is a danger for Russia because I think the more there is a debate the more you consider the downsides of policy and avoid foolish misadventures.  I mean, we have a lesson in our own recent past.  </P> <P>I want to pick up on a point that you made, however, and that is that Russia s problem with the United States is not that there are too many people scheming to pull the rug out from under its feet, it is, as Arnold pointed out, the perception that it s taken a different choice, some of my Russian friends here have said that, they ve said, does America fatigue?  Now, as it happens, I just came from Louisville, Kentucky to speak to a foreign policy group, there was not one question on Russia.  Whenever I go to different parts of America, outside the Beltway, which I often do, I m struck by the absence of any interest in Russian strategy.  Now, maybe we re blinkered by the focus on terrorism.  It would be a great tragedy, I think, for the world if a country like the United States designed its entire foreign policy based on counterterrorism, but that s a different story.  </P> <P>I ll go even further.  Whereas there are significant downsides to a rupture in U.S./Chinese relations, and significant internal groups that will cry out not to allow that to happen, the analogy does not hold in the case of Russia.  So upsetting the applecart, as it were, of Russian/American relations, the downside is perceived to be pretty low.  I m not saying that I believe it to be pretty low, but people, in a sense, have stopped paying attention.  That s a bad thing, both for us, and for you, but that s the reality.  </P> <P>Mikhail Margelov:  Well, I think that Russia, with its large state-owned corporations, with so-called zaibotzus, is closer to new industrial states than to the western community today.  If we look at the general competition between the west and the new industrial states, I would definitely put Russia together with new industrial states.  I mean, that s one of the basic ideas which helps to understand the substance of the dispute and misunderstanding between Russia and the west.  I think that it s, while Russia s development will not be successful without democracy, without human rights and rule of law, and I think that Russian people deserve it, but, the question is, is the current political system ideal or not?  I would definitely answer no, it is not an ideal.  The question to my mind is, how, through the elections, through the political party building which goes on in Russia, how to improve that system?</P> <P>And as for the foreign policy debate, every Monday Mike, does Michael McFaul hear me, Mike, you are not invited to Valdai anymore, but, if I may invite you to my committee meetings in Moscow in the Federation Council, every Monday at 2:00 p.m., and the American Embassy in Moscow knows about that, and twice a month I have a gathering of the Council of Experts of my committee.  We have foreign policy debates, as well as in the Duma in Konstantin Kosachev s committee, maybe it s not publicized widely in Fyodor Lukyanov s magazine, maybe.  Maybe it s his fault.  </P> <P>Fyodor Lukyanov:  As for foreign policy debate, it s very simple, there are a lot of debates about foreign policy in Russia, in Margelov s committee, in Kosachev s committee, in different think tanks, different publications, a lot of use, all of them have no impact on foreign policy.  [Laughter].  </P> <P>Mikhail Margelov:  The question was not about an impact, the question was about the debate.  [Laughter].  </P> <P>Fyodor Lukyanov:  Why 2006?  That s not because of colonial.  2006, from my point of view, was end of second attempt of Russia, and the first attempt of Putin, to start the real integration with the west.  The notion integration has changed its substance because during 90s, in the first period of Putin s time, integration with the west, first of all with the European Union, of course, meant that Russia slowly but will approach the European model by adopting different norms, rules, and regulations of the European Union.  That was unilateral process.  It was seen as a unilateral process.  And both Moscow and Brussels agreed on that, informally.  And that was the core of partnership and cooperation agreement which was signed 1994 and ratified 1997, which expired this year.  But, it became quite clear some day that Russia will not approach this model, and Putin tried to implement the new notion of integration, which meant not adoption of European values, but as a swap.  And that was Putin s understanding of integration, that Russia, Gazprom and European countries can make mutually beneficial exchanges.  </P> <P>Between approximately mid-2005, and end 2006, starting with the signing of North European Pipeline Treaty, until summit, Russia EU summit in Helsinki in November, 2006, Russia tried to build up relations with the European Union, and with the west on the basis of interest, abandoning completely, values.  And this model was actually accepted by the European Union for a period.  The outcome of this we had last November, then now in May, a summit in Samara, nothing, so, it s impossible to have normal relations without common conceptual framework, and values; European values, or common values.  It s not about human rights actually, it s about how you understand each other.  And this understanding has failed completely November, 2006. </P> <P>And, as for new attempt to start integration project, I m not sure it is possible now, but, in the future, if Russia will be seen in the west, as China, so the west will abandon all attempts to democratize Russia, and then China is integrated in the international economy, and also step-by-step in international community.  So, in this regard, integration is possible, but as for integration in previous terms, even if Russia will get more democratic than now, I m afraid that the great power of psychology will prevent it.  </P> <P>Andrew Kuchins:  Okay, we ve got time at least for one more round of questions.  I have Andrei, Anders, next on the list, and then Stanley Kober.  We ll take three questions.  Andrei.</P> <P>Andrei:  It s not a question, it s a comment, and, actually, I have a great temptation to make this comment, and especially since these answers of panelists seems to me underscore the difference between the answers part of this session and the statements part of this session, which, also, I think it s very important to have in mind the necessity to distinguish between propaganda and the reality.  I d like to challenge some of the statements that have been made here as more close to propaganda rather than reality.  One of them is like, Russia s business is Russia.  This statement implies that Russian authorities business is Russia.  There is no statement more remote from reality than this statement.  If you just look not on propaganda, but, just, really, just go one by one, some kind of Russian/Ukrainian gas war, is it about Russia s interests?  Come on.  If you look into this, some kind of campaign, anti-Estonian campaign, is it in Russia s interest?  Are these are all efforts to, some kind of, to help Iran to be protected and to some kind of to allow to build military threats, including nuclear capacity, is it in Russia s interest?  And, so, we can continue, and it probably would not be some kind of, we should look into the reality.  </P> <P>Russia s business is business.  I think we should not mix business of Russia and business of members of the cooperative order, which is not the same, which is quite different.  What we are having just with all these Gazprom requirements, Rosneft, and all this business, and Mr. Raymond has been mentioned early today, and so on, you have to have in mind what is going.  </P> <P>Russia is no one else s business.  I think that s a pretty correct statement of interest of the leadership in Russia.  We serve that no one outside Russia, neither America nor Europe, nor anybody else, has a right to intervene into Russia s business, in Russia s politics, no one in Russia has this right, no regional governors, no political parties, no State Duma, that was correctly some kind of described as a joke, a mockery, or Federation Council, I m really sorry Mikhail, or Russian government.  We have been successfully, some kind of proof with both Mr. Fradkov that is rubberstamp.  And even with administration of President after the departure of Mr. Voloshin.  So, that Russia s business is no one else s business, except of one person, maybe a few others.  </P> <P>Russia is back, I think probably it is better to say, Russians are back.  What Russians, and where, they are back?  Russians back to Strasburg, court of human rights, which is overwhelmed with cases from Russia.  Why?  Because Russian court system does not form function at all.  It s total failure.  It s completely destroyed.  Russian businessman went to London and the Russian population in London will be maybe larger than anyone, some kind of expat population, except the British in London very soon because they don t have chance to work and have business in Russia.  If you look around in the countries in central Europe and some kind of, even the former Soviet Union, it s real exodus of Russian business people and entrepreneurs that are leaving Russia acquiring the real estate and business of there because there is no opportunity to work there.  Okay, there is some place in Russia to work for foreigners, but, Russian business people are smart and they understand, better, the uncertainty.  </P> <P>So, Russia is strong.  I think it s completely wrong.  Russia is much weaker today.  Having destroyed almost all institutions of the modern state, of modern society, Russia became much weaker than it was even in the 90s.  </P> <P>And I just, as a final strength to be some kind of to consider some kind of the remarks about the United States or European Union, I don t think it s a real sign.  If you look what has been done in just, in any case, for example, after this cartoon scandal, when just to better to worse, so Europe was trying to defend some kind of personal freedoms, but there was only one country in the world that tried to arrest and some kind of to close some newspapers.  Arrest some people and close some newspapers and some mass media because of the very remote some kind of hints on some kind of jokes or anecdotes or cartoons on Moslem leaders.  It was Russia.  So that is why today s Russia, and if you look international, it s real isolation in Russia from foreign policy point of view, for many months after Litvinenko poisoning.  So, it does not look that country does not have allies, it does not look like too strong.  </P> <P>Last point, that Mr. President is most successful politician, and I would agree with it strongly.  He is, both domestically and internationally.  And he is considered to be, he s right to consider he s a victor in Chechnya, and especially after flying over Chechnya, and having observed destruction of Grozny he could not believe his own eyes of that his own work, or his troops work.  If he would address exactly the result of his amazing ability to destroy everything, on domestic front, he and that system was able to destroy, not perfect, not very developed, but really functioning institutions of the Russian state and Russian society, they do not exist anymore.  And, in international area, they were able to destroy not perfect, but remnants of some kind of coherent foreign policy.  That does not exist anymore.  So, in this regard, yes, this is success, but I m not sure that this success in the short or long run Russia s interests.  </P> <P>Andrew Kuchins:  Thanks, Andrei.  I m not sure whether you re going to be invited to the Valdai discussion club next year.  Anders.  </P> <P>Anders Aslund:  Anders Aslund, from Peterson Institute.  I have one question to Mikhail Margelov, I understand your point, but I would like to draw you out a bit more, why should we not be worried about Russian imperialism?  For a long time it has been an argument that Russia is moving in a Weimer Germany direction, in particular, Yegor Gaidor made a very strong argument in his book,  Gibel Imperia, Collapse of Empire, a year ago.  We are now seeing all of these signs, Putin speech, annual address, 2005, that the collapse of the Soviet Union was the greatest political tragedy in the 21st century.  We are seeing Russian policy, whatever you consider that actually consists of, on Estonia, to unacknowledged Russian minor bombing attacks on Georgia.  We are seeing the Nashi attacking, for example, the Estonian Embassy, and not pushed back by the police.  We are seeing Mikhail [indiscernible] ranting on the main Russian television.  How can you explain all this, and how bad is it, and how can you, so to say, clarify your position?  Thank you.  </P> <P>Andrew Kuchins:  The last, I m afraid we re going to have to wrap this up at 4:15, this means that, I apologize to all of those who have questions and comments, we re not going to have time for that.  I think there s a reception afterwards that maybe you ll talk to some of the panelists.  Anna Aslund, you have the last question, and then we ll turn to our panelists for their final words.  </P> <P>Anna Aslund:  I teach at American university and I always explain to my students that it will be very difficult for them to work in Russia if they want to if they don t have some knowledge about cultural background, and specifically one thing everyone needs to remember, you know what sober thinks, drunken says, you know what drunk Russian men ask one another?  They ask, do you respect me?  And that s what you hear in the Russian foreign policy all the time, and unless somebody hears, they will come to you just like this, am I right?  </P> <P>Andrew Kuchins:  For the final commentary from our panelists, we re going to work from the, my right side of the panel down to the left side, so we ll start with Rajan Menon, each person has a minute or two, maximum.  </P> <P>Rajan Menon:  Mercifully, Andrei s arrows were not aimed at me, so I, one comment on his comments, which I largely agree with, frankly.  There was a discussion earlier today on the Russian economy, and, by and large, things were upbeat, if you look at the macroeconomic indicators there is reason to be upbeat, but someone then asked a question about human capital.  I don t know if he s here now, but, Harley Balzer, along Judy Twig, and of course Marty Fischbeck, have done a lot of work on this, and I ve looked at this in the context of my own work not too long ago.  Across the board it is a disaster.  Mr. Putin himself has said this, and quite clearly, whether it s alcohol poisoning, industrial accidents, suicide, disintegration of the family, demographics, epidemiology, it s a very bad thing.  It s not to be trivialized because if you argue that human capital is what the name of globalization is all about we have a very serious crisis.  </P> <P>The second point I want to make, as someone said, I think the gentleman from Moody s Bank, well this can go on for a long time, states that swell, and civil societies that shrink, and states that extend their control over the economy and pursue suboptimal policies, this can go on for a long time, this sort of inertia and decay.  Is that what the Russian leadership wants?  Surely not.  That s hardly a good outcome, to say that they can retain the integrity of the state.  I mean, who would argue with that?  So can Kim Jong Il and nobody would praise him for having done that.  So I don t think that s what the Russian people have in mind.  </P> <P>On the near or broad, the whole imperial mentality, and, Anders, that you mentioned, I said it doesn t surprise me, but, sometimes it frankly is over the top, in the case of Georgia, for example.  But I have in mind Mr. Chernomydin, the Ambassador, making openly partisan comments, within the context of the Ukrainian election, far exceeding what any ambassador would make in the elections of another sovereign country, as if more or less it was his birthright to do so.  So, I think there s a basis for an understanding that while Russia has legitimate interests there, it has, now, to play on a different chessboard.  I don t think it s come to terms with the fact that it has to do that.  </P> <P>Fyodor Lukyanov:  Of course that s no prize to anybody that Russian political consciousness is much shaped under imperial time, centuries.  It s very hard to change it.  But, at the same time, we must analyze it, we must see that there is changing, and from my point of view, orange revolution in the Ukraine has changed significantly Russian approach.  Okay, we could not say it s the best one, but, before that, the imperial intentions were much stronger because Russia sold gas to Ukraine, Georgia, Belarus, at low prices, having in mind that those territories are ours, that disintegration of the Soviet Union it was something, historical mistake, and that it will come back.  Now, yes, that s much harder, but, their independence is accepted.  And, Munich speech was mentioned here a couple of times, I recommend you read another very famous speech by Mr. Putin, delivered also in Germany, but in September, 2001, in German Bundestag in German language, and compare it with the Munich speech.  If you take away the style, the substance is identical.  All the questions he raised at that time, in the polite way, in the constructive way, he raised in Munich speech, but, being extremely disappointed in lack of reaction.  </P> <P>Andrew Kuchins:  Thanks, Fyodor, and, just as a reminder, I think it was about close to 70 percent of the German people were basically in agreement with Mr. Putin about the key points he made in his Munich speech.  Dmitri.  </P> <P>Dmitri Trenin:  Andrei, friendly fire is always surprising, but never amusing.  I think it should have been clear from the context of my presentation that I was describing the thinking of the man whom you served, and you could have asked him those questions, in fact, you could have been describing these things here.  I never worked for Mr. Putin.  I look at him from the outside.  Quite frankly, I find the notion of propaganda directed at me an insult and I m very sorry about that.  I never expected it from you Andrei.  </P> <P>Mikhail Margelov:  If you come to the club of beefeaters and say to them that you are vegetarian, you will not be very popular there.  The choice is either to leave or to stay and to teach them how to use the fork and the knife, how to wash hands, and how to behave themselves.  To what you say, if I try to put it in a kind of table, all what you said I put here, and there, on the other side, I will put some other things, when there was the revolution in Georgia, Russia could deploy its troops there, we did not send paratroopers, we did not send tanks, we sent one bureaucrat, Igor Ivanov, who, you know, helped Georgia to escape the bloodshed.  The same happened during the conflict in Algeria, we could do bad things, we could send troops, we didn t do that, we sent one bureaucrat, and we helped Georgians in their revolution.</P> <P>So, I should say that for the first time ever, Russia has showed that it can behave in a non-imperialist manner on the post-Soviet arena.  And I can give much more example.  At the same time you have, like, Russian delegation and the Parliamentary Assembly of the Council of Europe voting in favor of a very critical resolution on the monitoring report in Russia, that never happened, it happened a couple of years ago.  And there are a lot of examples.  And even if I am drunk, I don t ask anybody to respect me, because I respect myself as a patriot of my country.  [Applause].  </P> <P>Andrew Kuchins:  Well, let me take this, ya ne vinovat, ne chem! This was a terrific panel.  It was a terrific panel, and, the whole conference today was terrific.  But, first, let me thank our four panelists, Raj, Fyodor, Dima, Misha.  [Applause].  </P></body></html>