Putin urged that the achievements of Russia after the October 1917 Revolution should be given their due; and he re-introduced the melody — if not the words — of the USSR state hymn.3 Most Russians welcomed the restoration of a stirring piece of music they associated with victory in the Second World War. They wanted to be proud again about being Russian; and surveys revealed that the proportion of citizens feeling associated more with the USSR than with Russia was going down only slowly.4 The popular response was favourable. His opinion-poll rating fell drastically only once. This was when he reacted stiffly to an explosion in the nuclear submarine Kursk in August 2000. All on board perished. Putin was widely criticized for declining to interrupt his holiday and display personal sympathy. He learned from this setback and tried to avoid falling out of step with national sensibilities. He was tested again in September 2004 when Chechen terrorists occupied a school in Beslan, a town in North Osetiya, and took captive a thousand tiny pupils, their minders and their teachers.5 Putin was televised supervising the handling of the siege until Russian security forces re-took the buildings. Although the operation was accompanied by many deaths it was not the Russian president who incurred the blame.
He consolidated his position by filling the offices of state with individuals who had ties to the Federal Security Service or other coercive agencies. They ruthlessly enforced governmental decrees. State power was their shibboleth. It is true that newspapers, books and posters continued to criticize or ridicule him. Yet television was the medium with the deepest popular impact, and the humbling of Berezovski and Gusinski had the effect desired by the Kremlin as TV programme editors exercised caution in what they transmitted about the central authorities.
The president was not an enemy of the big business corporations, only of businessmen who got politically too big for their boots. All the remaining ‘oligarchs’ understood this except the hot-blooded Mikhail Khodorkovski who continued to finance political parties and liberal causes hostile to Putin. As one of the wealthiest men on the planet and owner of the oil company Yukos, Khodorkovski had got used to doing things his own way. He declared his wish to encourage a more pluralist form of politics and a less corrupt environment for commerce in Russia. His newspapers regularly criticized the presidential administration and the government; he also subsidized opposition parties in the Duma. When he refused to desist he was put under investigation for fraud. Prosecutors brought him to court and charged him with tax evasion. A huge bill was delivered to the company. Facing bankruptcy, Khodorkovski was obliged to sell off his Yukos assets at a knockdown price to Rosneft, and in May 2005 he was sentenced to eight years imprisonment in Chita province in eastern Siberia. Rosneft was a private company under tight governmental supervision. Its acquisition of Yukos was the decisive signal that Russia’s political economy had changed since Yeltsin’s presidency.
The implications for foreign businesses in the country were discouraging. The government’s declared priority in the early 2000s had been to attract the maximum of Western capital into the Russian economy. The world’s biggest energy companies queued up to buy up rights of extraction in areas of Russia where great profits seemed guaranteed in the near future. Royal Dutch Shell and BP signed early deals. Their investors rubbed their hands with satisfaction as Russia appeared committed to having an internationally open economy. Both companies soon suffered disappointment when official investigators were sent into their Sakhalin facilities. Infringements of environmental legislation were quickly diagnosed. One by one, American and European energy corporations were compelled to renegotiate their contracts and accept poorer deals or face the loss of all their holdings in the Russian Federation. They all gave way, and Gazprom, Rosneft and other native conglomerates exploited a commercial advantage. Personnel moved flexibly between them and the various ministries in Moscow. Russia was becoming a bastion of state capitalism. The State Duma in March 2008 rationalized the process by passing a bill to restrict foreign investment in forty-two ‘strategic’ sectors of the economy (which included petrochemicals, nuclear power, armaments, fisheries, airspace and the media). Russia was no longer up for sale to the highest external bidder.
There was no thought of dismantling capitalism. Cabinets during Putin’s presidency always included not only former intelligence officers but also liberal economic reformers. Among such liberals was Mikhail Kasyanov, who was Putin’s prime minister from May 2000 to February 2004. Kasyanov tried to impose a framework of commercial law — and indeed there was a degree of enhanced protection for small businesses to register and operate even though the local elites remained as corrupt as ever. Improvement was also detectable in the workings of the courts, but only in cases lacking a political dimension.6 Yet Putin and Kasyanov did not get everything their own way. They worked long and hard for a new Land Code and yet the Duma frustrated them by rejecting the proposal for the privatization of territory outside the urban outskirts. President and Prime Minister were annoyed that farms in the countryside remained outside the jurisdiction of the reform. The Federal Assembly was equally averse to the call for Gazprom to be broken up so that the pieces would compete with each other. Nor did it sanction the demand for electricity and other utilities to be sold at higher prices to Russian domestic consumers.7
Putin also ran into difficulties when he attempted to put pressure on the leaders of the various republics and provinces of the Russian Federation. Soon after being elected, he withdrew their right to sit automatically in the Council of the Federation where they could affect the passage of legislation; he awarded himself the power to sack any one of them. He also divided the whole country into seven super-regions and appointed his own plenipotentiary to each super-region with the mission to ensure compliance with central laws and Presidential decrees. Putin’s initiatives were greeted with barely a murmur of objection from local leaders.8 Yet little changed in reality. The sheer complexity of political and economic processes in every republic and province defeated the attempt at abrupt disciplinary action; Putin was more successful in intimidating the media than in securing obedience from the lower levels of the state hierarchy. But one thing he did achieve was a halting of criticism of the government. Mintimer Shaimiev of Tatarstan, who had been a thorn in Yeltsin’s flesh, became a garland around Putin’s shoulders. In 2004 Putin forced through a measure allowing the presidency not only to remove regional governors but also to appoint new ones without reference to the local electorate.
Formal central prerogatives were one thing, provincial reality was often entirely another. The new governors, being obliged to ensure stability of administration, needed the co-operation of local politicians and businessmen. A strategy of give-and-take worked better in practice than peremptory orders.9 The old Russian obstacles to achieving an effective political hierarchy persisted, and the Kremlin found itself increasing its fiscal subsidies to the regions.