To Russia with love

A country that seemed to be a basket case under Yeltsin has become a favourite once more for western

Anton Chekhov once observed that Slavic women were always either laughing or crying, never anything in between. The same seems to be true of the west's perception of Russia: we either love the country, or hate it, passing from one extreme to the other with the same dazzling speed as Chekhov's emotionally acrobatic heroines. We hated Russia during the bloody flowering of Stalin's regime in the 1930s; but, during the 1940s, the tyrant became Uncle Joe and we were in love with Mother Russia's fortitude in the battle against Nazi Germany. The Second World War was hardly over before we were swinging back to hatred, and the west's struggle against what was eventually dubbed "the Evil Empire" became the defining conflict of most of the second half of the past century.

Then came the great reformers - both Mikhail Gorbachev and his arch-rival Boris Yeltsin - and suddenly we were once more in love. It was Gorbymania, the "end of history", Yeltsin facing down the hardline communists from the top of a tank. Western presidents and prime ministers praised the triumph of Russian democracy; western investors placed their bets on the triumph of Russian capitalism. Before long, though, it was back to hatred. When the Russian economy caved in on itself like a vast and fragile pyramid scheme in the summer of 1998 - taking with it the rouble, most of the domestic banking system and billions of foreign investment dollars - Russia again became an object of our detestation.

Today, it looks as if we're about to fall in love with Russia all over again. Compared to the ailing, drink-addled figure Boris Yeltsin cut in his later years, his successor, Vladimir Putin, in the eyes of many western observers, seems refreshingly direct, decisive and energetic. Within weeks of his March election victory, Putin moved to consolidate that image by persuading the Duma, the lower house of the Russian parliament, to approve the controversial Start II arms reduction treaty, a pact Yeltsin had spent more than six years failing to push through the legislature. Tony Blair, who has already paid Putin the compliment of a visit to Russia and received the newly installed president in Downing Street in return, has praised him as a strong leader with a reformist vision. Bill Clinton, who recently hot-footed it to Russia, offered the equally sunny appraisal that "when we look at Russia today . . . we see an economy that is growing . . . we see a Russia that has just completed a democratic transfer of power for the first time in a thousand years."

To be sure, some critics have lamented Putin's support for the bloody second war in Chechnya, accused him of eroding freedom of the press - a fear exacerbated by the recent arrest of the media baron Vladimir Gusinsky - and worried aloud that his KGB background and unrepenting loyalty to the honour of that institution could jeopardise Russia's fragile democratic institutions. But many of even Putin's fiercest prosecutors seem inclined to give him the benefit of the doubt when it comes to the economy. Sergei Kovalyev, the Soviet-era dissident who is one of the few Russian politicians brave enough to speak out against the fighting in Chechnya, fears that Putin is likely to build an "authoritarian police state", yet he is also confident that the new president will "accept the liberal programme of economic reform that the rightists insist on".

Western investors are even more optimistic. After ten years of disastrous depression that shrank the Russian economy to less than the size of Belgium's, Russia's GDP actually grew last year, albeit by a modest 3.2 per cent. This year, forecasters are predicting robust growth of more than 5 per cent, an upswing powerful enough to lure back many of those who were most badly burnt in 1998. George Soros, the US fund manager who lost a fortune in Russia in the 1998 crash, has predicted that Russia will be one of his biggest money-making opportunities this year.

My Russian reporter friends view this latest round of Russophilia with the self-mocking cynicism that is one of the most engaging aspects of Russian culture. "Russia is never as strong as it looks, but it's never as weak, either," Sasha, a Moscow journalist, told me. "That's what you westerners can never understand." He's right. Russia is neither lost nor won, but caught somewhere in between. This awkward limbo is Yeltsin's bitter-sweet legacy: he has left a country both healthier and more diseased than the one he wrenched from Gorbachev in 1991.

Yeltsin's great accomplishment, and Putin's most precious inheritance, is the destruction of the Soviet Union and of the communist regime that controlled it. Yeltsin liberated the non- Russian republics, banned the Communist Party, baited regional governors to "take as much power as you can" and transferred state property to private owners in a frenzied national car-boot sale.

But Yeltsin's great failure, and Putin's most poisonous inheritance, was his inability to build healthy new institutions to take the place of the Soviet ones he razed. Yeltsin destroyed the Communist Party's political dictatorship, but the democratic system that has emerged in its stead is unresponsive to its citizenry and easily subverted by a narrow Kremlin elite. Yeltsin sold off the centrally planned economy, but the market system that replaced it is corrupt, bound by red tape and ruthlessly manipulated by a cabal of robber-barons, known as "the oligarchs". With its increasingly deprived underclass and extravagant and parasitic elite, Russia has become a sort of capitalist dystopia, a Soviet ideologue's lurid fantasy of life in what they used to call the "rotting west". As one sardonic Russian friend confided: "Everything Marx told us about communism was false. But it turns out that everything he told us about capitalism was true."

The single most important cause of Yeltsin's failures was where he began - ruling a country devastated by 70 years of communism and centuries of authoritarianism before that. Russian history's most crippling legacy was the lack of civil society. Even under tsarism, Russian civil institutions had been notoriously underdeveloped. Under the Bolsheviks, they were systematically destroyed: political parties were banned, the press was severely censored, religion was suppressed and trade unions became arms of the Communist Party. In this atomised community, social interaction was governed by a Soviet perversion of the golden rule: inform on your neighbour as he is certain to inform on you.

Jadwiga Malewicz, a plump Soviet matron with the ghost-white skin of the far north, is living proof of just how indelibly that nasty morality was imprinted on the soul of every Soviet citizen. In 1937, as a teenage girl, she was sent to one of Stalin's Arctic prison camps. Half a century later, Malewicz told Angus McQueen, a British documentary film-maker, the worst thing the Gulag had done to her. Early on in her ten-year sentence, Malewicz had taken pity on one of her fellow prisoners. Stop working so hard, she warned the girl, otherwise you'll kill yourself. Someone overheard that advice, told on her, and Malewicz was sent to a freezing punishment cell, its bars open to the Arctic snows.

"I nearly died," Malewicz told McQueen. Then, her face twisted with a hard contempt for her fellow Russians and maybe even for herself, she made a confession: "After that, I no longer trusted anyone. I have never done a good deed since then."

Yeltsin's second problem was Russia's collapsing state. The USSR had been one of the most authoritarian, centralised regimes in the world and its spine had been the Communist Party. When Yeltsin outlawed the party, he also broke the backbone of his new state. Signs of the state's incapacity are everywhere. In war-torn Chechnya, Russian soldiers were so ill-disciplined, so poorly provisioned and had such low morale that they sold their weapons to their enemies, the Chechen fighters. In Tver, a once gracious city in central Russia's agricultural heartland, the rule of law has become so flimsy that uniformed men, a modern version of the private brigands who roamed Europe in the Middle Ages, often block the highways into town and require tribute from each entering car. Regional governors and businesses refuse to surrender tax revenues to a central government that has lost the power either to coerce or to cajole.

The third reason why Yeltsin left his successor a flawed legacy is more obscure and less forgivable. In 1995, on the eve of presidential elections, which the communists seemed almost certain to win, Yeltsin and his liberal allies agreed to an audacious privatisation deal known as loans-for-shares. The scheme was so brazen and so byzantine that it was months, if not years, before the rest of the world woke up to it. At heart, loans-for-shares was a crude trade of property for political support. In exchange for some of Russia's most valuable companies (including several oil firms and the world's largest nickel mine), a group of businessmen - the oligarchs - threw their political and financial muscle behind the Kremlin.

At first, it seemed to be a good deal for both sides. Yeltsin gave the oligarchs their economic empires, making them the founding fathers of Russian capitalism; the oligarchs gave Yeltsin his second term, securing his place as the founding father of the new Russia's political order. But, ultimately, loans-for-shares turned out to be a Faustian bargain. Once the oligarchs had discovered how to extract instant fortunes from the state, they were reluctant to learn more tedious ways of doing business. Once Yeltsin and his liberal allies had traded state property for political favours, they could never again be pure.

The other obstacles that poisoned the development of the new Russia - the communist legacy, the withering state - may have been insurmountable, but they were already there when Yeltsin took office. The pact with the oligarchs was the president's choice - and his biggest mistake. Putin's challenge is no longer to dismantle communism or to create capitalism; it is to fix a capitalist system that is broken.

As a proud veteran of the KGB, Putin may be tempted to solve Russia's capitalist problems with communist methods: intimidation, imprisonment and exile. His government took an alarming step in that direction when Vladimir Gusinsky was arrested and thrown into one of Moscow's disease-ridden and violent jails. Although the White House bleated a mild protest at the move, most western bankers will have quietly cheered: the foreign investment community was hoping Putin would launch a purge of the oligarchs. As one banker told me in Moscow: "The best option is major shock. You need to throw a lot of people in jail."

His advice terrifies me. It's not that Gusinsky - or any of the oligarchs - is without sin. Gusinsky himself told me: "I cannot say I am an absolutely honest man, nor can any person who survived in this country before 1985, or who built great things after 1985. We all have done things we would not like to tell our children." In today's Russia, property really is theft; no one with any real wealth is truly clean.

Any Kremlin-led campaign to purge the oligarchs will inevitably be as arbitrary - and thus as corrupt - as the Kremlin policies that created them. Russia will only free itself of the oligarchs once it has built a vocal and energetic civil society and an effective yet democratically accountable state. Yeltsin has shown that you cannot create capitalist democracy from the top down. We must hope his hand-picked successor does not feel compelled to repeat his greatest mistake.

The writer is deputy editor of the Globe and Mail in Canada. Her Sale of the Century: the inside story of the second Russian revolution, is published by Little, Brown (£14.99)