Is it really so miserable in Russia?' The chosen one speaks out

Putin's anointed successor tells Jason Bush why the West underestimates his country's economic and democratic development

Last Monday, President Vladimir Putin revealed who he will back in Russia's presidential election in March: Dmitry Medvedev, his First Deputy Prime Minister and former chief of staff .

Medvedev, who is also the chairman of state energy giant Gazprom, returned the favour the next day, revealing that if elected he would ask Putin to serve as Prime Minister and head of the government. With this development, the long-standing question of what Putin will do after leaving the presidency has at last been answered. The transition may not be very democratic, as clearly Putin will still hold the reins of power, but investors are reassured at the prospect of stability: the RTS stock index ended the day up half a per cent.

In a rare interview with the Western media, Medvedev sat down with BusinessWeek to discuss Russia's economic and political situation. These are edited excerpts.

Vladimir Putin's presidency is nearing an end. How would you summarise the significance of the past eight years?

Fifteen or so years ago, most of our people had a feeling of disaster not just for the state but also for all those values that people had lived by for decades. During the past eight years, I think the main thing has been achieved. We've stabilised life in the country. We've created a modern market economy that can secure the nation's development in the coming decades.

When many people looked at Russia's economy in recent years, what they saw was the growing role of the state. For example, companies like Gazprom have been expanding. Doesn't this contradict the idea of a modern market economy?

I don't think it does. Market economies aren't all the same. If you take, say, the US and the EU, we see different types of econ-omy. That was the result of historical development.

Of course, Russia also has its own historical traditions. Even under the tsars, we had a high share of state capital. The biggest joint stock companies, formed at the end of the 19th century, were state-owned. All the railways, and the insurance companies, developed as a result of a partnership between the state and private capital. Yet, at the time, Russia was one of the fastest-developing capitalist countries in the world.

Today, I think we have the share of state property that is appropriate for the current level of economic development. There are key sectors energy, infrastructure that certainly have a special character for our state. There are simply some tasks that, in Russian conditions, can't be solved without state participation.

Many people speculate that there are different clans or interests within the state.

You know, this is just a simplistic, theoretical scheme that's only good for the tabloids. Why? Because if someone sitting at the head of some large company made multibillion-dollar decisions based only on their private interests, the whole economy would stop. And just the opposite is happening: growth is 7 per cent.

Several well-known cases have been particularly worrying for investors: Yukos, Sakhalin II, Kovykta. Aren't property rights in Russia poorly defended?

As a whole, I'd say property rights in our country are protected. In the legal sense, everything's fine with our laws they're some of the most modern in Europe. But understanding of the laws is also very important and I think we have to improve it on all levels.

As far as the examples you give are concerned, I wouldn't say these were cases of property rights violations. With Kovykta, you can interpret it in different ways. Our foreign partner, BP, had a whole bunch of violations regarding environmental legislation and licensing, and it recognised that. I think the compromise Gazprom and BP reached was an entirely normal one. This wasn't a case of confiscation or requisition; it was done at the market price.

At Yukos, every decision was taken because the management and owners of the company were accused of crimes, which unfortunately happens in other countries too, including the US.

Another question is politics. To put it frankly, most of the outside world is used to regarding Russia as an authoritarian country. Do you agree?

It's one of those stereotypes that of course doesn't correspond with reality. To judge whether Russia is a democratic country, you have to come here and see with your own eyes. Is our situation really so miserable?

In the 19th and early 20th centuries, the development of democracy in Russia never pleased European observers. They said we were doing it wrong. But compared with what then happened, everyone later understood that the development of capitalism at the end of the 19th century the creation of the State Duma [in 1906], the limits on the monarchy was the Russian path to democracy. That direction was lost, mainly because a small group of citizens [the Bolsheviks] seized power unconstitutionally.

And today, I think that all these accusations are the result of a misunderstanding of Russia's nature. I've just read a book by Francis Fukuyama called State Building. He draws attention to the different foundations of democracy in the US and Europe. And in Russia, too, we have our own path towards the development of democratic values.

All the same, Russian elections are very specific. It's not like elections in the West. Here, everyone wants to know what the President wishes.

Yes, Russia has its specifics. But it's not a system. It's the worldview of a huge number of people.

I don't know how people understood the idea of democracy in the US at the start of the 19th century, but probably it wasn't so advanced. At that time, slavery still existed. And the notions of our people, their values, aren't absolutely ideal. They're the notions of people who developed in distinct historical circumstances.

Don't forget that less than 20 years ago, the power of the Communist Party was guaranteed by the constitution. And 80 per cent of people still remember this time while 50 per cent simply ceased their development. It means paternalistic attitudes are more developed in our society.

I don't see anything tragic in this. Time will put everything in its place. If 20 years ago, people had predicted what model we'd adopt, I'd have dismissed it as a fairy tale.

But the election will be largely determined by the opinion of one man.

I think there will be different candidates, and different parties that don't support the present course. But it's true President Putin is popular. I think that's good for our country, because the presence of a strong president who can unify the nation is a guarantee of development.

How do people inside the state regard this transition of power? Are they worried?

Of course, at the end of any political cycle, people may be worried. But my sense is that things are radically different now. When there were elections in 1996, I can tell you there were a lot more reasons to be scared. Today, the situation is more stable.

After the elections, many people expect that Russia will have a bipolar system, with the new president in effect sharing power with the previous one. Do you agree?

I'm not an oracle, but one thing I can say is that after the elections, the authority of Mr Putin will be very high and he'll have a big influence on public opinion.

In general, what predictions can we make about the future of Russia?

I want to preserve [Putin's] course, simply because it has shown it can work. Living standards are rising, the most important social problems are being solved. Not as fast as we'd like, but it's happening.

I think that continuing on this path over several decades will turn Russia into one of the most developed countries in the world.