News Analysis: Putin grapples with his nation's history, but is he getting anywhere?

The economy is growing, the government is gaining control and political turbulence has gone, but corruption and bribery remain endemic

At a summit in Slovenia last year, President George Bush claimed, to the astonishment and titters of the press, that he had seen into Vladimir Putin's soul and liked what he saw.

Mr Bush may see into Mr Putin's soul but not many others do. To many Russians he remains a sphinx, though possibly one without a riddle. As a career KGB officer he was presumably trained to conceal his own feelings and make friends with possible informants. He would not have been the chosen candidate to replace Boris Yeltsin at the end of 1999 if he had made many enemies. The Kremlin PR experts rightly believed that Mr Putin conveyed just the right mixture of macho efficiency and patriotic zeal to appeal to the Russian public.

He still does. Despite the sinking of the nuclear-powered submarine Kursk in 2000 and the continuing war in Chechnya two out of three Russians say they approve of Mr Putin. His support is wide, rather than deep. He has benefited from the political and economic tranquility of the last three years, in contrast with the turbulent era of President Yeltsin. With a tame Duma at his beck and call, there is no effective opposition or presidential rival.

Russia has finally achieved a degree of political stability and is gradually emerging from the economic black hole into which it fell after the collapse of Communism. Many of its problems are intractable: long periods of lack of investment in industry; the decline in a once-proud education system; and the decay of infrastructure. Most companies depend on domestic protectionism to survive.

The Russian political and economic elite is wholly self-serving. For instance, it has almost wholly ignored the explosion in HIV-Aids infection in the population, leading one expert to argue that there is no chance of anything being done "until the children of the elite start dying from Aids".

The appearance of increasing autocratic control can be deceptive. Russians, drawing on centuries of experience of autocracy, are expert at bowing their heads to their rulers in Moscow while ingeniously evading or sabotaging their orders. The state bureaucracy has increased its power under Mr Putin compared to the Yeltsin years, but the Russian government remains impoverished and short of resources. Officials at every level are not paid a living wage. Bribery is all-pervasive.

It is a measure of the success of Mr Putin's government that he has conveyed a sense to Russians that there is a new, more honest hand on the tiller and that corruption is considerably less than under Mr Yeltsin. "In fact, corruption is at least at the same level now or perhaps slightly growing," Georgy Satarov, the president of Indem, a Russian think-tank was quoted as saying yesterday. Indem found that Russian companies paid no less than £25bn in bribes and unofficial charges last year, making up 12 per cent of GDP.

The pattern of bribery is a guide to the weaknesses of the Russian state. The most blatant bribe-takers are the Russian traffic police, whose official wage in Moscow of £44 a month is supplemented by £200in bribes. But the biggest bribes, surprisingly, are paid for health care and education because both systems are starved of state funds. Mr Satarov says more money is paid for higher education now because parents see it as a way to keep sons out of the army during the war in Chechnya.

Mr Putin has benefited from the financial crash of 1998, which ended the gross over-valuation of the rouble, as well as high oil prices. The collapse of the rouble's value by 75 per cent made many goods made in Russia profitable. But the extent of the economic changes in the past three years is often overstated.

The official line from the Kremlin is that the black economy is shrinking because of tax reforms and better regulation. But this is not the view of Professor Irina Yeliseyeva, at the St Petersburg State University for Economics and Finance. After analysing unreported transactions, she was quoted as saying that in the St Petersburg region about 43 per cent of economic activity was part of the black economy. "The whole economy is immersed in shadows," she said. She added that, contrary to the official myth, "the shadow economy continues to grow". For Russia, the black economy is about 35 per cent of the whole.

It is not that Mr Putin has not tried and probably succeeded as well as any other person in reasserting the power of the government. He appointed seven super-governors to assert federal control over the provincial governors who, since the fall of Communism, had carved out feudal fiefdoms. The Kremlin mostly drew on former military or security service generals as its representatives, but results of this attempt to reassert central control have been mixed.

Lawlessness may be less blatant than five years ago but the use of force still has a role in ordinary business activities. In Yekaterinburg, the unofficial capital of the Urals, diplomats at the US consulate have recently had a close-up view of how business is done.

The building housing the consulate borders on a property whose ownership is disputed by two local businessmen. To the alarm of the diplomats, one of the businessmen, irked by legal wrangling over property rights, sent a dozen masked gunmen to kick out his rival and take possession.

It is stories such as this that make foreign investors pause. Direct foreign investment in Russia still lags behind Thailand and Venezuela. The ultimate entry of Russia into the World Trade Organisation might be a sign of good things to come, but would make little difference if there was no way of ensuring that laws and regulations are implemented. The Indem study of corruption found – to the disquiet of potential investors – that one of the largest recipients of bribes in Russia is the courts.

Mr Putin plays a weak hand well. Again and again over the past year, he has won an international reputation for moderation by welcoming American actions which he does not, in any case, have the strength to oppose.

He has dropped Russian opposition to the stationing of American troops in central Asia and Georgia. He has accepted the US in effect withdrawing from the anti-ballistic missiles treaty. He has used the 11 September attacks in the US to portray the Chechen rebels as hand-in-glove with Osama bin Laden.

In two ways only is Russia still a superpower. Its decaying stockpile of nuclear weapons could still blow up the world several times over. And though shorn of almost all the territories conquered by the tsars since the 17th century, Russia is still vast, bordering on the world's most volatile regions.

These are good reasons to take Russia seriously. The government is slowly reasserting control, and for the first time in years the economy is growing. But for all Mr Putin's determination to grapple with Russia's problems, they are so huge that it will be years before his efforts show significant results.