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Quite another matter is the populism related to the deceleration of the reform process. It will greatly reduce the opportunities for implementing institutional re forms, but the objective need for them will not become any less. Thus, the institu tional problems will continue to accumulate, and it will still be necessary to resolve them in the future but at a greater cost, especially if the external market situation worsens by that time.

A new turn in party building was the formation of the center left party Fair Russia, aspiring to play the role of the leading parliamentary party similar to that played by the center right party United Russia. After its creation was an nounced, Fair Russias leaders would repeatedly arrange meetings with V. Putin, which confirmed that the new party had been granted an official blessing. Its po litical credo differs little from that of United Russia and consists in unreserved support for V. Putins policy.

However, the existence of two brands competing for the role of the leading and guiding force could confer a certain dynamism to the forthcoming election See Alesina A., Roubini N. with G.D.Cohen. Political Cycles and the Macroeconomy. Cambridge, Mass and London: The MIT Press, 1997. P. 13.

RUSSIAN ECONOMY IN trends and outlooks campaign, which would positively distinguish it from the classical one and a half party model. The capability of these forces to actually polemicize with each other, to mutually expose the existing drawbacks and to criticize them, will become an important issue when assessing the role and prospects of these forces. The case in point is, first of all, the criticism of real actions, because any polemics on the program issues would be senseless in the existing situation and is of a very lim ited interest.

Mutual supervision and mutual criticism could become an important factor of overcoming the traditional shortcomings of the one and a half party model political stagnation and corruption. However, it will be unwise to expect any real criticism and polemics, because both parties associate themselves with the personality of the present President. To expose the shortcomings of any of them would mean, in fact, criticism of V. Putin. Also, the existing electoral legisla tion extremely restricts the possibility to criticize an opponent in the course of an election campaign. At the same time, there is little doubt that the emergence of the two party model can result in some additional budgetary populism.

In absence of any significant alternatives, the ruling party was prone to dis cuss some highly peculiar matters. Each Duma is doomed to have its own Law on Bee Keeping, which has once become the synonym for pointless legislative activ ity17. A similar role was played in the year 2006 by the draft law on restricting the mentioning of foreign currencies which was designed to prohibit the officials to use the words dollar and euro in those instances when their use was not sufficiently justified (although it remained unclear who was to judge whether this justification was sufficient or not). Also, this tendency is rooted in the regretfully widespread phenomenon when people try to combat not the cause but the consequence. Thus, struggle against inflation is frequently substituted for by a price freeze. Another ex ample is the hope that the mistrust of foreign currency can be overcome by ban ning the circulation of foreign currency18. ( However, it should be acknowledged, for the sake of justice, that over the past fifteen years, the Russian authorities have re peatedly demonstrated that they are aware of the difference between the cause and the consequence. The economic history of post Soviet Russia offers practi cally no examples of senseless bans, introduced contrary to economic logic).

The year 2006 has provided a new theme in the quest for a political model and ideology appropriate for contemporary Russia. The demands to furnish the country with a national idea have been voiced for approximately the same time as the de mands to work out the sector priorities. Nowadays, the concept of sovereign democracy is being advertised as the one best fitted to play the role of a national There was such a draft law in the mid 1990s, and the MPs were elaborating it at a time when the country which had just abandoned socialist law was literally suffocated in absence of the most im portant laws.

The banning of on the use of foreign words is frequently explained as a concession to patriotism.

In reality, such actions are totally unpatriotic. These bans are rooted in their authors deep convic tion that Russia is incapable of pursuing a policy which could guarantee that its currency is re spected. The attitude is all wrong it is necessary that the rouble gain sincere respect instead of being respected in words only out of fear of paying a fine.

Section The Socio Political Background idea, and its discussion has become a rather noticeable phenomenon of the socio political life of the country. It was adopted by United Russia, which had been chronically suffering from the absence of ideomotor image badges, and af ter a short discussion this term has become one of the focal points in the program of this party holding a parliamentary majority.

The emergence of the new term was met with visible misgivings. This attitude is quite understandable: it is in our countrys traditions to furnish certain concepts popular in the developed world with some adjectives totally emasculating the es sence of the terms they are added to. That was the meaning of socialist democ racy and peoples democracy, the terms denoting a regime opposite to a de mocratic one. It is natural that the emergence of the new term caused a suspicion that the whole initiative was just an attempt to camouflage a rejection of the democ ratic principles of society organization and a toughening of the political regime. In other words, there exist strong misgivings that social democracy can in fact be synonymous to untrue democracy.

These doubts and suspicions have the right to exist, especially in the context of centuries old Russian history. However, this aspect of the issue rather reflects the present day situation. But there also exists a deeper rooted problem as to which institutions of modern democracy are of primary importance for a stable and onward economic development. The term sovereign democracy must be syn onymous to the term competitive economy. Only a competitive economy is capa ble of creating a basis for both the sovereignty of a country and for the stability of its economic regime.

In real life, the whole set of democratic institutions cannot emerge simultane ously. It will take a long time for them to be introduced in daily practice. It is possi ble to single out the institutions (or the rules of the game or laws) which are of prin cipal importance for stable economic growth, while the rest of them are of secondary importance by comparison with the former. The primary political condi tions necessary for growth are the guarantees of the inviolability of the person, his or her life and freedom. This also suggests the existence of an independent judicial system and of a certain level of independence of the mass media, as well as their capability to ensure some public control over the situation. The protection of life and property from arbitrariness constitutes an absolutely indispensable foundation of modern economic growth: before starting to accumulate and to invest, to organ ize and to product, and even before starting to keep property and to spend money, a person must be sure that his or her life and freedom are safe from any arbitrari ness of the authorities.

The IET conducted a statistical research19 aimed at measuring the influence of various political institutions on economic growth in more than fifty countries that had undergone radical transformation in the second half of the 20th century. The analysis has confirmed that the constitutional system (presidential or parliamentary See Mau, V., Yanovskii, K., Zhavoronkov, S., Maslov, D. Institutsionalnye predposylki sovremen nogo ekonomicheskogo rosta (The institutional prerequisites for modern economic growth). Mos cow: IEPP. 2007.

RUSSIAN ECONOMY IN trends and outlooks republic), the territorial structure (federation or unitary state), the tax regime, the administrative barriers and a lot of other things do play a much lesser role than the above listed factors. The experience of England, the first country of modern eco nomic growth, unambiguously confirms this conclusion20.

Thus, the level of economic development determines, to a great extent, the political institutions preferable for a given country. Therefore, the political regime optimal for a stable economic growth depends on the level of this countrys eco nomic development. Countries with a high level of development are capable of re solving the problems of adaptation to post industrial challenges only if they pos sess sufficiently developed institutions of modern democratic society. Countries with a low level of development (like China) are successfully resolving the problems of modernization under conditions of authoritarian political systems. It is evident that Russia, by the level of the development of human capital, can be classed with the first category of states, despite it relatively lagging behind them by formal eco nomic indicators.

The essence of the debate on sovereign democracy, whatever the ideas of its initiators might be, consists in defining the long term trends of Russias devel opment. At present, three scenarios of this development can be discerned in a long term perspective.

Firstly, the preservation of the current trends characterized by an approxi mately 50 year long lagging behind the most developed western countries. It is a rather stable (inertia) model. This gap was observed for about three hundred years, and was noted in absolutely different epochs by absolutely different observ ers from Stendhal to Gaidar21.

Secondly, the actual acceleration of socio economic development, capable of ensuring Russias convergence with the most developed countries of the world.

It is very difficult to achieve these ends, and only a handful of nations did, indeed, manage to accomplish this aim in the 20th century.

Modern economic growth began in England after the political and financial settlements had been achieved there as a result of the Glorious Revolution of 1689. The Habeas Corpus Act stipulated that none of the citizens could be arrested or deprived of his life and property unless a decision was taken to this effect by an open and independent court of justice. The King acknowledged the exclu sive right of Parliament to establish taxes and levies, thus putting an end to arbitrary decision making with regard to the organization of state finances. The financial settlement was a logical continuation of the political one, because it had already been widely understood that arbitrarily imposed taxation and shaky finances (inevitably resulting in inflation) meant unlawful (extrajudicial) deprivation of property similar to extrajudicial confiscation. The necessity for the Crown to abide by these settle ments was emphasized by memories of the year 1649, when King Charles I was executed for having misused the royal prerogative in his attempts to introduce extra parliamentary rule, to arbitrarily impose taxes, and to subject the judiciary to his will.

Stendhal wrote about this in the early 19th century, N. Bunge in the mid 19th century, while Ye.

Gaidar convincingly expounds this phenomenon nowadays. (See Travin, D., Marganiia, O. Evropeis kaia modernizatsiia (European modernization). Moscow: AST. 2004. Kn. 1. P. 18; Vlast i reformy (Power and reforms). Moscow: Olma Press Ekslibris. 2006. P. 349; Gaidar, Ye., Dolgoe vremia (A long time). Moscow: Delo. 2005. P. 235.).

Section The Socio Political Background Thirdly, a gradual degradation of the system with its possible disintegration, because the weakening state authority would no longer have any strength or re sources to preserve the territorial (political) integrity of the country in conditions of economic interests being localized. Under these conditions it would no longer be sensible to discuss the issues of sovereignty.

By its own nature, the inertia scenario seems the most likely one. The scenario is relatively simple and self sustaining; it suggests a gradual (as the average per capita GDP increases) development of democratic institutions, and most likely, the preservation of the existing level of independence in political decision making.

However, the specific feature of the current political situation consists in a possibility, which is now stronger than usually, that the second scenario would be chosen. There is a certain chance to achieve a breakthrough. But to attain these ends, it is necessary to clearly comprehend the task and to substantially consoli date the elites so as to accomplish it.

Russia will have to make much effort as yet in order to ensure the efficiency of its democracy and the reality of its sovereignty. With this aim in mind, it should, firstly, strengthen its democratic institutions without making too many excuses re garding the immaturity and the young age of Russian democracy. Secondly, Russia should effectively increase its competitive capacity. The latter thesis must become the centerpiece of Russian economic and political doctrine. The experience accu mulated during the past fifteen years indicates that we are able to resolve the prob lems facing the country if the political elite treats them seriously. One of the con vincing examples of this is the successful experience of overcoming the consequences of the recent macroeconomic crisis.

Now the country should overcome the institutional crisis, whose existence is demonstrated by the results of the ratings reflecting the quality of state institutions.

The task of forming adequate state institutions is much more difficult than that of financial stabilization. However, some countries did manage to solve it in the course of the 20th century. In order to achieve this, it is necessary to consolidate political forces and to pursue a responsible economic policy, devoid of populism.

The solution of this task will ensure Russias transformation into a true and entirely sovereign democracy.

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