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Russian economic progress, but at what cost?

It's no longer the grim, surly Russia of memory. The Russian made Ladas have been replaced by Mercedes and BMWs, as well as Fords for the burgeoning middle class. But, after a recent visit NBC News' Ned Colt asks what are the true costs for all of  Russia's economic progress?
Citylife of Moscow
The Marriot Grand hotel on Moscow's fashionable Tverskaya Street, which looks like a winter version of Rodeo Drive these days with store after store of luxury goods. Oleg Nikishin / Getty Images file
/ Source: NBC News

MOSCOW — It's no longer the grim, surly Russia of memory. I even got a hint of a smile from the custom's officer when landing at Moscow's Domodedovo Airport earlier this month.

And instead of the scrum of a decade ago at baggage claim, passengers were helping others pluck bags from the belt.

When I was last in Moscow the ruble was in freefall, as was then-President Boris Yeltsin's political star. Babushkas whose pensions had disappeared with the arrival of the free market were selling everything they had along the Arbat, a lively pedestrian street in Moscow. When they had nothing left, they joined the line of beggars.

Not so during my latest trip in December. I saw little of those depressing sights. (Although I was told by friends that poverty remains a massive problem — that it has just been relocated to the countryside.) But what is the price of all of the economic progress? As Moscow continues to boom, reminders of Russia's not-so-distant totalitarian past are hard to miss.

Conspicuous consumption
In Moscow, Russia's capital, the wealth is staggering. If Lenin had ever been buried he'd be rolling in his grave. Tverskaya Street, Moscow’s most fashionable street, looks like a winter version of Rodeo Drive. No palms, but shopfront after shopfront bearing the names of Italian designers outside and their exotic and expensive wares inside.

There's nary a Lada, the Russian-made cars, in sight. The cars of choice come from Germany, Italy, America and Japan.

All the conspicuous consumption is being fueled by an oil and gas boom. Russia now pumps more oil than the Saudis, and with a 92 percent rise in oil prices in just three years, the government says incomes are up 10 percent annually. Moscow Carnegie Center's Masha Lipman described it as an economic revolution.

"It may be even argued that never in Russian history has the proportion of people with decent living standards been as high as it is today,” said Lipman.

Popularity of Putin
The man Russians credit with this economic transformation? President Vladimir Putin — the man who replaced the heady, but uncertain, years of Yeltsin with stability. Putin is so popular that polls suggest he has the support of almost 90 percent of Russians.

That’s people like Natalya and Alex Liventsov, proud members of Russia's growing middle class. Talk about smiles? Natalya’s was ear to ear as she sat behind the wheel of a Ford Focus in the showroom of a Ford dealer. They were getting set to drive their new car home.

"We never had this fast-paced progress in Russia before," said Alex Liventsov. "And it's all because of Putin. We are respected in the world now, and America is afraid of us!" 

At what cost?
But all of the economic progress is coming at what cost? There are eerie signs that Russia is revisiting some of its totalitarian Soviet past and is perhaps extending its reach.

Yevgeny Volk of the Heritage Foundation's Moscow office didn’t mince words. In his view, the government is "controlling everything in this society, so there is no dissidence. There should be uniformity of opinion, uniformity of behavior." 

Violent crime is down, but high-profile business and political murders continue unchecked —there were close to 50 in the first nine months of the 2006, according to published reports. Some analysts suggest such attacks could be on the increase, especially after Putin signed a bill that passed unanimously in the Duma, Russia’s representative assembly, last May allowing the Russian security services to track down and assassinate state enemies anywhere, at any time.

Many point to the November radiation poisoning of ex-spy Alexander Litvinenko in London, which resulted in his death on Nov. 23, as an example of politically motivated murder in action. 

Rampant corruption
Unfortunately, Litvinenko has not been the only victim; there have recently been a number of other high-profile killings. In September, Central Bank official Andrei Kozlov was gunned down after watching a soccer match. He had been active in fighting financial abuses in Russia, a country that has the dubious distinction of being ranked alongside Honduras and Rwanda in terms of corruption.

The cost of corruption to the Russian economy is said to have approached the equivalent of $250 billion a year. A number of analysts and journalists told me it's common knowledge that bribes add at least 20 percent to contracts, and that it's only the greedy individuals who push for bribes of up to 40 percent who get into trouble.

But I digress. Back to the killings. There was also Anna Politkovskaya, an investigative reporter for one of the few independent newspapers left, Novaya Gazeta.She survived a poisoning attempt, only to be shot to death outside her apartment in October of this year.

To say there's a crackdown on independent media in Russia is a gross understatement. The most powerful outlets are now under government control. Using similar techniques the Kremlin has also taken control of more than 30 percent of fuel resources, formerly in private hands.

Volk, from the Heritage Foundation, explained how he sees the government’s consolidation of businesses as another form of cronyism.

"They're not fond of nationalization, they don't really want to be in charge of something. But they would like to have the system that is often called crony capitalism,” said Volk. “To have their cronies in charge of the most lucrative industries. Those guys who will pay them, who will give bribes just for the right to run the business."

Sobering stuff. But returning to the case of typical middle-class Muscovite, I asked Alex Liventsov at the Ford dealership whether he thinks there is a trade-off with all of the economic progress in Russia? Does he believe freedoms are incrementally disappearing?

"We don't really feel that in our daily lives,” he said. “I know that some facts are withheld in the media, but to be honest, the same thing happens in America, too.

I like to consider myself the quintessential, circumspect American reporter, but I find Alex's response disappointing.