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Can Moscow and Markets Mix?

Burial services for the Cold War have been held so many times that one American diplomat traveling with President Bush …

Burial services for the Cold War have been held so many times that one American diplomat traveling with President Bush through Europe and Russia in late May said only half in jest that he’s “tired of going to the same old funeral and hearing the same eulogies.”

Who can blame him? Since the early 1990s there has been talk of Russia’s inevitable drift to the West, turning an enemy into a partner. Businesses were seduced by the potential size of the market and all that oil. Politicians increased the lure every time they took another brick out of the walls built during nearly five decades of confrontation.

“Now everything is upside down,” said Lord Robertson, NATO’s secretary general, as Russia’s president, Vladimir Putin, made local hard-liners fume by signing an agreement that pushes Russia into the organization created a half-century ago to contain Soviet power.

But Putin has made clear his price this time: The economic integration of Russia with the West must work. He knows that so far, Russia has been more successful convincing foreign governments that it wants peace than convincing foreign investors that it wants free markets. All the early, confident predictions that Russia would go the way of China proved wildly premature. It’s no wonder that many American CEOs are reluctant to become part of yet another uncertain experiment in economic diplomacy.

The last one, they recall, ended in the ruble’s 1998 collapse. Those early investors are older, wiser and poorer. Will the second wave be different?

Since Peter the Great, predictions about how Moscow and markets will mix have usually been wrong. During Bush’s late spring feel-good visit to Moscow and St. Petersburg, Putin hit most of the right themes-he spoke more like a chamber of commerce booster than like the KGB operative he once was. When the two leaders talked to St. Petersburg State University students, there were lots of questions about management style, none about the collision of superpowers. At one point referring to the World Trade Organization, Putin turned to Bush and declared, “The President of Russia has to want to be a member of the WTO.” Of course, he added, “on terms acceptable to Russia.”

There is the rub. In the 1990s, Russians never felt the world’s terms were acceptable. The question now is whether Putin has the juice to change that. Here are a few rules the spook-turned-salesman may want to follow:

Predictability is everything and it’s been in short supply. “During the Yeltsin era it was impossible to know where Russia was going,” Charles Ryan, executive chairman of United Financial Group, a Moscow-based investment bank, told The New York Times during Bush’s visit. “Putin is more stable and has more of a clear plan. That makes it easier for the U.S. and Russia to have a relationship that’s understandable.” He’s right, but Putin has to remember that the Japanese have had an elaborate plan for the past 10 years and their failure to execute has been expensive.

When it’s faster to negotiate arms- control accords than to import chickens, a political problem is brewing. It took less than six months for the U.S. and Russia to agree that huge nuclear arsenals are ridiculous, and that they should be cut by two-thirds. But the endless battle over whether American chickens can be imported into Russia shows that there is powerful opposition to true market openings. Putin may be a secret member of that cabal: In Moscow, he listed all kinds of reasons that Russia shouldn’t buy many foreign-made airplanes, saying he had to support domestic industry. That sounds like Soviet-think.

It’s a lot easier to hang a sign than to change a system. President Bush’s national security adviser, Condoleezza Rice, a Russia expert, noted during the trip that when she first went to Moscow in 1970 there were big neon signs that read “The Workers’ Revolution Will Be Victorious.” She added: “You walk in now and the signs are €˜McDonald’s,’ but there is also €˜Yolki Polki,’ which is a Russian-owned fast-food place.” Russia is integrating with the West in part by adopting practices of foreign companies there. Neon signs now entice hungry Russians, but from the street you can only see the bright lights, not the crony capitalism powering them. When that’s switched off, Russia will finally be on its way.

David E. Sanger covers the White House for The New York Times.

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