ALEXEY NIKOLSKY/AFP/Getty Images
Confidence man: Vladimir Putin's legitimacy is based on the myth that he has delivered stability and economic growth.

For almost a century, American conventional wisdom on Russia has been consistently, and sometimes catastrophically, wrong.

You
can look back to as far as 1920, when Walter Lippmann and Charles Merz
of The New Republic picked through the New York Times' coverage of the
Russian Revolution and found articles riddled with ludicrous
predictions of the Bolshevik regime's imminent collapse. The news
about Russia is a case of seeing not what was, but what men wished to
see, they concluded.



As the century wore on, the wishful thinking
got worse. For a time, even mass murderer Joseph Stalin improbably
morphed into the jovial, pipe-smoking Uncle Joe. When the American
establishment finally reversed course and accepted that the Bolsheviks
were there to stay, it clung to that belief so adamantly that the
collapse of the Soviet Union took the CIA by surprise. In the 1990s,
foreign-policy hands were celebrating Russia's transition to free
market democracy under the buffoonish but supposedly well-meaning Boris
Yeltsin and his merry band of reformers.



The latest Washington
consensus holds that Vladimir Putin has presided over a period of
Russian restoration amid flowing oil and ebbing civil liberties. In a
July 8, 2008 op-ed in the Washington Post, Henry Kissinger hailed one
of the most promising periods in Russian history and described
Russia's foreign policy under Vladimir Putin as driven by a quest for
a reliable strategic partner, with America being the preferred choice.
A March 2009 report by the blue-ribbon Commission on U.S. Policy toward
Russia developed this thinking further, concluding that both
countries' strategic interests require making a genuine effort at
putting the U.S.-Russia relationship on a new high ground of
cooperation, based on today's geopolitical, economic, and security
realities and our many common goals. In other words, Russia is back, a
force to be reckoned with, and intent on reclaiming its lost share of
import and influence among nations. We might not like everything we see
in Moscow, but the United States should try to engage the Kremlin,
build trust, and work together.



This new conventional wisdom is
as muddled as its predecessors, and the policies it inspires are just
as flawed. To see why, we need a Russian reality check. We need to
critically examine our notions about Russia's recent history so that we
understand exactly who we are dealing with in Moscow.



A
transition did take place in Russia in the 1990s, but it was not toward
liberal democracy, a free-market economy, and the rule of law. Instead,
the doddering bureaucratic authoritarianism of the late-Soviet period
evolved into a flashier, more sophisticated authoritarianism whose
defining characteristic I call selectively capitalist kleptocracy.
Russia today has a market economy subject to the whims of an elite that
would be ripe for criminal prosecution in a free-market society with a
functioning legal system and genuinely independent judiciary.
Embezzlement of budgetary funds, graft and kickbacks, tax-evasion
schemes, and grossly unfair business practices are not aberrations.
They are the essence of the system.



This system began to take
shape under Boris Yeltsin in the 1990s, matured under Vladimir Putin in
the 2000s, and went on steroids as oil prices soared. But despite its
muscle-bound exterior, the system lacks a coherent model of governance
and is loath to acknowledge that it stands on feet of clay.



Kleptocracy
evokes the loony larceny of states like Mobutu's Zaire. It's an
imperfect term for Russia. Outright theft marred the early post-Soviet
years, most grotesquely during privatization, but it's no longer a
systemic hallmark. In its petro-state incarnation, Russia has even
boasted a swelling stabilization fund and substantial hard-currency and
gold reserves. But the essence of kleptocracy is that the machinery of
the state serves private gain before the public good, and this is as
true in Russia today as it was in Mobutu's Zaire.



Russia's
kleptocratic capitalism is selective, meaning it mixes the free market
with non-market-driven mechanisms and pervasive government corruption,
particularly where state-controlled companies intersect with the global
economy. State-run energy behemoths like Gazprom bring in hard currency
from the global economy, use their profits to subsidize domestic
consumers, and otherwise redistribute revenue without a hint of
transparency or market logic.



Selectively capitalist kleptocracy
blurs the distinction between high-level businessmen and officials.
The distinction evaporates completely when government officials run
sizable companies. The boards of Russia's fattest cash cows, from gas
giant Gazprom to oil major Rosneft, are studded with deputy prime
ministers and ministers on double duty. Meanwhile, Transparency
International's annual corruption surveys show a downward spiral in
recent years, with Russia ranked a dismal 147 out of 180 countries in
2008. A May 2009 Ernst Young survey of employees at companies
with over 1,000 staff found that more than half of Russian respondents
fingered top management as the most likely to commit fraud, with 64
percent expecting corporate fraud to get worse.



As in Soviet
days, the real powers of formal institutions in Russia rarely
correspond to their nominal functions. And when the beast went belly up
in 1991, the Soviet Union's formal institutions imploded, but its
informal components mutated, survived, and thrived. What emerged were
influence groups. These are the real sources of power in Russia.



Influence
groups can come together around an institutional affiliation, like KGB
veterans, or shared business interests, like Oleg Deripaska's now
ailing financial empire, or experiential bonds, like the group of
friends in St. Petersburg who summered together in the 1990s, formed
the Ozero cooperative to unite their out-of-town residences, and went
on to immense wealth and power when one of their number, Vladimir
Putin, became president in 2000. Most are held together by more than
one type of glue. They form an invisible power structure parallel to
the imposing marble ministries. They control assets, vie with other
groups for assets, and tug the mechanisms of state power to further
their interests. The influence they wield secures their hold on assets
in the absence of real property rights.



The leader -- a function
performed in Russia by Prime Minister Vladimir Putin -- is a fine
example of a post with limited formal powers vastly enhanced by the
informal powers of the man who holds it. He acts as arbiter and
conspirator, resolving disputes and playing interests groups off each
other to prevent threats to his power. When Putin performs this task
successfully, he keeps conflict under the radar and enhances his
influence. When he stumbles, visible spats tarnish the veneer, as they
did during a public polemic in 2007 between elite clans over KGB
officers turned business moguls.



The same kleptocratic impulses
that drive the Kremlin's management of its own economy inform the way
it interacts with other states. In its foreign policy, Russia's guiding
principle is not some abstract notion of national interest, but rather
the narrower interests of the elite -- energy exports and cozy ties
with likeminded regimes. The style has been thuggish, fed by the
elite's three great formative influences: the gangland 1990s, the KGB
inheritance, and a territorial, zero-sum understanding of relations
between states taken directly from the Cold War playbook.



But
make no mistake - the Cold War is over, and the Kremlin's playbook
today looks more like a checkbook. The bottom line is that for Russia's
mercenary-minded elite, it's all about the bottom line.



So how
should the U.S. administration approach this corrupt, dysfunctional,
undemocratic, and illiberal Russia? Unfortunately, there are few good
options.



President Obama has opted for a realist reset, hoping
to use mutual interests to rebuild trust for subsequent engagement on
thornier topics. But realpolitik lives and dies on the accuracy of its
assumptions. The key assumptions here are that mutual interests exist,
and that Obama can parlay them into fruitful cooperation on the
sticking points.



The harsh truth is that on crucial issues,
real interests diverge. On Iran, Moscow has every reason to maintain
the uneasy status quo, not aid the normalization of U.S.-Iranian
relations, and certainly not foment a breakthrough that could end
Russia's lucrative status as the sole export conduit for Central Asian
gas. On Afghanistan, the Kremlin's interest is not stabilization, but
rather tying the United States to supply routes contingent on Russian
beneficence. U.S. policymakers who seek to make common cause on Iran
and Afghanistan should take heed that Russian talking heads and
state-controlled media spend lots of time ranting about the dangerous
Americans and very little about the mullahs or the Taliban.



The
United States and Russia do have common interests today, particularly
when it comes to arms control. Unfortunately, arms control agreements
no longer pack the punch they once did. The greatest danger of the Cold
War was that it might turn hot, and the jaw-jawing over arms control
kept that threat at bay. The risk we run with Russia today is not
nuclear annihilation, but a death-by-a-thousand-cuts erosion of the
realm of common rules and values that we have fought so hard to wrest
into being from the ruins of Soviet empire and Cold War confrontation.
New arms control agreements, however welcome, won't mitigate that risk.



Building
trust on scraps of common ground presumes a complete about-face in
Moscow. The Kremlin's actions over the last eight years -- from its
lavish sponsorship of anti-American propaganda at home to its energy
blackmail and warmongering with neighbors -- suggest that it will view
friendly overtures as signs of weakness and move aggressively to
exploit them for concessions while pushing to safeguard its cash-cow
energy exports through a privileged zone of Russian influence in
neighboring countries.



Yes, Obama should present Russia with a
good-faith offer of a constructive role in ensuring nuclear
non-proliferation, energy security, and common solutions to the global
economic crisis. But he needs a Plan B if Russia responds with
rhetorical sops while continuing to undermine a rules-based system of
international relations.



Plan B will involve measures aimed at
dispelling the Kremlin's impression of Western weakness. If Russia
sends the message that the road to Kabul runs through Moscow -- as it
did when it enticed Kyrgyzstan to shutter a U.S. military base while
kindly offering to facilitate a new U.S. supply line through Russia --
send a stronger message by exploring a new base in Georgia. Or
Azerbaijan. Or even Turkmenistan. If Russian energy skullduggery leaves
European customers out in the cold, go after the ill-gotten assets of
the Russian elite, targeting the sleazy offshore networks of
individuals in leadership positions.



These are hard-nosed moves
that don't need to happen in the full glare of public back and forth.
Merely telegraphing a willingness to get tough -- through messages sent
behind closed doors -- can create a new, more realistic, context for
achievable cooperation on clear terms.



Moscow won't like any of
this, but it will understand it perfectly. Hardball is a familiar game
to folks who cut their teeth far from the polite confines of
Washington's elite foreign policy conclaves.



Back in those
hallowed halls, much of the Washington expert community will respond
with predictable howls of outrage: We need Russia! they will say.
Really? What, exactly, has Russia done for the United States on Iran?
Afghanistan? Counterterrorism? Energy security?



Aggrieved,
authoritarian Russia presents the world's democracies with challenges
aplenty. Some will be easier met than others. But the challenge they
must surmount immediately is to see not what they wish to see, but what
is, and to use that as the basis for action.