Ronald Reagan Putin

On May 22, two free-market liberals will meet in the Kremlin: one an ex-oilman who is the son of a US president, the other an ex-KGB agent who is the son of a Saint Petersburg maintenance man. Despite their very different backgrounds, Presidents George W. Bush and Vladimir Putin are forging a remarkably close partnership. Indeed, cooperation in the international war on terrorism, the recent agreement to reduce stockpiles of nuclear weapons, and Russia's rapprochement with NATO appear to be only the beginning of a process that is deepening by the day Russia's integration with the West.

But it is in economics, surprisingly, that the two men seem to share the most common ground. President Bush may be tempted to believe that Russia's current economic success is purely the result of high world oil prices. Prices aside, the difference between how Russian oil companies were managed in the early 1990s and how they are managed now is too dramatic to ignore. So, too, are management improvements in the food industry which have boosted output and quality. Throughout the economy, resources are finally flowing into the ever more efficient and well-organized market sector, rather than into the poorly managed Soviet industrial dinosaurs.

For those who know Russia, this is a staggering turn of events. Four years ago, big Russian companies were interested in state subsidies, not structural reforms. Now, business leaders believe that the stock-market capitalization of their companies depends on the investment climate. The value of their assets matters to them. They want to know how much they can borrow from abroad, or at what price shares in their companies may be sold in New York or London.

Putin does not deserve all the credit for this sea change, but what he has achieved over the last two years is far more than anyone had the right to expect: a simplified tax code, progress toward WTO membership, legal reform, greater transparency. Still, if oil prices fall sharply, he will face a huge political problem: bold structural reforms usually require years, not months, to show results. Russia's recent strong growth partly reflects the reforms of the early 1990s, and the reform achievements of 2000 and 2001 will feed through to measurable economic performance only in, say, 2005.