by Anders Aslund, Peterson Institute for International Economics
Op-ed in Foreign Policy
December 28, 2012
© Foreign Policy. Reposted with permission.
A cold and snowy December week in Moscow is always more interesting than pleasant, but I have not found the mood in the Russian capital so depressed since the collapse of the Soviet Union in 1991. Growing repression has made President Vladimir Putin more feared, but respect for him has plunged deeply as well. People who used to compare Putin with the stern Tsar Nicholas I, who ruled from 1825–1855 and built up the Russian secret police, now deride him as Paul I, the foolish and ineffective tsar who reigned for just five years before being murdered by his exasperated advisers in 1801, much to the relief of his subjects.
Moscow is boiling with aggression and anger, but everybody is unhappy in their own way. A standard statement is: "We are in a dead end." Muscovites refer to Vladimir Lenin's definition of a revolutionary situation: "when the upper classes can no longer govern, and the lower classes no longer accept living in the old way."
The mood is reminiscent of the late Brezhnev period, when nobody thought the system was sustainable, but nobody could see how things could change. Although discontent remains great, opposition protests have ebbed because people see no alternative, leader, or program. In the upper middle class, the dominant theme of conversation is when and where to emigrate. The future is abroad.
Paradoxically, Russia is doing very well economically. The wealth in Moscow is just astounding, not only with its 100 billionaires but also a vast middle class. Macroeconomic data are stellar. The consensus expected 2012 growth rate is 3.6 percent, while neighboring Europe is mired in recession. Russia has a budget surplus and almost no public debt, a huge current account surplus, and bulging international currency reserves. Admittedly, Russia thrives on large energy exports, but oil prices are high and likely to stay there.
So why the sour mood? The popular protests against Putin after the rigged parliamentary elections on December 4, 2011, seem to have pushed him out of balance. His strength has always been tactical improvisation rather than strategy, but that requires self-confidence and inspiration, which now seem to be lacking. His state of the union speech on December 12 was strangely backward-looking. At his rambling, marathon press conference on December 20, he hardly answered any questions over the course of four and a half hours.
Rather than being a guarantor of stability, Putin has suddenly become a source of destabilization. His defensive actions include increased repression against political opposition, a faux campaign against corruption, an anti-American crusade, and obscurantist appeals to Russian nationalism and the Russian Orthodox Church. In a populist vein, he agitates the poorest two-thirds of the population against the wealthy, well-educated, and cosmopolitan. His fundamental problem is that he represents no real values and therefore lacks any source of legitimacy other than stability and economic growth that will not last forever.
Like many authoritarian leaders, Putin presents himself as a convinced democrat, stating in his state of the union address: "For Russia there is no and can be no other political choice than democracy.... We share the democratic principles adopted in the whole world." Yet, he quickly betrays his true feelings: "For Russia, the tradition of a strong state is characteristic." And "Control is without doubt the most important function of the state." Such talk is reminiscent of fascism. Step by step, Putin is systematically increasing repression of the opposition with new antidemocratic laws—for example, against foreign funding of non-governmental organizations—and the jailing of opposition activists.
Still, Putin states many truths, even this key one: "It is obvious to all that our main problems are the low efficiency of state power and corruption." Corruption in Russia is certainly out of control. Investment analysts privately estimate standard kickbacks on government procurement at 70 percent for pipelines, 50 percent for roads, and 35 percent for medical equipment. But for all his tough talk, Putin is widely seen as the main protector and beneficiary of corruption. Opposition leaders Boris Nemtsov and Vladimir Milov and his former junior business partner Sergei Kolesnikov have accused him of embezzling tens of billions of dollars.
Never mind that—Putin has launched an anti-corruption campaign against senior officials, and Russia's state-controlled television devotes substantial news time to all the gory details. The opening salvo was an investigation of embezzlement of $100 million against the then Minister of Defense Anatoly Serdyukov. Former minister of agriculture Elena Skrynnik has been accused of being involved in fraud of $1.2 billion. Neither has been formally charged or arrested, only called as witnesses (though a deputy economic minister has been arrested for kickbacks of $500 million). Other open fraud cases of about $200 million each involve city officials in St. Petersburg, the space agency, the state telecommunication company, and the Federal Property Management Agency, respectively.
For any other country, such revelations would be big news, but not to the placid Russian elite. They comment privately that hundreds of billions of dollars have been stolen, and the biggest culprits are much higher up in the Putin hierarchy. In each case, the real reason for a corruption investigation appears to be that one member of the elite is attacking a weaker culprit for the sake of revenge, power, or material benefit. Few think the former ministers will end up in prison.
In his state of the union address, Putin started a new crusade, coining the term "de-offshore-ization." He called for a law "limiting the rights of civil servants and politicians to hold foreign bank accounts, securities, and stocks." All real estate holdings abroad have to be declared. He concluded: "Let me stress that the state's moral authority is a fundamental prerequisite for Russia's development. Therefore the policy of cleansing and renewal of the state will be carried out firmly and consistently." ("Cleansing" is a diminutive term for the Stalinist concept of "purge.") Two days earlier, when discussing his anti-corruption campaign, Putin commented that "otherwise we would return to 1937," referring to Stalin's great terror. That is hardly reassuring.
Given that Putin is widely considered immensely corrupt and that he has tolerated ballooning corruption for years, it is somewhat surprising that he himself has started this campaign. Some argue that he has been forced to do something because corruption has reached a point at which the state no longer can be managed. Others suspect that Putin has lost control, and that his top aides are pursuing personal vendettas. His own words suggest that he is planning a purge of the government. A major elite struggle is certainly taking place.
Regardless of Putin's goals or control, he is destabilizing the elite. The families of thousands of top officials and businessmen are already abroad, and many senior people are preparing their own departure. Putin seems to welcome their emigration. In November, his press secretary Dmitri Peskov noted publicly that "90 years ago, a philosophical steamship took 225 leading philosophers together with Ivan Ilyin out of the country," referring to when the early Soviet government encouraged bourgeois intellectuals to emigrate (rather than being sent to the Gulag). Clearly, Peskov and Putin were suggesting that it should be done again.
The anti-corruption campaign has enraged ordinary Russians. I happened to meet two provincial Russians in Moscow and I was surprised to hear them claiming ignorance of their leaders stealing billions. After learning of it on state television, they called for the confiscation of the culprits' property and long prison sentences.
Putin has engaged the Russian Orthodox Church in his anti-Western campaign. On November 4, the newly invented day of Russian National Unity, the Patriarch of Moscow and All Russia warned Russians against a return to the "Time of Troubles," the era of chaos in the early 17th century. He stated: "We were a hair's breadth from a tragedy of historic proportions, from the destruction of the country, from losing our sovereignty, from the assimilation of Orthodoxy into Catholicism, from the destruction of our national identity." He went on to warn that then treason had been concealed in the rhetoric of "modernization."
When he served as president until May, Prime Minister Dmitry Medvedev advocated more domestic freedom, economic modernization, diversification, privatization, and better foreign relations, especially with the United States—although not very successfully, because of Putin's resistance. Medvedev allowed the West-initiated United Nations resolution of Libya to pass, for which Putin has criticized him. One of the few remnants of Medvedev's policy is that Russia has joined the World Trade Organization. Further achievements in US-Russia relations do not appear likely as long as Putin remains in power.
The rosy economic numbers, meanwhile, mask a darker reality. Rather than revitalizing the economy through long-needed market economic reforms, Putin is allowing state corporations to suffocate the economy as he seeks to stimulate growth through large, misguided investments. He is ignoring the crisis of moribund Gazprom, which is suffering due to competition resulting from the US shale gas revolution. With their abundant state funds, large state corporations are gobbling up private companies, which in turn devour small enterprises. The total number of enterprises peaked in 2009 and is now falling. The consequences are evident to everyone. Prices in Moscow shops are typically three to four times higher than for the same goods in the United States because of the lack of competition. The dearth of private enterprise is equally evident from the difficulty of getting a cab in Moscow.
Although Putin has been president formally for two terms, and informally for a third, his policy has changed profoundly over the years. Today, he seems to have lost sense and balance and in reality he has no program. His dominant policy is the current anti-corruption campaign and shallow populism directed against a broad elite. His line is also anti-American and anti-Western. And now that his few Western friends, such as former German Chancellor Gerhard Schroeder and former Prime Minister Silvio Berlusconi of Italy, have been duly discredited for dubious financial dealings, he seems most at ease with the likes of Syria's President Bashar Al-Assad, Belarus's President Aleksandr Lukashenko, and Venezuela's President Hugo Chávez.
Putin seems to have lost his grasp, making one mistake after the other. Most recently, he punished poor Russian orphans by prohibiting their adoption by Americans. This new law, which he signed on Friday, would deprive at least 1,000 Russian orphans a year of a family and home, leaving them in Russia's infamously overpopulated orphanages. The move was supposedly in retaliation for the recently passed US Magnitsky Act, which refuses Russian officials who have violated human rights the right to enter the United States and allows US authorities to freeze their financial assets, but Russia had already voluntarily accepted much more far-reaching commitments to human rights and the rule of law through the Council of Europe.
Ultimately, Putin's new attitude is destabilizing and not sustainable. But it is difficult to see any clear alternative. Perhaps that is why Moscovites are so grim.
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