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Russia, Inc.

From “structural reforms” of the 2000s to austerity policies today, neoliberalism has been and remains an organic part of the Putin regime. Русский

In December 2014, Vladimir Putin gave his annual speech to Russia’s Federal Assembly as usual. It turned out to be a watershed: for the first time, clear notes of ethnic nationalism sounded; Crimea, “reunited with Russia”, was called the “spiritual source of the Russian nation”, which had a “civilisational and even sacral importance” for Russia. It was precisely this part of Putin’s speech that came to figure in discussions in domestic and international media.

But Putin did not limit himself to these declarations. Towards the end of the speech, in particular, the Russian leader began to reflect on social policy. “With regard to healthcare, it is imperative to complete the transition to an insurance-based system,” Putin stated. “We must not allow discrimination of the non-governmental sector in the social sphere and eliminate all barriers to it. Competition is a crucial factor to boost the quality of services in the social sphere.”

While Putin’s speech began with the pompous phraseology of nationalist populism, it ended with the smooth language of competition and effectiveness. Here, Putin spoke not only as a conservative nationalist, but also in a different role — one that is discussed much less often: the role of the neoliberal.

From the margins to the core

Over the course of the post-war decades, neoliberalism has transformed from a marginal ideology into a powerful force, changing the rules of the game in the global economy.

Neoliberal reforms include cutting barriers for the movement of goods and capital; monetarist economic policy oriented towards fighting inflation; moving from the state’s direct participation in the economy towards arms-length regulation; and, finally, privatisation not only of state companies, but also various functions of the state, foremost in the social sector. 

Russia’s economic reforms at the beginning of the 1990s were the greatest single instance of “shock therapy” being applied

Neoliberalism has its own history and geography. Beginning with experiments in individual cities (New York) and countries (America, Chile and the United Kingdom), neoliberalism later moved into the world of international financial institutions. These then became the agents of its global expansion.

A series of radical reforms, known under the general term “shock therapy”, became a specific form of neoliberalising third world countries and the former socialist camp. For Naomi Klein, “shock” methods, which prevent resistance, are essential to neoliberalism.

Moscow International Business Centre, Krasnaya Presnya, Moscow Region, 2010. Photo: CC Jaime Silva / Flickr. Some rights reserved.Russia occupies a specific place in this story: after the fall of the Soviet Union, Russia’s economic reforms at the beginning of the 1990s were the greatest single instance of “shock therapy” being applied. Yet “shock therapy” under the pressure of international financial institutions is far from the only scenario of how countries outside the capitalist core are subjected to neoliberalisation.

After all, domestic actors can carry out neoliberal reforms on their own initiative. And these reforms can co-exist with alternative political and ideological projects — whether conservative, traditionalist or nationalist. Putin’s Russia is an example of this co-existence. 

Competing impulses?

The two contrasting sections of Putin’s speech to the Federal Assembly mentioned above reflect two important sides of Russia in recent years.

One of these is something we often hear about: international intervention, the rise of nationalism and traditionalist ideology, the search for enemies, internal and external. But there’s another side, one that possibly has a greater influence on Russian citizens’ everyday life. 

Experts and members of the government openly state that universal free healthcare is impossible in Russia

For 15 years, Russia has had a flat income tax rate of just 13%. Back in 2002, the government introduced a new pension system, which split the state pension into a basic safety net pension (which is financed pay-as-you-go) and an earnings-related contribution. Russia’s minimal wage is currently 6,204 roubles (£59) per month, which is 30% less than the official living wage. The legal procedure of going on strike is very difficult: in 2009, just after the financial crisis hit, Russia’s official statistics agency counted only one strike. The actual number of work stoppages was much higher, but all of them were illegal or semi-legal at best due to the prohibitive character of the strike law.

As Putin promised in his speech, the authorities are actively introducing insurance-based medicine, while cutting financing of and access to free health care. Experts and members of the government openly state that universal free healthcare is impossible in Russia. Reality only confirms this: the proportion of patients using private medicine is rising sharply; for public healthcare, it’s falling. 

There are now additional paid courses in some public schools. If you’re a doctor or teacher, 30% or more of your paycheck is calculated via incentive pay scheme — that is, you have to demonstrate some special achievements to receive it. What’s more, it is assumed that employees should compete with one another for this “extra” money. Museums and other cultural institutions are constantly being forced into “self-sufficiency” measures, which means cuts or even complete stop to public financing. They have to make their income themselves. And finally, there are constant attempts to “optimise” the whole network of state institutions.

In Putin’s Russia, neoliberalism manifests itself not just as a regime of budgetary austerity, but as a specific selection of governance techniques that are based on market logic. These techniques have been implemented constantly over the past 15 years, albeit inconsistently and in contradictory, hybrid forms. 

The roots of Russia’s “structural reforms” 

The political-economic order that coalesced in Russia in the 1990s was a poor caricature of the democratic and market-oriented society that western researchers studied — and expected to see.

The main features of this order, which emerged as a result of the first wave of neoliberal reforms, are well known. Instead of a rational western capitalism, there formed a predatory “patrimonial capitalism”, which was based not so much on private property, but insider control of enterprises’ financial streams. It stood out for its almost complete absence of investment and massive capital flight. 

Yeltsin on a visit to Novozybkov, Bryansk Region, in January 1992. Photo: Yeltsin Center. Some rights reserved.This kind of economy went hand in hand with a weak state, which had been privatised by business groups. Furthermore, Russia’s “super-presidential” constitution of 1993 and the dishonest presidential elections of 1996 laid the foundation for an authoritarian personalist regime. 

However, the fact that the country was not moving towards democratisation, as prescribed by the transitologists, did not mean that the balance that came to exist in the 1990s would last forever. The 1998 crisis served as the trigger for reform. 

This crisis convinced the oligarchs that a strong state could help them avoid the risky consequences of economic problems, such as the large-scale redistribution of property. That said, the crisis disposed of the old speculative sources of income and, at the same time, thanks to the devaluation of the rouble, made the operations of export industries more profitable, and thus investment, too.

Just like Yeltsin, Putin’s method of conducting neoliberal reforms at the start of the 2000s came to fuel Russia’s authoritarian drift

Russia’s model of accumulation became closer to rational capitalism based on investment. But this model itself again required restoring state functions and further reforms that would create preferential conditions for conducting business. 

The interaction of state and capital at the end of the 1990s led to the development of a new package of neoliberal reforms. These were to be carried out by the newly elected president, Vladimir Putin, who was popular with the people. Pressure from the IMF and the World Bank was also a serious factor in this process — at the time, Russia still had a huge public debt.

As part of the “structural reforms” of Putin’s first term, the government sought to introduce a new Labour Code, which was more profitable for employers, a flat-rate income tax, lower corporate taxes and a reformed pension system. (The latter reform was helped through by José Piñera, the architect of privatised pensions in Pinochet’s Chile.) All these measures reflected the consensus of business, international financial institutions and market-oriented experts.

But to be able to carry these plans out, Putin had to restrain the parliament. Though it had been weakened by Yeltsin’s Constitution, the Duma, dominated by Russia’s Communist Party (KPRF), blocked many neoliberal reforms in the second half of the 1990s. And these reforms, which were good for business but not the general population, encountered the resistance of the Duma at the start of the 2000s. 

Yeltsin meets Putin in the Kremlin in 1999, shortly before handing power to the ex-KGB agent. Photo: Aleksandr Chumichev / ITAR-TASS and Yeltsin Center. Some rights reserved.The regime managed to overcome parliamentary resistance by forming a coalition that would later become Russia’s ruling party, United Russia. Moreover, in the process of reform, Putin managed to bring on new allies, such as the Federation of Independent Trade Unions of Russia, which consolidated the Kremlin’s position. Authors of a new study into the first Putin administration call the experience of pushing Russia’s new Labour Code and pension reform through parliament the “school of autocracy”.

Just like Yeltsin, Putin’s method of conducting neoliberal reforms at the start of the 2000s came to fuel Russia’s authoritarian drift.

Putin is often presented as an autocrat who smothers business. Yet big capital needed — and still needs — Putin as a figure

This connection between neoliberalism and authoritarianism reflects a broader pattern. Putin is often presented as an autocrat who smothers business. Yet big capital needed — and still needs — Putin as a figure. 

At the start of the 2000s, the interests of Russia’s business class lay not only in the state’s ability to guarantee the division of property dating back to the 1990s, but also in the legitimacy that Putin lent to Russia’s post-Soviet political and economic order. This was connected to Putin’s popularity as a “Caesarist” figure who could unite the un-uniteable: western-looking liberals and conservatives who were nostalgic for the Soviet Union. By doing so, Putin guaranteed himself genuinely broad support from the Russian population.

Moreover, the business class needed Putin as a leader of Russia’s “statist” project, and one who could carry out an “authoritarian modernisation” — that is, a series of neoliberal transformations that would break any possible resistance from political parties, trade unions and the “red belt” regions, where KPRF support had endured well into the 1990s.

Marx wrote about this situation, where the bourgeoisie rejects political power for the sake of its own class interests and hands it over to an authoritarian leader, in the The Eighteenth Brumaire of Louis Bonaparte”. In this sense, Putin’s regime could be considered “Bonapartist”. Yet this kind of regime is, of course, potentially dangerous for the bourgeoisie itself. As Marx wrote: “the sword that was to shield them [the bourgeoisie], must at the same time be hung over their heads as a sword of Damocles.” 

2003-2008: the contradictions of neoliberalisation 

The 2003 Yukos affair, in which one of Russia’s most profitable companies was taken over and its chairman jailed, marked business’ final handover of initiative to the state. The regime’s transformations, which were tied to this handover, were taking their toll in the course of neoliberal reforms. People close to Putin with backgrounds in the security services, the siloviki, took leading positions in the rapidly expanding state sector, giving certain observers justification to talk of “state capitalism a la Russe”. 

With alarm and condemnation, international institutions measured the growth of the state’s role in the Russian economy. While Rosneft and Gazprom, companies controlled by the state, dominated the hydrocarbon sector, new state corporations took responsibility for innovation and the military-industrial complex — special, highly beneficial conditions were created for these entities. 

However, due to the inefficiency and fantastical corruption, which was comparable to the predatory practices of the 1990s, Russia’s state sector didn’t become a driver of growth. Moreover, its expansion, which seemed to at first contradict the core principles of neoliberalism, fitted into neoliberal logic at a deeper level. 

Supporting the Russian rouble. Borovaya Street, St. Petersburg, February 2016. Photo (c): Igor Russak / VisualRIAN. All rights reserved.As a result of the expansion of state property under Putin, Russia’s economy wasn’t so much taken over by the state, so much as the state was transformed into its own kind of corporation — with the appropriate arrangements and management models. Though it attempted to dictate its own conditions on integration, Russia, inc. fitted seamlessly into the global neoliberal order.

Furthermore, this change of economic policy did not signal an end to marketising reforms in other spheres. Thus, in 2005, the Russian government monetised welfare benefits, replacing free transportation, medicines, and health resort treatment for certain categories of the population with cash payments. This provoked fierce protests. The authorities also attempted to shift organisation of Russia’s social sector — hospitals, museums and schools — to a quasi-private form of property. 

Russia’s economy wasn’t so much taken over by the state, so much as the state was transformed into its own kind of corporation

At the same time, Putin, who had managed to extract the maximum budgetary profit from high oil prices, began to talk more and more of the “social obligations of the state”. In 2006, expensive national projects on health, education, housing and developing the agriculture industry were launched. In 2007, the state introduced the “maternity capital” programme. This benefit, designed to stimulate Russia’s birth rate, offered substantial payments to mothers who gave birth or adopted a second child. 

In general, then, a radical shift in the reform of Russia’s social sphere did not take place. Budget policy remained conservative, and social expenditure rose in proportion to budgetary growth, but far from quicker than other expenditures. The general vector of Russia’s social reforms remained neoliberal as before. 

It was precisely in 2004-2008 that Putin began to make increasingly aggressive and revanchist statements in the international arena (most famously, the “Munich speech” of 2007), and the regime’s internal propaganda took an increasingly conservative and nationalistic turn. In particular, in 2005, welfare benefits were monetised just as the 60th anniversary of the Soviet victory in World War Two was commemorated with pomp.

The basic features of the Russian regime, which combined neoliberalism and nationalism, were gradually coming together.

2009-2016: crisis and nationalist mobilisation

The new regime of accumulation with the domination of the state appeared stable. In 2003-2008, Russia’s economy saw an average growth of 7.1%, and 2007 was a record year for direct foreign investment.

Two years later, though, and Russia’s GDP had fallen by 7.8% in a year — one of the worst indicators in the world. Neil Robinson, a specialist on post-Soviet political economy, predicted that “the great international crisis of 2008 onwards may be for Russia the precursor to the crisis of its own economic model”. After 2009, economic growth slowed sharply: in 2010-2014, Russia’s growth reached 2.9% on average, although oil prices reached their peak during these years.

In post-crisis conditions, the government tried to launch a new wave of neoliberalisation. In the spirit of the shock doctrine, the 2009 crisis was seen as an event that opened a “window of opportunity” for another round of “structural reforms”. 

By 2009, the Russian authorities had begun to speak of plans to privatise the big state companies. A year later, these plans acquired concrete shape in the form of a $30 billion state programme, comparable in scale to the “loans for shares” deals of 1995.

Furthermore, social reforms started up again. In particular, the passing of Federal Law 83 in 2010 altered the financing scheme for state institutions, introducing quasi-market conditions for their functioning. An article from 2010 by Mikhail Dmitriev, one of the architects of the “structural reforms” that marked Putin’s first term, spoke of the “large-scale optimisation of the public sector network [biudzhetnaya set’]”. This project was directly linked to the financial crisis, and laboured under the logic that “releasing employees will improve supply in the labour market”. This was “critically important for the continuation of economic growth in conditions of a fast decrease in the percentage of the working population.” 

In recent years, the Russian government has basically implemented an austerity programme, and it has taken very different forms

In other words, unemployment would increase and, in turn, lead to a decrease in labour costs thanks to “optimisation” — the closure of hospitals, higher education institutions, museums, schools and mass reductions in staff numbers. For Dmitriev and his co-author Aleksei Yurtaev, this policy was to be the guarantee of renewed economic growth in Russia. 

In practice, the effects of this shock doctrine turned out to be postponed. On the one hand, the high oil price softened the consequences of systemic crisis in the Putin economy, on the other, a powerful coalition of state company managers in effect torpedoed the privatisation programme — apparently out of concerns that they would lose control over the companies which “state oligarchs” close to Putin were used to considering their own. Meanwhile, the economic crisis continued to grow into a political one. 

Putin’s rating, which hit its peak in 2008, consistently fell in the years following. And this drop in approval formed the background to Putin’s revelation that he would run for president again in 2012, which provoked noticeable outrage. The atmosphere in society had changed. In 2011-2012, a wave of protests against electoral falsifications broke over Russia, beginning a new era in opposition politics. In response, the regime activated its conservative, traditionalist and nationalist propaganda. 

The Russian tricolour is raised over Moscow on 1 December, 1991. Photo: Valentin Kuzmin / ITAR-TASS. Some rights reserved.The propaganda campaign brought no direct results, and Putin’s rating continued to decline. The breaking point came only in 2014 with the annexation of Crimea. The effect of “rallying around the flag” returned support for the authorities to the heights of the pre-crisis years, but the economy, under pressure from Putin’s geopolitical adventures, set off in a steep dive.

In recent years, the Russian government has basically implemented an austerity programme, and it has taken very different forms. For instance, take one of Putin’s first post-inauguration decrees from May 2012: it sharply increased the wages of public sector workers. Yet a familiar neoliberal strategy lurked behind this decree, which, on the surface, appeared “populist”.

In effect, the federal centre gave the regions only a small part of the money necessary to meet wage demands. (The total share of federal aid in regional budgets has dropped in recent years). As a result, public sector institutions — in their pursuit of the necessary figures — began to fire some workers and increase the workload on others, as well as economising where at all possible: for instance, by firing additional personnel, such as school psychologists and social workers. The regions got themselves more and more into debt, and some of them found themselves on the edge of default. 

Furthermore, Putin’s decree required state institutions to link higher salaries to the “fulfilment of concrete indicators of quality and the amount of services delivered”, which proliferated various incentive pay schemes and a reduced permanent wage for public sector workers. 
The Putin regime cuts its public sector down to size just as mercilessly as European governments enforce their austerity policies

This decree provoked fierce reforms in certain regions — the “optimisation” of Moscow’s healthcare system in 2014 becoming the most well known. Having declared that wages need to be raised, but that there was less money available given the move to “single channel” financing (i.e. exclusively from the medical insurance fund), the Moscow authorities decided to close down several dozen hospitals and fire 8,000 doctors. 

Protests ensued. But healthcare personnel and Moscow residents only managed to soften the blow of “optimisation”, they did not stop it. As a result, a few months later, the mortality rate for January and February 2015 in Moscow had risen by 8.5% in comparison to 2014. This “optimisation” is being conducted not only in Moscow, but across the country. According to information published by the Accounts Chamber of the Russian Federation, 90,000 healthcare professionals lost their jobs in 2014 alone. 

As it turned out, “single channel” financing and health insurance are not obligatory for everyone. In a special decision, the government introduced a separate budget line for the medical needs of Russia’s top public officials. Just as before, this section of the population will be treated in closed hospitals that belong to the Department of Presidential Affairs system — at the taxpayers’ expense. “The transition to an insurance-based system,” which Putin spoke of in his December 2014 speech, has not affected them.

”The consequences of government cuts to culture, education and health” reads this display at a protest organised by Deystvie, Russia’s doctors‘ union, November 2015. Photo courtesy of medrabotnik.orgIt’s surprising that even now, in 2016, the myth about the struggle between the “statists” and “liberals”, with Putin as an arbiter, is still popular. In actual fact, there is no conflict: instead, it’d be more accurate to talk about the division of labour.  

In one world, Russia’s finance ministry insists on speeding up and extending the “optimisation” of healthcare and education. And this isn’t just to save money, there’s an ideological underlay, too: according to the ministry’s April 2015 plan for reforms, there are still too many people employed in Russia’s public sector, and their “workforce productivity” (whatever that actually means) can be increased at the cost of more staff cuts, which still aren’t enough — only 8% of public sector employees over the past five years have been cut.

As the conflict with the west deepens, the Putin regime is cutting its public sector down to size just as mercilessly as European governments enforce their austerity policies

In another, the Russian state’s expenditure on defence over the same five years has risen from 7.5% to 21.2% of the budget (in absolute numbers, almost by five times!). The total percentage of the 2015 budget spent on the military and police is 40%.

As the conflict with the west deepens, the Putin regime is cutting its public sector down to size just as mercilessly as European governments enforce their austerity policies. The Russian authorities rely on the same arguments of a “bloated” and “inefficient” public sector, as the creditors of European states and international financial institutions. The neoliberalisation of Russia’s social sector isn’t the consequence of external influence or a “liberal conspiracy” inside the government, but the consistent strategic choice of the Russian authorities. 

The past and future of reform

A few months ago, Timur Kibirov, the poet (and hero of Russia’s liberal intelligentsia), commented: “I wanted to believe that he [Putin] would be the Russian Pinochet, he’d squeeze and cut freedoms, but quickly carry out liberal economic reforms. Our freedoms are cut down, reforms haven’t been carried out.”

Indeed, Putin is no Pinochet. His rule has not been a radical market experiment defended by army bayonets. (Although the fact that part of the Russian intelligentsia at the start of the 2000s hoped for precisely such an outcome is revealing in itself.) Putin’s policy of reforms has been inconsistent, as reflected in his “Bonapartist” strategy of manoeuvre. 

However, unlike Marx’s Bonaparte, Putin has had to manoeuvre not between different classes, but different sectors and groups in the Russian elite. At the beginning of the 2000s, several prominent figures of the Yeltsin era suffered in the course of the “anti-oligarch” campaign, which, in complete accordance with Putin’s promises, did not kickstart a re-evaluation of the results of privatisation. Instead, oligarchs who made their money in the 1990s were compelled to move aside and give way to a few businessmen and public officials close to Putin.

In 2000, there was not a single dollar billionaire in Russia. Sixteen years later, despite the ongoing crisis and the collapse of the rouble, there were 77 of them

In the years that followed, Russian big business, when it wasn’t trying to use the power ministries to force out its rivals, suffered from the attacks landed on it by the increasingly powerful siloviki. On the whole, however, the class character of the Putin administration is undoubted. It’s hard to believe, but in 2000, there was not a single dollar billionaire in Russia. Sixteen years later, despite the ongoing crisis and the collapse of the rouble, there were 77 of them. Neoliberal reforms were — and remain — an organic part of Putin’s regime, which ensured that impressive number.

The question of a systemic alternative to neoliberalism in Russia remains open. Here, opposition leaders present little hope. For instance, Mikhail Khodorkovsky recently referred to the presence of “normal, adequate people” in the Putin team — these people “could work in a democratic government”. Khodorkovsky was referring to German Gref (architect of the “structural reforms” of the 2000s, current chairman of Russia’s largest state bank) and Aleksei Kudrin (minister of finance from 2000-2011, a radical fiscal conservative). 

Vladimir Milov, another prominent opposition figure and former leader of Russia’s Democratic Choice party, recently stated that privatisation is as “necessary as air”. Finally, anti-corruption campaigner Aleksei Navalny has not made any such statements, though on economic issues traditionally relies on neoclassical-trained economists such as Sergei Guriev. 

Without exaggeration, the future of Russia depends on whether activists can build a powerful movement that presents an alternative to neoliberalism. The slow degradation of education, healthcare, science, culture and social sector of the past 15 years cannot last forever: it’s either renewal or bust.

What do you think? Is neoliberalism applicable to Russia? Check out this response to Ilya Matveev and tell us what you think. 

About the author

Ilya Matveev is a researcher and lecturer based in St Petersburg, Russia. He is a founding editor of the online publication Openleft.ru and a member of the research group Public Sociology Laboratory.


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