Experts agree modernisation and liberalisation present Russia's only chance of enjoying continued economic growth. There is little indication such a programme should be expected in 2014 as Russia's elites value self-preservation above all else.
In an anecdote from the Brezhnev era, the KGB trailed a well-known dissident along the streets of Moscow as he glued posters onto lamp posts. At the tenth lamp post, they grabbed him and demanded an explanation of this anti-Soviet agitation. ‘Look at the poster,’ said the dissident. It was a blank sheet of paper. ‘What is the meaning of this?’ asked the KGB. ‘Don’t you see?’ replied the dissident, ‘everyone knows what’s wrong with this country, so there’s no need to write it down.’
This notion of a blank poster comes to mind as one tours what is loosely known as the ‘political class’ in Moscow today. In every conversation across the spectrum of opinion, whether with politicians, pundits, businessmen or academics, the diagnosis of what is wrong in Russia and the prescription for what should be done to set it on a better course – starting with institutional reform and restructuring, and then running through a long list of remedies – are repeated almost word for word. The list is so well-known that there is no need to write it down.
‘Everyone knows what’s wrong with this country, so there’s no need to write it down.’
There is no shortage of intelligent and experienced people debating the issue and writing route maps to a better future in a variety of forums and occasionally in public.
On 7 November, the Ministry of Economic Development reduced its long-term forecast for 2013–30 from 4.3% annual GDP growth to just 2.5%. At the start of the year the government had forecast growth for 2013 at 4% and the IMF predicted it at 3.7% – it is now not expected to exceed 1.5%. The IMF has also reduced its forecast for 2014 to 2%). German Gref, the head of Sberbank and former Economy Minister, reacted to these dismal figures saying that Russia had the potential to achieve long-term growth of 6–7%, but only with ‘a very big amount of reforms’. The blank poster again.
There is also an important unwritten bottom line on the poster. This says that there are close to zero expectations from the elite that the doctor will apply the remedy – i.e. that the authorities will institute a renewed drive for structural reform designed to bear down on corruption, improve public services and infrastructure, and create an environment for the growth of enterprises and of domestic and foreign investment.
President Vladimir Putin knows the poster by heart. He will be hearing its arguments from people within his administration and from associates such as Alexei Kudrin and Gref, who may no longer be in government but remain closely connected to the regime. It was Putin himself who launched a manifesto for evolutionary reform in his Millenium Statement of 29 December 1999. With it he set the task of creating ‘conditions for our country’s fast and stable economic and social headway’, accompanied by a long list of specific targets. He said he wanted Russia to join the world’s advanced economies, and was looking at what was required to reach the GDP per head of Spain and Portugal, and beyond that of Britain and France. Putin then kept up the drumbeat for reform in his set-piece annual address to the federal assemblies over the first three years of his presidency.
In those years Russia began to narrow the gap, helped by a fast-rising oil price and by the effects of the 1998 devaluation of the rouble, but with credit due also to Kudrin’s sound macroeconomic management as Finance Minister and the reforms instituted by Gref and others with Putin’s blessing. That was then. From Russia’s low baseline, the current GDP growth rates of 1.5 to 2.5% (which would cause delight in a mature Western European economy) are not sufficient to catch up with the faster emerging economies, let alone those in the bracket to which Russia aspires.
Putin recognized this when he said in June that growth was below the range necessary for sustainable development, for resolving social and other problems, and for narrowing the gap with the leading nations. In effect, Russia is slowly slipping backwards. Foreign direct investment is at a low level. Consumption has fallen. Living standards are flattening.
The leitmotif of the Kremlin has been to apply tactical manoeuvres to the single objective of retaining power.
Putin’s Millennium Statement set out a strategy for the transformation and modernization of Russia. He argued then, on the eve of his assumption of the presidency on 1 January 2000, that renewal would need 15 years. This approach prevailed only for four years, however. By the middle of 2003, the revenues from rising hydrocarbon prices were flowing into the state’s coffers. The arduous task of restructuring was set aside in favour of the sybaritic delights of floating on a sea of oil money. In place of a strategic approach to transformation, Russia’s leadership opted for conservatism, retrenchment and the consolidation of its control over society and the economy. The long term was supplanted by the short term. Since then, the leitmotif of the Kremlin has been to apply tactical manoeuvres to the single objective of retaining power.
The consequences of the abandonment of reform from 2004 are now being felt in almost every area, to the anguish and frustration of those who know how much better Russia could and should be doing.
In these circumstances, logic would suggest that changes of approach and of personnel were urgently required to pre-empt a slide into deeper trouble further down the hill. In his address to the federal assemblies on 12 December, the president gave a direct answer to those who have been arguing that the deteriorating economy demands a change of course. ‘Economic trends may and do change. But that is no reason to talk about revising our goals’, he said. In doing so Putin stood for the status quo, for the programme mapped out at the start of his current term in May 2012. This provoked a frustrated comment from Kudrin on Twitter: ‘The President’s proposals for reactivating the economy are a tactical response to the problem. We need a strategic plan to get out of stagnation.’
As Putin enters his fifteenth year in power, he and his close associates appear to be firmly locked in to the course they chose a decade ago.
As Putin enters his fifteenth year in power, he and his close associates appear to be firmly locked in to the course they chose a decade ago. It is one based on controlling the levers of state and economic power. By definition, any structural reform which led to the rebirth of independent institutions and the dissemination of power would undermine their control and therefore represent an existential threat to the ruling constellation of forces.
Here, too, the message of Putin’s address was clear. He called for more civic activism at the local level, and said that opposition parties had a chance to win seats in municipal and regional bodies. No encouragement was given to the idea of opposition at a federal or national level. He said he wanted more councils and expert groups, and an enhanced role for the Civic Chamber, including in reviewing draft legislation. But these are talking shops without power. The effect of Putin promoting them is to channel debate into areas where it can be controlled or ignored. Genuine reform would require a separation of powers. That will not happen unless the situation were to become so difficult as to leave no alternative.
The iron facts of a slowing economy and the pressure of protests and opposition from affluent, educated Muscovites may have dented the authority of the Kremlin within the political class and encouraged more open debate, but they have not weakened its control. Putin has reacted, not by moving in the direction of the protesters (bar the odd token gesture, such as his meeting with a group of moderate non-parliamentary opposition leaders on 20 November), but by appealing ever more strongly to the conservative and nationalist values of his core base.
One part of this appeal is Russia’s proclaimed return as a major player on the world stage. In the wake of Putin’s smart gambit over Syrian chemical weapons, the Kremlin is broadcasting the message that ‘We are back!’. No longer ignored by Washington, Russia is leading attempts with the United States to negotiate over the conflict in Syria and the Iranian nuclear programme. (Europe’s role in these negotiations tends to be overlooked by those presenting Russian policy. The image they project is that Russia has resumed its place as a prime interlocutor of the United States). Strong-arming Ukraine’s President Viktor Yanukovych out of the EU’s embrace was seen by the Kremlin as another coup. While some Western pundits depict Russian foreign policy as going nowhere in the long term because of its weak domestic base, the audience in Russia sees a different picture (especially through the medium of Kremlin-controlled television): a president standing up for Russia’s traditional values and historic interests, and obliging others to show respect.
So what sort of pressure might eventually have an impact on the Kremlin?
Moscow, with its wealth and its relative sophistication, is not the right place to look for an answer. In Soviet days, a Lenin quotation was emblazoned in red neon on a power station facing Red Square: ‘Communism = Soviet power plus the electrification of the whole country.’ As far as power is concerned, Putin has his ‘vertical’ – not as all-embracing as Soviet power, but effective up to now, give or take a few disturbances. He should worry, however, about the implications of delivering the contemporary equivalent of the ‘electrification of the whole country’ (arguably the Communist regime’s greatest achievement in domestic policy).
If some occurrence caused the under-privileged to make common cause, the vertical of power would be severely tested.
About a third of Russia’s regions are mired in debt. In the poorer ones infrastructure and basic services such as health are dire. These issues have been on the blank poster for the past ten years, and precious little has been done about them. Putin’s promise to raise the salaries of teachers and health workers will not resolve the core problems. The power grid has suffered from a lack of investment, or from the theft of money allocated for repairs, and is vulnerable. The grievances of disaffected constituencies of the underprivileged – a revolt by pensioners, popular disturbances in Vladivostok and Kaliningrad, outbreaks of racial conflict – have troubled the administration in the past. These have been isolated episodes, separated in time and by geography, and without a political voice. If some occurrence, such as widespread power outages in winter, caused the under-privileged to make common cause, the vertical of power would be severely tested.
The latest demonstration of people power in Ukraine, however distorted in the Russian media’s reporting, is not what the Kremlin wanted as a New Year present from its neighbour. The Orange Revolution – the spectacle of a presidential candidate in Ukraine heavily backed by Moscow being overturned by popular power – caused tremors in the Kremlin in the early months of 2005. While circumstances in Russia are very different, there will be much nervousness about the renewed struggle in Kyiv. However the conflict is resolved, it will not be to Russia’s long-term advantage. The Ukrainians are deeply divided – except in their desire to retain their hard-won independence and sovereignty. If Russia continues to prop up a weakened Yanukovych administration, the bill will be high both in roubles and in reputation.
The current Russian model will not become more attractive to Ukrainians. Those in Moscow who fill in the blanks on the poster are not predicting an imminent crisis. Quite the reverse: their analogy is with the Soviet Union’s long, slow decline in the Brezhnev years, the so-called ‘era of stagnation’ (to which Kudrin’s tweet obliquely referred). The prospect that confronts Putin’s administration in 2014 is far removed from the ambitious aspirations with which he came to power on New Year’s Day, 2000. No upturn is in sight. But the status quo rules: the administration is fulfilling its prime objective – staying in power.
(This article first appeared as a paper for Chatham House.)