s the Russian economy Putin’s Achilles’ heel?
Vladimir Putin is virtually assured of being re-elected on Sunday despite his mediocre economic record. But that does not trouble the Russian president, who considers the economy merely one tool in his overall strategy for wielding power.
Putin’s re-election victory will have nothing to do with the state of the Russian economy, in defiance of the famous 1992 phrase coined by Bill Clinton campaign strategist James Carville, who said elections are always won on economic issues. But this time, “It’s not the economy, stupid.”
If Putin seems omnipresent, whether in his homeland or on the international scene, one sector has proven it can still defy his wishes: the economy.
“The Russian president is not an economist, far from it. He relies on advisers on these issues while setting his own guidelines: The economy must strengthen the sovereignty of Russia and, if possible, its strategic influence,” Julien Vercueil, a Russian economy specialist at the National Institute of Oriental Languages and Civilisations (Inalco), told FRANCE 24.
Economic stagnation
Russia’s economy was a major topic of discussion at a televised February 28 debate among the presidential candidates, but Putin refused to participate. Overall “we cannot say economic issues have played a major role in the campaign”, Vercueil said.
During his annual address to the nation on March 1, the Kremlin head tried to beguile Russian voters by promising that improving living conditions and adapting Russia to new economic realities would be his priorities. But for the most part, such promises have not been backed by concrete measures.
Putin’s 18 years in power (including the four years when he served as prime minister from 2008 to 2012) have illustrated his disinterest in economic issues. “The early years were marked by some important reforms, like the introduction of a single tax [in 2001], but then he did not do much of anything significant,” said Alexander Libman, a Russia specialist at the University of Munich.
Vercueil adds that, “the main [economic] objectives over the last 18 years have not always been very consistent”.
The economy has taken some revenge for having been relegated to the back burner. “Russia is living in a state of economic stagnation. While there have been periods of growth, they have been offset by recessions [in 2009 and 2015-2016],” noted Libman.
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Ordinary Russians are suffering acutely from this economic apathy. They have seen their standard of living fall by 20 percent compared to 2014, and the number of people living below the poverty line has increased from 15.5 million in 2013 to 20 million in 2017.
However, when comparing the situation today with that at the start of Putin’s presidency, the picture seems less bleak.
“The standard of living has more than doubled, poverty has declined, health conditions have improved significantly, and life expectancy and birth rates have recovered,” Vercueil said. And yet Putin is not responsible for much of this growth, which had more to do with Russia’s reliance on oil exports.
“Most of the improvement occurred between 2000 and 2008, during which time oil prices multiplied ten-fold,” the economist observed.
‘The impact of sanctions is overstated’
Vercueil’s observation underscores how much Russia, as the world’s largest oil exporter, depends on the fortunes of “black gold”. The Kremlin has tried, unsuccessfully, to cut this economic umbilical cord.
“However, neither Vladimir Putin nor the major national producers can control oil prices, which limit the economic sovereignty of the country,” said Vercueil.
While the country’s economic health depends mainly on external factors, that is not the case with its weaknesses. The Kremlin regularly tries to blame its difficulties on international sanctions imposed after the 2014 annexation of Crimea. But in fact, “the impact of sanctions is overstated”, said Libman.
While they have certainly reduced trade and made life more difficult for certain oligarchs, the effects of sanctions are mostly felt in the short term. Russia’s longstanding structural weaknesses originate from “bureaucratic red tape, the standard of infrastructure and corruption”, Libman said.
Russia faces a host of problems for which it has not found adequate solutions. Add to this Putin’s actions on the international scene – his desire to impose the Russian brand on each global issue and the crises caused by his efforts to make Russia the diplomatic equal of the United States (including his suspected interference in the US elections, the annexation of Crimea and Russia’s role in Syria) – have “created a climate of instability that is detrimental to Russian companies and investors, who have no way to foresee in which direction the country is evolving”, Libman said.
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Thus, the annexation of Crimea, “by calling into question a geopolitical order guaranteed by Russia itself, has completely upended the economic order”, Vercueil said.
“This explains why it was followed by the largest capital flight in Russia’s recent history – even more so than during the subprime crisis.”
Soviet tendencies
When Vladimir Putin is not busy sacrificing the Russian economy on the altar of his global quest for power, he seeks to control it. “The first signs date back to the dismantling of Yukos in 2003-2004,” said Libman, referring to the former oil giant that once made oligarch and Putin rival Mikhail Khodorkovsky Russia’s richest man. (Putin later had Khodorkovsky jailed.)
After years of rampant privatisation following the collapse of the Soviet Union, state control has made a comeback under Putin. The first steps were made when the state moved to reassert some control over companies considered strategic (such as energy commodities); such moves were later extended to all sectors.
“Today, state-controlled companies account for nearly three-quarters of Russia’s GDP,” according to Konstantin Sonin, Russian scholar at the University of Chicago, in a February piece for Project Syndicate.
For Libman, this development reflects a return to the centralised economic model of the Soviet Union: To a time when the state had the wealth to buy the favours and support of different national interests.
“If Vladimir Putin succumbs to this temptation – by nationalising more companies or controlling prices, for example – the Russian economy would collapse,” he said.
But it is the danger of a looming social crisis that is more threatening, Libman said. Even if for now, “Russians have no trouble finding work – the unemployment rate is less than 5% – that allows them to earn a subsistence salary while they are fed Russian propaganda,” he said.
Vercueil warned that, in the longer term, “prolonged economic stagnation will sink more households back into the poverty from which they emerged during the economic growth of the early 2000s. This could lead to protests.”
In that case, the key question will be: How far would the Kremlin be willing to go to keep the situation under control?
Source: France24.com