The Economic Engine for Putin’s Russia: The Kleptocracy Downside

09/26/2019
By Robbin Laird

As Putin reshaped Russia in the early 20th Century, the key focus was upon restoring state power, and the ability of the state to leverage the Russian economy to restore Russian power, global standing and respectability.

A key focus of his attention was upon gaining control over the energy sector, and ensuring that the commodities based economy would serve state interests.

What this also meant was that rebuilding the economy to support diversified economic growth was not a priority, and, indeed, would suffer with the commodities driven consolidation which would then feed the needs of state power and the return of Russia to Putin’s vision of Russian greatness.

To do so, Putin would rely on his network of key allies from Petersburg and beyond who helped him shape the phoenix rise of the Russian, but not the Soviet state.

As Putin put it: “Anyone who doesn’t regret the passing of the Soviet Union has no heart. Anyone who wants it restored has no brains.”

Putin with his network of key allies have rebuilt the state through controlling the proceeds of Russian Energy Inc. so to speak, but the spin off of those efforts, although useful to build the new Russian state, have left in its wake a weakened economy unable to re-generate itself via what in a capitalist society would be considered normal means of growth and entrepreneurship.

It is hard to generate 21st century dynamics of entrepreneurship when you have focused on building a new authoritarian state, which is funded by a raw material economy.

In her seminal book, Putin’s Kleptocracy: Who Owns Russia, the late Karen Dawisha provided a courageous and hard-hitting overview on the nature of the Soviet economy providing the engine for Putin authoritarianism.

And in so doing, she underscored a key aspect of short sidedness with regard to Western analyses of Russian in the late 20th and early 21st centuries.

In the academic world, there was a similar trend in writing about Russia. Books continued to frame Russia as a democracy, albeit one that was failing or in crisis. Like other scholars of Russia, I have spent a significant portion of my career thinking and writing about how the post-Communist states might make a transition toward democracy.

Initially Western government and academic circles believed that institutions could be established in practically any country that would guide it along a democratic path. Most of the new central European countries had early elections, established non-Communist governments, and never looked back. Our uncurbed enthusiasm even extended to Russia. But then the quality of democracy in Putin’s Russia just kept getting worse.

Still there was little shift in academic direction, as much of the literature approached the Putin era as a democracy in the process of failing rather than as an authoritarian project in the process of succeeding.1

What Dawisha provides with her analyses is a clear focus on the intersection of three trends: Putin’s rise to power; the return of the Russian state; and the key role of the Putin team in leveraging economic assets to enrich themselves and to re-enforce the power of the new version of the Russian state.

By 2014, as he marched into Crimea, Putin had clearly decided that he could maintain his power by ignoring the independent middle class, entrepreneurial interests, and the cultural elite. Instead he could rely on oil and gas extraction economically and on increased use of propaganda domestically to rally state workers and provincial populations.

The main theme of this information war was anti-Americanism, the fight against “fascism” in Ukraine, the renewal of Russian greatness, and the distinctiveness of Russian values—as shown by the campaigns against Pussy Riot (the all-female punk
rock band) and gay rights.

The Kremlin has persistently portrayed the collapse of the Soviet Union as a defeat imposed on Russia by the West. And state-controlled media frames Putin not as the putative head of the party of “crooks and thieves,” as the opposition politician Aleksey Navalnyy branded the ruling party United Russia prior to the 2011 Duma elections, but as the liberator of Russian lands and the head of a great civilization morally superior to gay-dominated and degraded Western culture.2

The impact of this legacy will be significant on what comes next for Russia.

Not only in terms of how to rebuild the economy but with which partners and in which direction?

With the rise of the 21st century authoritarian appraoch, there are more options rather than simply working with the capitalist West, but it is not easy to see how Russia would keep to its nationalistic independent path of it were to do so.

It could embrace some form of federalism and allow the regions to work with the proximate economies or partners and to allow for a more flexible economy nationally.

It could work to build out its own part of the European Union with those states not happy with France and Germany and seeking to reform the European Union in a direction more favorable to Central European values rather than German dictated European values.

But the underlying challenge is simply put: the over-reliance on revenues from oil and gas to fund the state and to limit the future of the Russian society.

While Putin uses the revenues from oil and gas to fund large capital projects, from the multiple state residences to the Sochi Olympics, or allows his cronies to take it abroad, the population must contribute significantly to the budget through a combination of income taxes, high value-added taxes, and high duties on imported consumer goods. But the population also contributes a “tax” by paying bribes.3

The impact of the corruption within the Putin system clearly has its impact on the West as well. For the Russians involved in the control of the energy economy find the Western rules based system and the Western banking system a key element in protecting their interests as well.

And there is the question as well of the cross-cutting impact of corruption on the West as well as the new authoritarians have burrowed into the fabric of Western society as well.

The EU has worked hard to stanch the tide of corrupt behavior from Russia that is finding its way into the very heart of Europe and its institutions, but there are obviously politicians and public officials who are willing to partner with Russia in these transactions.4

Dawisha argued that with a decline in the economy and in Putin’s personal stature among the Russian middle class, it was likely that control will depend increasingly upon coercion. The actions of Putin during his current term as President seem to confirm her forecast.

She concluded her book with this judgment:

Putin responded to Western sanctions in 2014 by telling Russians it will be good for them, it will make them more self-reliant. It will stimulate business. But he’s been in power fourteen years, and what has he done to stimulate business? What was he waiting for?

The biggest threat to the success of ordinary Russians occurs not, as he claims, from Western business investments in Russia, but rather when Russia’s all-powerful overlord, or one of his cronies, demolishes a village to build a palace, steals the money intended for health reforms, stymies innovation by maintaining state ownership of patents, or sends waves of tax, fire, and health inspectors as part of a shakedown.5

A key aspect of Dawisha’s book and her research was to document the Putin approach which was set in motion from the beginning of his time in power.

A notable example of her work was focusing on an early document from the first Putin Administration which focused on his appraoch to administrative reform.

The purpose of this reform was to recentralize the state and to build out what would become the Putin appraoch to the new Russian state.

This document was identified and published with comments by a prominent Russian journalist but later the document was delinked from the news site and included on the excellent Miami University, Ohio website of Russian documents from the Putin period.

english-putin-reform-admin

That website provides a very helpful archive for researchers and provides a buffer against the impact of the selective historical memory of the Putin dominated state.

http://miamioh.edu/cas/academics/centers/havighurst/cultural-academic-resources/putins-russia/index.html

 

 

 

 

 

 

Footnotes

  1. Dawisha, Karen. Putin’s Kleptocracy: Who Owns Russia? (pp. 6-7). Simon & Schuster. Kindle Edition.
  2. Dawisha, Karen. Putin’s Kleptocracy: Who Owns Russia? (p. 318). Simon & Schuster. Kindle Edition.
  3. Dawisha, Karen. Putin’s Kleptocracy: Who Owns Russia? (p. 322). Simon & Schuster. Kindle Edition.
  4. Dawisha, Karen. Putin’s Kleptocracy: Who Owns Russia? (pp. 341-342). Simon & Schuster. Kindle Edition.
  5. Dawisha, Karen. Putin’s Kleptocracy: Who Owns Russia? (pp. 341-350). Simon & Schuster. Kindle Edition.