The return of President Putin and Russia’s bleak outlook

The intrigue is over. Vladimir Putin will soon return to the Kremlin as President of the Russian Federation for at least six years. Most experts agree that political continuity and preservation of the status quo will define his upcoming mandate. Having never let power shift out of his hands, Putin’s return is largely symbolic.

Some believe that the Kremlin will regain the executive efficiency which is now diluted in the logic of the “ruling tandem”. In contrast, the last feeble illusions of change were quickly dispelled. Putin is the unchallenged leader of the country, and will be so for many years to come. Some observers have come to invoke a Russian “Arab Spring” as the country is doomed to collapse.

A few months ago, the wit and irony of Russian journalist Yulia Latynina already depicted the nature of the upcoming political transition: an election with only one voter – Putin.

Many in the West explain the “Putin phenomenon” by labeling contemporary Russia as a mafia state or a KGB-ruled dictatorship. Yet, the roots of Putin’s power and his (apparent) popularity dwell upon political developments of the 1990s and 2000s. The quasi-authoritarian “super-presidential” Russian political style arose in the mid-1990s, when Boris Yeltsin dissolved the legitimate parliament and approved a new constitution which assured unrestrained and unbalanced powers to the president of the Federation.

In 1999, Vladimir Putin took charge of a country whose economy was paralyzed by greedy billionaires, self-serving governors, a weak federal government and general disarray. As the new President cemented his authority, a new system emerged.

First, the highly centralized and vertical nature of the Russian executive power facilitates the conversion of money into power and vice versa. At any level of the hierarchy, a certain degree of bribery and parochialism is not only tolerated but even expected in exchange for unconditional loyalty. It is not a coincidence that there are almost 50 millionaires, along with six billionaires, in the State Duma.

Second, Russia built a system in which the exercise of state power has become a monopolistic business controlled by colleagues and loyalists of the system’s creator – i.e. Putin himself. All big national business is associated with the federal authorities or controlled by them. Putin’s power is based on his ability to balance the interests of competing financial, economic and political clans within Russia’s ruling elite. Business and government have become essentially two branches of the same encompassing and self-sustained enterprise, whose ultimate goal is self-preservation.

Third, patrimonialism promoted incompetence. Several examples show how people are selected according to their connections in the government rather than their professional credentials. Sergei Ivonov (Deputy Prime Minister), Alexei Miller (CEO of Gazprom) and Sergiei Kirienko (CEO of Rosatom) had no previous experience in the fields they were appointed to. For instance, even with gas prices soaring, Gazprom’s production fell from 523.3 billion cubic meters in 2000 to 461.5 billion in 2009. The increasing de-professionalization of the ruling elite hinders the efficiency of the system and obstructs the long-term process of modernization and reform.

Although living standards have increased in Russia since the 1990s, government achievements are debatable. A recent survey run by the Levada Center confirms that 73% of respondents believe the gap between the rich and poor has widened over the last ten years; and 52% believe that the government has more thieves and corrupt officials than in the 1990s.

The recent political history of the country shows how internal problems overwhelmingly dominate domestic debates as declining investments constitute a real threat to future growth, while high oil prices are indispensable to stability. Since mid-2011, Russia’s economy has entered a critical stage. GDP growth has slowed —about 4% in 2010 and 4.1% in the first quarter of 2011, according to official data. However, this growth is twice as low as before the crisis. This trend depends on inventory accumulation and taxes on imports as capital continues to flow out of the country. The strong budgetary and balance of payments positions rely exclusively on high oil prices. Most worryingly, investment volumes declined since early 2011.

In addition, social tensions have been increasingly affecting the country. Popular protests often turn into violent riots in the main Russian cities, including the incident at Manezh Square in Moscow in January 2011. It was inevitable that the collapse of the Soviet Union would lead to the emergence of dangerous cracks in the social and political structure of the Russian Federation. Throughout the 1990s, the Kremlin tried to prevent these cracks from spreading to a critical level, with relative success.

The current context of global turmoil compounds and exposes Russia’s inner vulnerability.

Indeed, a possible interpretation of Putin’s comeback is as a move to ensure greater stability as Russia faces turbulent times. However, there have been other ominous signs: on September 26, another event shook the Kremlin when Medvedev and Putin asked the Finance Minister, Alexei Kudrin, to resign. Russia lost one of its most talented politicians, leaving the country in even greater disarray. 

Kudrin had gained international fame for having repaid most of the foreign debt that Russia had accumulated in the 1990s, leaving the country with one of the lowest foreign debts among major economies. Kudrin also helped Russia overcome the 2008-2009 global financial crisis through his Stabilization Fund, in which a substantial part of export revenues were accumulated and saved for difficult times.

Kudrin openly criticized further government expenditures, painting a very bleak picture of an impending economic catastrophe in the country if plans to spend trillions of rubles are implemented. More specifically, the authorities approved an increase in military spending equal to the entire 2011 education budget which includes all universities, schools and special educational establishments.

As the next president of the Russian Federation, Putin will most likely work to maintain the status quo. With two elections and an important transition looming, the presidential administration already seeks to promote stability. Yet, the cost of maintaining the existing system will almost certainly prove to be too high. Without adequate reforms, the country runs the risk of collapsing under the heavy weight of corruption and inefficiency. In this light, Kudrin’s resignation may well be a final wake-up call.