Why the Putin Regime Will Stand

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(Institute of Modern Russia – Vladislav Inozemtsev – May 29, 2020)

Vladislav Inozemtsev holds a PhD in economics and is the director of the Centre for Research on Post-Industrial Societies.

Bloomberg recently estimated that Russia’s economy may contract by 16 percent in the second quarter of 2020. According to Russian analysts, its GDP declined by about 28 percent in April. Still, despite the unfolding economic crisis, there is no reason to believe that it will lead to political change.

While a number of experts offer negative outlooks of the economy, the Russian government reports on macroeconomic stability in the country. [photo caption in original post: Depicted above is the government’s meeting with president Putin on implementation of economic and social support measures, May 19, 2020. Photo: kremlin.ru]

Last week saw the release of the first data on Russia’s current economic crisis. In a press release on the implementation of the federal budget, the Ministry of Finance indicated a budget surplus of 122.9 billion rubles in the first four months of the year, estimating it as 0.4 percent of GDP. Based in this, financial analysts concluded that, in April, Russia’s GDP shrank to 6.3 trillion rubles-an equivalent to a drop of 27.6 percent, compared to the same period last year. The information linking the deficit to GDP quickly disappeared from the ministry’s website. In the meantime, Bloomberg estimated that the Russian economy might contract by a record 16 percent in the second quarter.

How likely is such an outlook, and what implications could it have for the Russian economy and politics?

In my opinion, the Finance Ministry’s data look realistic, although there is some doubt that the Russian economy will return to growth in the second half of the year. In the United States, preliminary estimates of the economic downturn in April-May reach 37 percent in a pessimistic scenario, but the services sector, which in America is the area most affected by the coronavirus pandemic, makes up a significantly larger share of the economy in the U.S. than in Russia.

Experts have already noted that approximately two-thirds of Russia’s April recession is related to the pandemic, and one-third is caused by a drop in oil prices. Evidently, oil prices will not rise until the end of the year-not above the $42.2 per barrel needed to balance the Russian budget-and Russian business will recover slowly, due to extremely low effective demand. Therefore, I would put the GDP decline at 10-11 percent at the end of 2020, and its recovery rate in 2021 at no more than half of this percentage.

Meanwhile, most experts and analysts, who consistently criticize Vladimir Putin and his inner circle, have been forecasting inevitable political upheavals as a result of the unfolding crisis. Some even claim that the collapse of the regime is inevitable. In my opinion, these discussions are merely wishful thinking-for several reasons.

First, Russia is a typical rental economy based on the distribution of income received by a very small portion of the population. In 2018, 1.14 million people, or 1.5 percent of the workforce and 0.78 percent of the country’s population, were employed in commodity production, which amounted to about half of the revenues the federal budget received (in various forms). [1] At the same time, the state provides income for at least 80 million people-46.5 million pensioners and more than 33 million state and municipal employees, as well as workers in the education, healthcare, and other similar sectors. The main impact of the 2020 crisis will fall on employees of commercial enterprises, businessmen, and the self-employed, while a significant part of the population will not experience a serious decline in welfare directly. (Let us not forget that pensions and state salaries continue to be paid.) In such a situation, the more significant the decline of incomes is in commercial sectors, the more the state employees will value their position-and, accordingly, value the state and its “care.” This does not mean they will take to the streets to defend Putin, but they will have a placid reaction to crackdowns on those who do. This large loyal mass looks like the main guarantor of the regime’s inviolability.

Secondly, as we already saw in 2011-2012, the more active and successful part of society-the backbone of the protest movement-is well aware that change is unlikely. Its activists will not be able to gather a critical mass of support from disgruntled people who are ready for street protests-which are the only type of protests that poses a real threat to the regime. Most of Putin’s opponents are people of democratic views and are not ready to fight on the barricades. Collective protests in Russia have been extremely devalued over the past 20 years (as I wrote about prior to the events of 2011), and, in contrast to the late Soviet period, the part of society most critical of the Kremlin has something to lose (namely property and assets). Indeed, if the current crisis results in anything it is more likely to be rapid emigration rather than a serious mobilization of the liberal flank. Moreover, the latest electoral reforms, in my opinion, completely rule out the possibility of engaging in legitimate-and productive-political activities even at the local-government level. As the sociologist Zygmunt Bauman noted in his book The Individualized Society, people prefer to search for “individual solutions to systemic contradictions,” [2] and if that is the case in Russia today we shouldn’t expect pressure on the regime to increase critically. To those who disagree, I would only reiterate that for most Russians there is a great gap between public dissatisfaction with the authorities and readiness to take real actions to overthrow them.

Thirdly, when it comes to protests, there is a very important (and specific) divide between political and economic dissatisfaction. This is true of not only Russia but most post-Soviet countries. As the experiences of Georgia, Moldova, Armenia, Ukraine, and Russia have shown, there are quite a few things that will spark political protests with relative ease-from “stolen” elections and “castlings,” to broken agreements and violence against demonstrators-but an economic crisis is not one of them. Apparently, the majority of Russians agree with Putin’s claim that it’s pointless to have personal grievances with authorities “just because the oil price has fallen.” They view the current crisis as an objective phenomenon, brought from abroad, and therefore not worth agitating about. Moreover, Russians hold similar views regarding the pandemic and the collapse of export prices. We already observed perfectly well the absence of an “anti-crisis” mobilization in 1999, 2009, and 2015-2016, and I suppose that the current and subsequent years will not bring about any new dynamics.

In addition, I do not entirely agree with the notion that the current crisis is particularly aggravated by the fact that it has followed a long stagnation that saw no revival in the economy. It seems to me that, on the contrary, it is precisely the lack of economic growth and the consistent decline in real incomes in 2014-2019 that made Russian people adjust and normalize this state of affairs. In this context, it is quite telling that in 2009, when the Russian economy contracted by 7.9 percent, real incomes actually rose by 3 percent (due to increased pensions and wages), while this year the authorities categorically refused to provide financial support to the population. In my opinion, in 2009, the Kremlin and the government were much more apprehensive of threats posed by the public than they are today. First, because a “shift of power” was then being implemented, which is not now expected in the near future, and, secondly, because public expectations for the government were much higher than they are now. Russia today reminds me much more of Venezuela in 2010 than of Ukraine in 2013: it is a country with perished hopes, resigned to a rather bleak future, and frightened by an alleged external threat that is, of course, an illusion created by the authorities.

The economic crisis of 2020 will likely be similar to the developments of 2015-2016. It will lead to a significant, but not catastrophic, decrease in real incomes (by 15-17 percent, with a subsequent stagnation). In the second half of the year, the authorities, through ruble devaluation, will increase the settling price of oil in rubles and thereby preserve the National Welfare Fund intact in the event of future shocks. The prospects for modernization will thus be completely wasted; however, there will be no critically dangerous pressure on the government from the public, nor will serious intra-elite conflicts take place against the backdrop of the oligarchs’ final withdrawal of capital from the country and the redistribution of valuable property among officials with access to the throne.

Eight years ago, my colleague Yulia Zhuchkova and I wrote that the late 2020s appear to be the most likely period for the collapse of the Putin regime. [3] As of now, I see no reason to change this forecast.

Notes:

[1] Author’s calculations are based on the Rosstat report “Labor and Employment in Russia, 2019,” in particular Table 3.3 (p. 58) and Table 1.7 (p. 17).
[2] Citation from the Russian translation: Bauman, Zygmunt. Individualizirovannoye obshchestvo. Ed. by Vladislav Inozemtsev. Moscow: Logos, 2005.
[3] Vladislav L. Inozemtsev and Yulia Zhuchkova, “Russia in 2030,” International and Strategic Review no. 92 (2013): 157-65. https://www.cairn.info/revue-internationale-et-strategique-2013-4-page-157.htm.


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