Putin 2.0 Might Not Be Quite So Mean As Mr Aslund Predicts

This post is a response to an article in Foreign Affairs by Anders Aslund

Mr Anders made some powerful and accurate observations about Russia in his recent piece, “You're a Mean One, Mr. Putin.” However, his analysis misses some crucial aspects, and some of his claims are disrespectful of Russia’s tumultuous modern history. 

Certainly there is a higher level of discontent in Moscow than has been observed for several years, and, among the opposition-minded populace, the mood is reminiscent of the Brezhnev era. However, Mr Anders’ the claim that he has not found Moscow “so depressed since the collapse of the Soviet era in 1991” is an affront to the city’s incredibly resilient population, which lived through the 1998 default and the seven painfully volatile years that preceded it. In those times, work and food were hard come by, mob violence was the law and daily living was a challenge of incomparable scale. 

Not only is the mood in Moscow far from as depressed as it has often been over the past 22 years, there are even signs of new hope, easily revealed to the periodic visitor by an unbiased assessment of President Putin’s principals and by conversations with the city’s middle class. 

The core of the political opposition is of course depressed. The movement, which dramatically spread democratic hope, social cohesion and free speech across Russian cities last year, is failing fast. Mr Anders is his usual poignant self when identifying the reason: The opposition sees no realistic alternative or means of political change. The elections were a chance to achieve something, but the population cast off its fear too late to unite around a sufficiently dramatic destabilising agenda or leadership. Of course, this is no surprise: From the very beginning Mr Putin’s administration has mercilessly eliminated any flicker of reputable challenge. Having lost the element of surprise, the opposition today faces the prospect of a slow, painful death at the hands of an all-powerful, one-party political system, unless it can dramatically reinvent itself. 

Despite this, it is inaccurate to argue that Russia is on a one-way route to all-out authoritarianism. Yes, the government is passing laws that repress civil liberties, and yes the Western world is disgracing itself by not unifying against this. At the same time though, Mr Putin’s power and self-confidence have always depended on his popularity. It is with this in mind that he speaks of upholding democratic values. There is little doubt that he aims to remain in power as long as humanly possible, and it is clearer than ever that he knows he must have public support to do so. This is the guiding principal that will define his current presidential term. 

Winning back Russia’s educated, cosmopolitan middle class will be no easy feat, not least in a period of slower economic growth, as commodity prices have very little chance of rising dramatically over the next five years. Yet, as hard as Russia’s political system finds real change, it has several key points in its favour. First, the majority of the middle class, far from being avid politically enlighten oppositionists, are politically passive and naïve of the benefits of true multi-party democracy. Second, because Mr Putin’s system of government has been so inefficient for so long, there are still plenty of apolitical reforms available to improve quality of life. As has been the case in most post-Soviet nations, much economic transition is independent of leftist or rightist politics, meaning that the party in control can take credit (or blame) for changes impacting people’s lives, regardless of their political persuasion. 

Very little substantive development has been achieved in Russia since the price of oil soared in the mid naughties and Mr Putin cast aside the advice and experience of developed countries, claiming that Russia was an exception and had made mistakes following western paths. In fact, the quality of life in Moscow deteriorated so much in the past six years, as the government pursued economic gains over all other interests, that from here it is difficult not to improve things. 

My friends, both Russians and long-term expatriates living in the capital, are fixated on quality of life issues. But sometimes incremental change is difficult to spot from close up. Those of us visiting periodically have a better chance to notice that life in Moscow has stopped deteriorating. True, it is not a city that will ever rank among the world’s top ten places to live, but there is potential for change, and there are signs of real improvement emerging. 

It helps that car sales have slowed dramatically along with economic growth, but the infamous Moscow traffic problem appears to have peaked. New measures to control parking in the centre have already had an enormous impact and newly planned traffic systems have the potential to ease congestion further. Out-of-centre parking zones are enabling more and more drivers to leave their cars at the edge of the city and ride in on the fast and efficient Metro system. Bus lanes and automobile service adverts inside the Metro system are testament to the beginnings of a new era of public transportation. 

Quality of housing has also been a bane for many Muscovites, but gradually entrance ways and lifts around the city are being upgraded to match smartly decorated and well-furnished apartment interiors. The city’s existing parks are being modernised, and more green space is planned. 

Most important Mr Putin accepts that Russia’s decade old growth model is broken. For years, economic expansion was driven by commodities earnings, which were rapidly recycled into government spending. Today, commodities prices are stable but unlikely to surge again over a multi-year period, and it is widely recognised that the government is already too large relative to the size of the economy. New growth, essential to the government sustaining sufficient popularity to retain control, can only come from one source: private sector investment. It is with this in mind that President Putin coined the term “de-offshore-ization.” 

At this early stage, many dismiss his efforts to reduce corruption and bring back capital as a faux campaign to deflect responsibility for the terrible state of the country, whilst allowing his cronies to continue what has arguably been the greatest heist in global history. Such despondent views miss the wood for the trees. Russia’s super rich have as much at stake as the political elite; and as they too understand the need for investment to maintain stability, so their complicity will rise. Meanwhile, the government realises that lower growth means lower profits and hence requires a lower risk premium. 

The early moves in this campaign of de-offshore-ization have been more about sticks than carrots, but this will change. The Russian government needs capital to return of its own accord, so it will seek to lure it back. Perhaps it is with risk premia in mind that Mikhail Khodorkovsky finally looks set to see the light of day, having had his sentence reduced and been wished well by the president in late 2012. 

Moscow is seeking to become an international financial centre. Although this long seemed an absurd goal, as the government pursued objectives diametrically opposed to attracting wealth, it is a project with a coherent economic logic. Moscow remains the business capital of the CIS, which is a vast and resource wealthy region with a population comparable to those of the Eurozone and the US. And taxes are appealing low, as highlighted by the recent embracement of Russian citizenship by French actor Gerard Depardieu. Although it will take many years to convince international investors that Russia is now a safe place to invest, there is sufficient Russian capital offshore to plug the growth gap, if appropriate policies are pursued.

There is a long and difficult path ahead, but the Russian government favours stability and its own survival above all else. Recent anti-democratic moves are depressing, but they are reflective of the “strong-government” principle that combines with populism as the key to political control. It may be that the opposition leaders are as despondent as they have been since 1991, but the wider population’s demands are less democratic. The government understands this, as well as it understands the danger of holding power without the support of Moscow and St Petersburg, so it is working hard to satisfy them. Russia is far from as depressed as Mr Anders portrayed.