The Contours of Russia’s Redux

The new issue of the New Left Review has two articles on Russia worth reading. The first, “Russia Redux?” by Vladimir Popov, examines the macroeconomic trends Russia has experienced since Putin became president. Though “there is more stability in Russia today than during the rocky 1990s,” Popov argues, compared to other post-Soviet republics “Russia’s performance is not that impressive.” Azerbaijan, Belarus, Estonia, Kazakhstan, Latvia, Lithuania, Turkmenistan, Uzbekistan and, to some extent, Armenia all “reached or exceeded their pre-recession (1989) levels of output by 2006, whereas Russian GDP was still only at 85 per cent of the 1989 level.” Further he states the reason for Russia lax growth rate is due to the ruble’s overvalue and economy’s sandy foundations:

The reason for the 2001–06 deceleration in growth was the overvaluation of the real exchange rate—the typical Dutch disease that Russia has developed once again. It first arose in 1995–98, leading to the currency crisis of August 1998, and it now seems that history is repeating itself. Optimists argue that, unlike in 1998, Russia currently has large foreign exchange reserves (over $250 billion), but pessimists point out that if oil prices drop and capital starts to flee at a rate of $5 billion a week, as it did in July–August 1998, these reserves would be depleted very quickly. A future devaluation could take the form of either a currency crisis or a ‘soft landing’, but there is little doubt that it will eventually take place.

Besides, current growth is not based on solid foundations: wages and incomes in recent years have been growing systematically faster than productivity, so that the share of consumption in gdp has increased at the expense of investment. As a result, whereas Russian personal and public consumption has already exceeded the pre-recession level, investment is still below 40 per cent of what it was in the last year of existence of the USSR. Russian gross savings are large—over 30 per cent of GDP—but they have been funnelled away via the outflow of private capital and the accumulation of foreign exchange reserves; gross investment therefore amounts to less than 20 per cent of GDP.

In regard to where Russia is headed, Popov prognosis is that Russia’s future depends on how it chooses to reconcile one of its longest running historical conundrums:

Russia now needs more than anything to strengthen law and order and to restore the institutional capacity of the state. Democracy is also needed, but only later, when the rule of law has been established. There is, of course, a danger that the leadership will use political centralization to line everyone up along the ‘vertical of power’ and eliminate opposition in order to live in serene comfort at the citizens’ expense—and perhaps also to embark on the occasional escapade. This has happened in Russia before. But one must choose the lesser of two evils. Strengthening law and order is only possible under a centralized system. Without centralization, there is no chance at all of it happening; unbounded chaos and lawlessness would rule. This seems to be the choice facing Russia today.

Popov’s article is nicely supplemented by Tony Wood’s “Contours of the Putin Era.” Taking off from Popov’s economic analysis, Wood probes further into how Russian society has faired under Putin in terms of the distribution of wealth, the fissures in the elite, the reorientation of informal practices, and the costs of crime and the Chechen War.

One of the more interesting points Wood makes concerns the character of Russia’s ruling class. He notes that while “the melding of security services and political power is a salient characteristic of Putin’s Russia,” more striking is the swelling presence of business in the state.”

Business has been a significant source of state cadres. This applies at all levels: a whole section of Putin’s Presidential Administration was drawn from the ranks of Al’fa Bank, while as Table 1 shows, by 2003 some 20 per cent of the government was drawn from business, which provided almost the same proportion of Duma deputies. The representation of business in the upper house of the Russian Federal Assembly was still higher: in 2002, almost a third of Federation Council members came from private enterprises. More than a dozen Russian regions, resource-rich ones prominent among them, are now headed by businessmen from major local companies.

Perhaps Andrei Illarionov charges that the Russian state is “corporatist” is not so far fetched after all.

Wood’s conclusion is an answer to Popov’s notion that Russia must choose between a lesser of two evils:

Popov concludes by emphasizing the need to choose the lesser evil of centralization and potential authoritarianism over the inevitable unravelling and chaos that will accompany any other course. Stability is the prime consideration; democracy can wait until more favourable circumstances develop. The question that immediately arises is: stability for whom? From the foregoing analysis, it should be clear that Russia’s rulers have little interest in the fortunes of the general populace; the current priority is rather to use the country’s natural resources to leverage a greater role in global affairs, and so carve out further opportunities for the internationalization of Russian capital. Entry into the wto will assist in the latter goal, though it will also bring with it a dismantling of the protections that have served Russian industry well, and undermine recent attempts to revive manufacturing in the automobile and aviation sectors. To the dangers Popov lists, then, we should add the exposure to international capitalist pressures and widening of existing inequalities that inevitably accompany WTO accession. These forms of destabilization will, of course, largely bypass the fractions of business and state most actively seeking them.

Finally, there is the matter of the lesser evil. Popov poses the alternatives in stark terms: the status quo or utter disaster. Such logic has long helped to rally critics of various kinds to otherwise unpalatable governments. But it is precisely the immunity from challenge or debate that enables crime, coercion and corruption to flourish; conversely, it is the availability of alternative proposals for future paths of development that constitutes the political health of a nation. Popov’s analysis presents many points from which such a discussion could begin.