The triumph of Vladimir Putin
IN 2008, shortly after winning the competition to host the 2014 Winter Olympics, Vladimir Putin, the country’s president, announced that “Russia has finally returned to the world stage as a strong state – a country that others take into account and which can defend itself. Next weekend will see the opening of Russia’s first Olympiad since the Summer Games in Moscow in 1980. At the President’s request, the games are being held in Sochi, an inappropriate subtropical resort, and the government has spent $ 50 billion — four times the cost of the jamboree in London in 2012 — on hosting the event. Large posters proclaim “Russia, great, new, open!” The state-owned Sberbank offers the slightly threatening motto: “Today Sochi, tomorrow the world”.
The Olympic celebrations come after a good year for Mr Putin. At home, he saw the huge protests that greeted his return to the Russian presidency in 2012. Without a serious challenger, he felt confident enough to free both Mikhail Khodorkovsky, a business oligarch he jailed in 2003, and the Pussy Riot. demonstrators.
Abroad, Mr Putin used his veto in the UN Security Council to push back against Western ideas of military intervention in Syria, instead negotiating a chemical weapons deal and sponsoring a Syrian peace conference. His brutal ally, Bashar Assad, remains in power. Mr Putin is reassured that NATO’s campaign in Afghanistan has been as difficult and frustrating as the one the Soviet Union endured 30 years ago, and much longer (see article). He increased Russian defense spending. And he left European diplomats caught off guard by deploying a mixture of money and threats to persuade Ukrainian President Viktor Yanukovych to withdraw from a trade deal he was about to sign with the European Union. .
Yet Mr. Putin’s resurgence in fortunes is not as impressive as it looks. It’s not just that Russia’s political model has little appeal to others. Its resurgence is limited by a corrupt, state-run economy that seems doomed to stagnation (see article).
A skater with feet of clay
After Mr. Putin became president in December 1999, economic growth was strong enough that Russia was placed in the BRIC group of fast-growing countries. The incomes of the Russians have increased at the same time, and pensions and social benefits have improved and have been paid on time. This largely explains Mr. Putin’s popularity with ordinary Russians. They supported him not only because he promised to make Russia strong, but also because he was seen as having brought stability and higher living standards after the chaos and ruin of the 1990s.
However, this achievement was based almost entirely on oil and gas prices, which have quintupled since 1999. Dependence on energy exports is even greater than under the Soviet Union: they now represent 75% of the total, up from 67% in 1980. In 2012, Russia’s total bilateral trade with the United States was worth only $ 28 billion, and its trade with China, despite a long common border and large quantities of products to sell, amounted to only 87 billion dollars. In contrast, America’s trade with China was $ 555 billion.
With us, high labor costs and low productivity make a large part of Russian industry uncompetitive, so most of the products in stores in the country are imported. The investment is too low; the capital continues to leave the country, as well as talented young Russians. A bloated and inefficient state, and the businesses it controls, account for half of GDP. And, as Sochi’s costs indicate, corruption is rampant. The transplant and inefficiency cost Gazprom $ 40 billion in 2011, according to the Peterson Institute, a US think tank. Even more is being siphoned off by well-connected oligarchs – and dumped in countries like Switzerland and Britain who are willing to tolerate crooks America wisely rejects.
Ten years ago, the Russian budget balanced if oil was around $ 20 a barrel; today it must be around $ 103. The price of the “Urals mixture” fell to $ 108. Meanwhile, the new shale gas, which Mr. Putin likes to ridicule but which in fact characterizes the American entrepreneurial spirit that could never thrive in its kleptocracy, promises to bring down oil and gas prices.
Now that energy prices have stopped rising, the best estimates of GDP growth have been reduced to less than 1.5% in 2013 and to 2% in 2014. America and Britain do better, and the BRIC competitors of Russia, Brazil, India and China, are growing much faster. Russia is in the same league of growth as the declining eurozone – the weak countries Mr. Putin laments about.
The problem, as always, is governance. The list of needed reforms is familiar: more competition, privatization of state-owned enterprises, better investor protection, a more reliable legal system and a transparent regulatory framework. Yet the regime cannot implement such changes, as it exercises political control by controlling the economy: the status quo in Russia is preserved by monopoly rents, state corporations, a malleable judiciary, an opaque regulatory system and businesses that depend on Mr. Putin’s favors. . As long as the current political system prevails, Russia will remain economically weakened.
Seen in this light, recent events in Ukraine appear to be a manifestation of Russia’s weakness rather than its strength. Mr Yanukovych’s repressive and corrupt government is getting closer and closer to that of Mr Putin, to whom he increasingly resembles (see article); but many Ukrainians do not want to go any further in this direction. This is one of the reasons why Ukraine matters so much to Mr. Putin. It’s not only that without it, its much-vaunted Eurasian Union – a sort of Soviet-lite Union – would lose its meaning: it’s also that, if the Ukrainians succeed in rejecting the Putin-Yanukovych model and hand over their country on a democratic European track, they could inspire the Russians to do the same.
International sports jamborees are fun; beating a shy US president is good for morale; but ultimately it is the health of a country’s economy that determines its fate. The Soviet Union fell not only because its people rejected its ideology, but because its economy collapsed. Unless Mr Putin can make Russia work, his regime will go the same way.
This article appeared in the Leaders section of the print edition under the title “The Triumph of Vladimir Putin”