Russia Cannot Learn Any Crisis Lessons and Lapses Into Putinism

During the annual World Economic Forum in Davos, delegates are not asking questions such as “who is Mr. Medvedev?” Or, “is it really the same Mr. Putin?” In fact, they are not asking any questions about Russia. Participants in expensive debates focus on lessons learned in the shockingly deep crisis and on problems hampering recovery, but the Russian delegation headed by the Finance Minister Aleksei Kudrin has nothing to contribute (Kommersant, www.newsru.com, January 25). China can boast about the invincibility of its economic model, but Russia is one of the worst losers in the crisis –and remains in denial of the deficiency of its state-controlled petro-economy. This politically enforced ban on thinking about causes and consequences determines the continuity of the economic disaster, and consequently up to 75 percent of Russian “business captains,” who habitually gather in Davos, anticipates further decline or stagnation (Vedomosti, January 29).

The official discourse, to the contrary, is increasingly upbeat, and Prime Minister Vladimir Putin stays on the message that the “Russian economy and finances have demonstrated their viability and, most importantly, the ability to recover rapidly.” Putin is particularly pleased with the stock exchange rally, omitting the inconvenient fact that the recent climb has brought the stocks to 40 percent lower than their peak in May 2008. Even the experts who discovered the “economic boom” in the second half of 2009, like Andrei Illarionov, now argue about weakening recovery and the exhaustion of its main drivers (Ekho Moskvy, January 29). It is the severely depressed investment activity, which started to fall in March 2008 and reached the deepest extreme of –30 percent in November 2009, that determines the slackening of the cyclical growth, but this lack of money is caused not by problems with credit but by strong business disincentives to invest, created primarily by administrative corruption (RBC Daily, January 28).

Mikhail Khodorkovsky, the persecuted entrepreneur who now sits in the tenth month of his second trial, wrote in a recent article that Russia’s international profile is shaped by its export orientation on two dissimilar commodities –energy and corruption (Nezavisimaya Gazeta, January 29). The latter grows unchecked, but the former is encountering difficulties despite the relatively stable price trajectory on the oil market. Russian “champion” Gazprom has started to re-evaluate its prospects on the European market, admitting grudgingly that the mistrust of consumers is not a temporary mood swing caused by the Ukrainian “wars” but a serious limitation for the planned expansion. Its board of directors has also acknowledged that the expectations for capturing a share of the US market must be aborted, and that involves another postponement –or possibly cancellation– of the giant off-shore Shtokman project, in which French Total and Norwegian Statoil are minor and increasingly doubtful partners (Kommersant, January 26).

Despite the demonstrated risk of high dependency upon oil and gas export, Russia in its uncertain recovery has become a more lopsided petro-state because its machine-building industry and construction sector have suffered greater damage (www.gazeta.ru, January 27). President Dmitry Medvedev trumpets the idea of “innovations” and tries to stimulate the development of high-technology sectors from nuclear and space programs to software and pharmaceuticals. His stimuli, however, remain ineffectual primarily because too many resources are directed to rescuing rusting industrial giants of the Soviet era, some of which Putin has chosen for exercising “manual management.”

This dominance of old structures over new priorities sparks a debate among economists, like Evgeny Gontmakher, and reformers-practitioners, such as Anatoly Chubais, over whether the modernization of the Russian economy is feasible without breaking the fusion of bureaucracy and wealth (Ekho Moskvy, January 25). The bottom line emerging from these blog-exchanges (mainstream media has no space for such extremism) is that real modernization –and not merely the application of some nanotechnologies– requires a profound reform of institutions, while cosmetic beatification of the ruling bureaucracy and exploitation of modernization discourse only weaken Putin’s system of power (Ekho Moskvy, January 28).

Medvedev’s experiments with small improvements in electoral procedures and minor liberalization of control over the media indeed pay few dividends in boosting his authority, but they erode the image of the Kremlin as supreme power that always knows what it is doing. Putin, therefore, becomes increasingly uncivil in cutting these experiments short, but –as Khodorkovsky reminds everyone– the issue fundamentally is not about Putin’s preferences but concerns risk assessment by the key groups of political and business elites. The plain fact of fin de siècle of petro-prosperity is gradually internalized by entrepreneurs (while bureaucrats are typically clinging to the status quo), so Putin’s PR game about making up his mind on reclaiming the presidential job and elbowing the hapless Medvedev aside is increasingly irrelevant. Far more relevant are Davos-type questions like “who is Mr. Khloponin?” Or perhaps, “what about Mr. Kozak?”

Khodorkovsky’s warning that shrugging off such questions and keeping wisely with “business-as-usual” leads very quickly to a breakdown, after which “Russia in its current form simply ceases to exist,” might seem an exaggeration. The shockingly painful recession has indeed produced surprisingly little public protest, but the accumulated anger is breaking the ice of Putin’s “stability” in various local explosions, from the rally in Kaliningrad against increased communal tariffs to resistance against police brutality and the escalating violence in Dagestan and Ingushetia (www.gazeta.ru, January 29). This anger is not necessarily a force pushing for democratic reforms, so the emboldened communists now claim that it would take one 100,000 strong rally in Moscow to kick Chubais out of the country and one three times its size to take control of the government (www.newsru.com, January 30).

Putin is determined to extinguish such “Ukrainization” of political life in Russia, but the “power structures” on which he used to rely have grown rotten from corruption. Medvedev seeks to let the steam out by opening some small channels for expressing the desire for change, but the laws of politics are different from physics and the steam pressure is only growing through such pseudo-liberalization. It appears probable that the next Davos forum will have to grant more attention to the giant-in-distress.