Friday, August 02, 2013

Putin's Russia: Stability and stagnation

After a week in Russia I concluded that Russia is very stable – perhaps too stable. President Vladimir Putin appears to want little political or economic reform, lest it lead to instability. Nevertheless, divisions are appearing in his entourage: some favour clamping down hard on the opposition, while others counsel softer tactics. Sometimes Putin backs one group, sometimes the other. On foreign policy, too, Putin seems to have two faces. The pragmatic Putin wants to work with the US in dealing with common problems. But another Putin views the US as a hostile power that is trying to destabilise Russia, and is happy to do things – like sheltering the fugitive Edward Snowden – that infuriate it.

In Moscow, both opposition leaders and the more liberal government officials agree that the need for political and economic change is greater than ever, but that the chances of serious reform are close to zero. After mass demonstrations in the winter of 2011-12, optimists thought the regime would attempt to win back the support of the middle classes by modernising the country’s governance. But these days nobody expects much to change.

Russia’s leaders worry that big economic or political reforms could upset vested interests, create losers and perhaps strengthen the opposition. The government has in fact attempted some reforms of the university, school and healthcare systems, in order to save money, but these have been unpopular. Reform of the pension system – which would mean curbing pension rights – has been mooted for over a decade but frequently put off. There always seems to be an excuse for postponing major reform.

The slowdown of the economy has come as a shock to Russia’s rulers. In 2010, 2011 and 2012, Russia grew at close to 4 per cent. This year growth may be less than 2 per cent. The government initially blamed the slow-down of the world economy: demand for Russia’s natural resources was diminishing. But in April, when Putin gathered key ministers and experts to discuss the economy at the Black Sea resort of Sochi, they concluded that some of the problems were home-grown.

Officials list the structural problems: the absence of spare industrial capacity (in the 2000s the economy could grow quickly by turning on Soviet-era plants); the lack of labour mobility in Russia (old Soviet ‘mono-towns’ are propped up by the state); an ageing population; and, especially, the falling rate of private sector investment. Net capital outflow of $40 billion in the first half of the year did not help, but inadequate rule of law is perhaps the major deterrent to investment. Not much is being done about it. “The leaders put too much emphasis on stability,” said a former senior official. “There is a lack of energy at the federal level”.

More sustainable and less volatile growth requires Russia to wean itself off dependency on natural resources. One official admitted that though diversification remained a political objective, achieving it would be extremely difficult. Russia had to respect its natural strengths, which were raw materials, ‘mathematically-intense services’ (like data processing and computing) and land, said the official – who noted that Australia did quite well despite depending on exports of natural resources.

A high oil price provides cash for the government to satisfy vested interests and undermine potential opponents. But even a lower oil price would not necessarily trigger much reform, officials warn. “Everyone understands we need a crisis before you get institutional reform”, said one. “But they hope you can escape the crisis. Nobody in government or opposition has a really good plan for implementing reforms.” Even opposition leaders doubt that a drop in the oil price would spur reform. “There are no examples in Russian history since the USSR of bad economic performance provoking political unrest,” said one. “And if there are more demonstrations, so what?”

But if reform driven by bottom-up protests seems unlikely, for the time being, could splits in the ruling elite lead to top-down change? There is no longer a division between Putinites and followers of Prime Minister Dmitri Medvedev, because he is no longer a significant player. But the Putinites seem to be dividing between siloviki (those linked to the security establishment) and pragmatists. The battle between them is not yet dangerous to the stability of the regime, because Putin is clearly in charge.

The siloviki, led by, among others, Alexander Bastrykin (the head of the ‘investigative committee’) want to crush dissent. The siloviki ensured that Alexei Navalny, an opposition leader, was sentenced to five years’ hard labour in July. They do not want him to compete in September’s Moscow mayoral election.

But after one night in prison, Navalny was released. This means that he can – while his appeal is pending – run for mayor of Moscow. He can thank the pragmatists, who include Sergei Sobyanin, the current mayor of Moscow, for his release. Sobyanin, it seems, wants to run against Navalny in a free and fair election, as he knows this would enhance his legitimacy and that he would win easily. The Navalny affair is a reminder of the degree to which the courts are controlled by the executive.

Many oligarchs, liberals and moderates see Sobyanin as a possible successor to Putin. A former governor of Tyumen region, deputy prime minister and head of the presidential administration, he is a grey, Chernomyrdin-like figure. Sobyanin is very loyal to Putin and said to be effective. One former official who has worked with him said that if Sobyanin was in charge he would try to make moderate improvements to the system.

Navalny, who began as an anti-corruption campaigner, is emerging as the most credible opponent of Putin, though he lacks large-scale support (opinion polls suggest that he would be lucky to win 10 per cent of the votes in Moscow) and his own party has not been registered. The most liberal opposition leaders do not trust him to be a real democrat.

The Republican Party seeks to bring together all the liberals but has very little money and too many leaders. One of the party’s four co-leaders, Vladimir Milov, recently walked out to found his own party. Of the others, Vladimir Ryzhkov voted against the Republicans backing Navalny for mayor of Moscow, but Mikhail Kasianov and Boris Nemtsov voted in favour and so the party will support him. The opposition looks like remaining weak – and Russian politics are on course to remain stable.

Russia’s relations with the US, however, are in flux. The ‘reset’ – the warm tone that prevailed between Presidents Barack Obama and Dmitri Medvedev – had disappeared before Putin returned to the presidency in May 2012. This year the atmosphere has gradually soured.

Fathoming Putin’s intentions towards the Americans is difficult. Ask senior Russians how Putin sees the US and you get two different answers. One is that Putin would like a business-like relationship in which the two sides can deal with common challenges, like terrorism, Afghanistan, Iran, Syria and so on – even though they will often criticise each other. Putin understands that the US is the pre-eminent superpower and that he must work with it on some of these issues. Thus Putin personally backed last year’s Exxon-Rosneft deal – perhaps worth up to $500 billion – to develop hydrocarbon resources in the Black and Arctic Seas.

The other answer is that Putin really is paranoid about the US. He takes at face value the often insincere rhetoric of American politicians about the importance of spreading democracy and human rights. He thinks that the US will inevitably try to intervene to overturn regimes it dislikes, as it did in Afghanistan, Iraq, Libya and Serbia. Putin does not distinguish between Republicans and Democrats, believing them all to be interventionist (this upsets some of Obama’s people, since Obama and Secretary of State John Kerry opposed the Iraq war). This hostility to the US explains the clampdown on Russian NGOs that get foreign (and notably American) funding.

Both these views of Putin are probably true. He switches from one face to the other, which makes him a difficult partner for the Americans.

Obama has two priorities with Russia but is making little progress with either. One is arms control. Speaking in Berlin in June, Obama proposed new cuts to nuclear arsenals. For several years Russia has complained that American plans for missile defence could affect its strategic nuclear capability and therefore limit its enthusiasm for cutting warheads. In March the US said it was scrapping the fourth and final phase of its planned missile defence system in Europe. But Russia has not responded to that move or to the Berlin speech. One reason may be its desire to maintain a significant nuclear superiority vis-à-vis China.

Obama’s other priority is Syria. Putin has gone along with the idea of a ‘Geneva II’ peace conference, but this has been stymied by the West’s inability to deliver the opposition (though this is because the opposition is losing, which – in the view of US officials – is partly because of Russia’s support for President Assad). Most Russians believe that events in Syria are proving them right: they always warned that much of the opposition would turn out to be nastier than Assad’s regime. Syria will remain a source of discord for the foreseeable future.

There are other irritants in the US-Russia relationship. Russia has banned American exports of pigs and cattle, because the meat contains the chemical ractopamine. Meanwhile the ‘Magnitsky list’ annoys the Russian government: Congress has passed an act that enables the administration to impose visa bans and asset freezes on officials linked to the death in custody of Sergei Magnitsky, a lawyer and whistle-blower.

And now Russia has granted temporary asylum to another whistle-blower, Snowden. American officials think that Putin under-estimates how much Snowden matters to the Obama administration, which sees him as a serious criminal, and therefore how much the affair can damage the Moscow-Washington relationship. Obama may now be unwilling to meet Putin in Moscow in September, after the G20 summit in St Petersburg, as had been envisaged.

Those who know Obama well say that he is unwilling to spend time on subjects that do not deliver results. So the lack of progress on arms control and Syria, plus the Snowden affair, may lead to Obama minimising the time that he spends on Russia. Not that that is likely to upset Russia’s leaders a great deal. What they care most about is stability within Russia, an objective that they are – for now – achieving.

Charles Grant is director of the Centre for European Reform


Alexander Rahr said...

Charles Grant's outstanding trip report makes me wonder: Can Russia still become a success story, if it solves its economic problems? Or is it doomed to failure and is heading to another collapse? Charles provides arguments for both scenarios. In any case, neither the EU nor the U.S. should abandon Russia on the grounds that it has failed to democratize itself. The G-8 will be surpassed by the G-20 in the next 10-15 years. Russia is needed as link between Western industrial countries and the emerging powers of the BRICS.

Anders Aslund said...

Charles Grant’s report of his trip to Russia was close to perfect. Two things stand out. One is the combination of stability and stagnation, the other is the dual attitude to the USA, pragmatic and paranoia. Fortunately, it now seems as if the Obama administration is becoming more realistic, and less ambitious, with the Putin regime, for the reasons stated.