Mr. Putin’s economic legacy

The shattering breakup of the Soviet Union’s political, social and economic order added 15 countries to the map of the world. When the Soviet Union fell apart 25 years ago, optimists thought Russia was on the road to becoming a free-marketrussia-4 democracy. Many in the country wanted Russia to become a nation state similar to those found in Europe. They were to be sadly disappointed. Under Putin’s rule, the hope for Western style economic and political modernization has disappeared. In retrospect, the problems Russia faced after 74 years of Soviet rule and several hundred years of rule by the Tsars were underestimated. It may have been unrealistic to think that Russia could build new, unfamiliar governing institutions and adapt to them quickly.

At the time of the Soviet collapse, Vladimir Putin worked for the comparatively liberal mayor of St. Petersburg. When Putin came to power in 2000, he was thought to have democratic leanings and was not considered to be anti-Western. Over time Putin’s policies moved in the opposite direction, he promoted state nationalism, promoting the concept that Russia was a besieged country. Borrowing from the history of the Tsars, orthodoxy, nationalism, and autocracy became his guiding principles.

As a consequence, the economy has stagnated, competition in the Russian market has been stifled, and the state’s share of the economy has doubled.russia-1 Alternative power centers have been deftly eliminated as Putin skillfully used the country’s vast natural resources to create a corporatist state. Between 2005 and 2015, the state’s share of the economy increased from 35% to 70%. Russia’s business class does not suffer from a lack of commercial aptitude. The adverse social, political, and economic environment promoted by Putin stifles a great deal of economic progress. Political opponents are suppressed along with independent business people. Russia’ market is not free, the laws are opaque and inconsistently enforced. Insiders with the right connections are able to bend the legal system to fit their needs. The close relationship between political power and property has created a regressive authoritarian regime.

Mr. Putin’s economic outlook was shaped by his service in the KGB (security service) and his time as St. Petersburg’s deputy mayor. His view of the role of private enterprise is distorted because it emphasizes personal connections, special access and deals. Free competition in the marketplace has no place in Putin’s economic equation. Production, management and marketing are not considered to be important factors. Putin relies heavily on his former KGB associates. The revamped security service, the FSB, has accumulated more power under Putin’s political system. The security services have achieved a great deal of disconcerting control over political and economic matters. As a result, the wealth and physical safety of much of Russia’s population is controlled by Putin.

Despite his warped economic policies, Putin’s personality cult is growing because he has upgraded the country’s status in the world. The wars in Ukraine, Georgia and Syria have shown his willingness to use military power to achieve politicalrussia-5 ends. When he annexed Crimea in 2014, his approval rating increased to 80%. He knows how to take advantage of Russian fears and the yearning for the days when Russia was a world power. By playing to the Russian people’s sense of jealousy, resentment and victimization, Putin has managed to halt direct regional elections and has done away with the principle of federalism. He is not adverse to using rigged elections, ruthlessly obliterating the liberal opposition and using television as a blunt propaganda tool.

A number of observers believe Putin wants to control a buffer zone between Russia and the West. According to Putin, all of Russia’s problems are due to Western plots. As a Russian counter thrust, many security officers work in the sphere of psychological warfare and disinformation. They are highly adept at using online and social media outlets to achieve their ends. Although the Russian government suppresses independent civil and political activity, the overall environment is still less restrictive than in Soviet times.

Russia ranked in 116th place on the Corruption Perceptions Index in 2015. In comparison, the United States ranked 16th and Denmark, the least corrupt russia-3country, was in first place. A growing number of analysts believe that if Russia maintains its current economic course, the country will slowly decline intellectually and economically. The remedy is to switch to an open access economy based on the strong rule of law. The proposed cure, however, runs contrary to Putin’s present policies.

With a population of over 142 million, Russia is the world’s largest county, about 1.8 times the size of the U.S. Russia’s GDP per capita computed at purchasing power parity (ppp) is $25,400. Russia lags behind Germany’s $46,900 and the United Kingdom and France which stand at $41,200. Russia is far behind the United States which has a per capita GDP (PPP) of $59,390. Mr. Putin could have chosen a different economic course for Russia. But as a product of the grim Soviet system always highly suspicious of the West, his basic inclination would have been to do what he did.

3 Responses to Mr. Putin’s economic legacy

  1. John Huppenthal

    Great post. Let me add an item. The value of Russia’s stock market has imploded over the last 4 years. In 2015, it was worth less than $200 billion (World Bank, that is so scary and unbelievable I went back and checked it four times). Their economy has also imploded.

    Compare that with the United States listed stocks currently at $23.4 Trillion with an unlisted sector that is easily worth another $10 Trillion.

    Since the stock market is essentially a time machine, moving money from the future to the present to make that future possible, Russia has no time machine and essentially, a very limited future – for the reasons you lay out.

    Now I can see why Romney laid them out as the most serious threat.

    Putin is in a very tight corner.

  2. Thank you for the comment. Your insight is appreciated.

  3. American Vendetta

    I think your last paragraph needs revising.