Category Eastern Europe

A short article from Bloomberg: How Putin is Surviving

Nothing earthshaking other than he has about three years of cash reserves to keep to government budget in check. Of course, this does not really address the declining economy. Keep in mind the next election is in March 2018 (and it is for a six year term).

 

An article in the Huffington Post caught my attention: What Russia’s Failing Economy Means

A few lines from it:

“But the economic decline in Russia started in the very beginning of 2012. The growth rate was only 1.3 percent in 2013, for example, when oil was well above $100 per barrel”

“The key problem of the economy, and the key reason for the decline, was the decline in investment. The economy cannot grow without investment…In 2012, investment stopped growing. In 2014, investment started to decline. That’s the main reason why the Russian economy is contracting.”

“That means that the only one real chance the Russian economy has is if the government improves the investment climate and boosts investment. But in order to do this, Russia needs to implement the rule of law. Once again, that’s not in the interest of Putin, because implementing the rule of law is the best way for him to lose power” (I put this line in bold)

The increase in military budget by 0.8 percent when inflation in the country is 13 percent actually means shrinking of the military budget. I would not pay big attention to the nominal numbers because inflation in Russia is very high.

“It’s important to note that the Russian economy is not in free fall. It’s not like a landslide, like in Venezuela” (which nicely serves as a lead-in to my next post)

And finally:

“They [poverty and unemployment] may change the political climate, but it won’t happen in a year, or in two years. It may take a decade, maybe, but it’s not a very fast and rapid process.”

 

This is the date that sticks in my mind. The Russian economy was pretty much in freefall in 2015 with at least a 3.7% drop. In 2016 it is estimated to drop another 1.5%. After that, it really depends on the price of oil, which the government of Russia has a hard time controlling.

If in 2017 the price of oil has not risen above $50 a barrel, then expect the Russian economy to continue to contract. Even if there is a bump in oil prices, the economy would most likely remain in the doldrums, especially with the trade sanctions that are in place. In the U.S. any incumbent coming into an election with three years of a declining economy would be out of office faster than you can say “Herbert Hoover.”

On the other hand, elections may work a little differently in Russia. Both Putin and Medvedev have been elected to office with majority vote. This has been the case for the last four elections. In 2000 Putin had 53.4% of the vote, in 2004 Putin had 71.9%, in 2008 Medvedev had 71.2% of the vote, and in 2012 Putin had 63.6% of the vote. But, in the last election, which Putin won comfortably, there were allegations in some areas of election fraud. Allies of Putin do control all four television stations and most of the press has remained timid. The Russian opposition is often organizing by internet, vice more formal structures.

In March 2018, Putin may face the first truly contested election in his career. In the last election a half-dozen significant candidates were simply ruled ineligible to run by the courts. Part of the application process was that they needed to get two million valid signatures, which was a difficult undertaking (in contrast, it only takes a $1,000 to get on the ballot in the New Hampshire presidential primary, something that was achieved by 58 people in 2016).

Will Putin still be able to win a 2018 election using current methods (control of the television stations and breaking up the opposition) or will they have to consider wide-spread voter fraud (like was done in Georgia in 2003 and was done by Yanokovych in Ukraine during the 2004 election)? It is doubtful that Putin would choose to loose the election and step down. To date, no one in power in Russia has lost an election, and this is the case in several other countries that made up the former Soviet Union. Furthermore, there are the pesky corruption problems among many in high levels in the government. The last thing they need is a hostile regime in power who may choose to vigorously investigate. There does seem to be a tradition that the losers of elections are investigated for corruption. This includes Timoshenko in Ukraine in 2010 (who was jailed but is now released), Yanokovych in 2014 (who decamped to Russia), and Saakashvili of Georgia in 2014 (who decamped to Ukraine). These prosecutions were often with cause.

So, it appears that most people are expecting Putin to win the election regardless. It really depends on how sketchy winning the election “regardless” becomes. Will it be outrageous enough that there is another color revolution (as in the Orange Revolution in Ukraine in 2004 that thwarted Yanokovych the first time). This is the question. We have seen people power in Georgia throw out the regime of Sheverdnadze (Gorbachev’s old foreign minister) in November 2003 with the Rose Revolution. We have seen people power in Ukraine twice take on the Russian backed Yanokovych (thwarted in the 2004 Orange Revolution and thrown out of power in 2014). Is this possible in Moscow in 2018?

It was people power that helped halt the coup in August 1991 as Yeltsin stood in Red Square. This directly led to the end of the Soviet Union. These things are hard to predict and they often quickly take on a life of their own. Yanokovych was legitimately elected to be president of Ukraine in February 2010. Protests started against his rule in November 2013 and he was out of office and left the country in February 2014. Similarly, Gorbachev became the head of the Soviet Union in 1985. The hardline coup against rule occurred in August 1991 and the Soviet Union was dissolved in December 1991. Not sure many “Sovietologists” in July 1991 expected the Soviet Union to cease to exist by the end of the year.

Russian evokes images of snow, tundra, vast expanses of country, brown bears, head scarf wearing peasant women and balalaikas. Of course, most Russians live in cities. The county is 73% urban (the U.S. is 82% urban). Commies loved concrete and it shows.

Moscow is a very big city, with a population of 12.2 million people in the city limit and 16.8 million in the urban area. This is 12 percent of the population of a country of 144 million people (and 2 million in Crimea). It is the political center of the country, it is the business center of country, and it is the cultural and entertainment center of the country. Even many of their famous hockey players come from Moscow. It is sort of like Washington DC, New York and Los Angeles all rolled up in one. In contrast the expanded Washington DC metropolitan area makes up 2 percent of the U.S. population (6 million out of 322 million) and America’s largest metropolitan area, centered around New York with 20 million people makes up 6 percent of the U.S. population. Moscow is the largest city in Europe.

The second largest city in Russia is the beautiful St. Petersburg at 5.2 million and after that, it is Novosibirsk with 1.6 million. Moscow simply towers over the rest of the country demographically, politically and financially. Russia has a second city (St. Petersburg), but not a clear third or fourth city. Moscow accounts for 22% of the Russian GDP.

This centralization means that most likely any political change, be it a reform movement, a palace coup, or any actual demonstrations are going to be centered in Moscow. Movements are probably not going to start in the provinces and then move to Moscow.

Moscow will be the center of change in the governance of Russia if there is such a change. There is nothing like an Iowa caucus or a New Hampshire primary. In the last election in 2012, Putin won with 63.6 percent of the vote in a campaign that included only one outdoor public speech! The vote for the Moscow Oblast (region) for Putin was 56.6%. Moscow might tire of his regime quicker than the rest of the country, and being the center of burgeoning Russian middle class (which now under assault due to the economic downturn), their allegiance and well-being is critical in the long-run to regime survival. If the Russian electoral system does not allow for them to properly express their displeasure and make governmental changes (and there are many reasons to believe that it will not), then this is where the change will come from.

On the other hand, many people have a strong interest in maintaining the current system in some form (especially considering the degree of corruption). So as they begin feel the pressure to change, they may try to internally reform themselves. There have been several examples of top-down reformers in Russian history. Their track record is not particularly good. Gorbachev lost control of the government five years after he instituted reforms. Khrushchev was sent off to retirement in late 1964, two years after he actually backed away from his reforms.

So the question becomes, does the Russian government attempt reforms before the next elections (which are coming in March 2018), what is their nature, and what is going to be the long-term result of that?

There seems to be a sense out there that somehow or the other, that the Russians are very stolid, patient, long-suffering and willing to tolerate considerable duress under their government without complaint. Not sure exactly how that idea got established. The last hundred years of Russian history has shown considerable instability.

In the last hundred years Russia has had three revolutions that overthrew the leadership and changed the entire form of government. The first revolution happened with the “February Revolution” which occurred in March 1917, when the Tsar abdicated and a provisional government was established, headed first by Prince Georgii Lvov and then by Alexander Kerensky. This actually briefly created a struggling democratic government that ruled (or misruled) Russia for eight months. The next revolution was when the Bolsheviks bloodily throw that government out of power and took over in their “October Revolution” (which occurred in November under the new calendar). The third revolution occurred in December 1991 when the heads of Russia, Belarus and Ukraine decided that they would rule themselves and dismissed the communist government headed by Mikhail Gorbachev, dissolving the Soviet Union.

This is three successful revolutions in a hundred years, or one every 33 if you want to use an average. Of course, two occurred in an eight month period, and then it was 74 years before the next one occurred.

On the other hand, there have been some significant changes to the Russian governance that did not necessarily include large street protests. For example, the shift from Stalin to Khrushchev generated significant changes in how the country was run and managed. Communism under Khrushchev and its later leaders was very different from the leadership of Lenin or Stalin, when a communist society was being built, often with considerable brutality. It was a change from a state that was revolutionary to a more mature and stable dictatorship. It also introduced the idea of reform of the Soviet system, something that did not last long under Khruschchev, but would later influence Gorbachev.

The next significant change was the reform movement that started under Gorbachev in 1986 or was it Andropov in 1982? Gorbachev arrived in power in 1985, instituted “Perestroika” (restructuring) in 1986 “Glasnost” (openness) in 1988. These reforms were quickly followed by the ending of the Soviet Union in 1991, but it was a significant change in the governance of the Soviet Union for as long as it lasted.

Then there was another significant change in governance with the change from Yelstin to Putin in 2000. This moved the country from a troubled democracy to one that for all practical purposes over time has turned into a dictatorship.

The interesting aspect of all four of these last changes is their fundamentally peaceful nature. Three were done with little open protests and the collapse of the Soviet Union happened four months after the violence of the “August Coup.” Even though their impact was far reaching, they were hardly classic revolutions (unlike the two in 1917). They might be better described as reform movements or even palace coups, but they did significantly change the way the country was ruled. So, this is six major changes in how the country was ruled over a hundred year, or one every 17 years, with the longest being 37 years, being from the October Revolution in late 1917 to the demotion of Malenkov in early 1955 (who was eventually allowed to retire instead of being killed, which was a significant change in the Soviet system).

In contrast the United States has not had any revolutions in the last 100 years, and no significant changes in the way we are governed. The two biggest changes in our recent history was the “New Deal” package of reforms that came during the Great Depression of the 1930s and what I call our “cultural revolution” of the 1960s. They certainly were significant, hard to say if they were as significant as the three non-revolutionary changes in Russia. So, I would argue that Russia is more prone to revolution and revolutionary change than places like the United States, United Kingdom or many other modern democratic counties. This should not really be surprising.

But one more point about the “long-suffering” image of the Russian people. In World War I, Russia lost 1.1% of its population in the war and its government was overthrown (twice). In World War I, France lost 3.4% of its population while Britain & Ireland lost 1.6% (and Scotland lost 3.1%). Other countries that lost a higher percent of population killed than Russia are: Australia at 1.2%, New Zealand 1.5%, Italy 1.6%, Bulgaria 1.9%, Austria-Hungary 1.9%, Germany 3.0%, Rumania 3.3%, Turkey 3.7%, and poor Serbia at 5.7% of their population lost in World War I! (Just for comparison, the U.S. lost 0.1% of its population in World War I, see Niall Ferguson, Pity of War, page 299). The “long-suffering” Russia people seemed to have bailed out a little earlier and at less cost than most of the other major powers in World War I. As I also like to point out to people convinced of the softness of America and the firmness of the old Soviet Union, the U.S. lost 58,000 people after a 15 year commitment to Vietnam (1957 – 1973) and then withdrew. The Soviet Union lost 15,000 people after a 9 year commitment to Afghanistan (1979-1989) and then withdrew.

So, it would appear from a most casual look that there is not much of an argument that the Russian government is somehow or the other more immune to revolution or palace coups or other significant changes in ruling systems because of the “long-suffering” nature of the population. It appears that they are as willing as most to change things up and more willing than some.

Just to give one more number, Putin has been effectively in power for 16 years (since 2000).