Ben Judah - Fragile Empire - How Russia Fell in and Out of Love With Vladimir Putin

Quickened by the surge in oil prices the government policy of paying off foreign debts, lowering sovereign debt, balancing the budget, building up reserves and liberalizing the economy paid off for ordinary people. For the country as a whole, the economy grew at an average of 7 per cent a year during Putin’s presidency, and government debt was reduced to just 9 per cent of GDP by 2010. 15Foreign investment flooded in, the stock market boomed from just $74 billion in 2000 to over $1 trillion by 2006. 16

For normal Russians, the raw materials boom fuelled a consumer revolution. Real incomes rose 140 per cent and unemployment slumped. 17GDP per capita in PPP terms, which had stood at $5,951 in 1999, jumped to $20,276 by 2008. 18Russians living below the poverty line fell from around 30 per cent in 1999 to about 13 per cent in 2008. 19The stock of private housing increased by over one-third. 20Mobile phones and personal computers went from being unknown to ubiquitous. New car registrations increased by two-thirds. 21Globalization brought foreign companies into every (legally permitted) Russian sector and major city, whilst Russian companies entered the markets of almost every foreign country. These facts suggest that it would be surprising if Putin had not been so popular; any politician in his place would have been as popular – indeed one who had built up democratic institutions and fought corruption might have been unimaginably so.

Russians were well positioned to enjoy a strong rise in consumer power. To this day, most have low debt and many own their own homes without mortgages, having ‘inherited’ them from the Soviet state. The jump in real incomes was thus immediately available for shopping. The first major foreign supermarket chains arrived in Russia in 1997, but it was only in the mid-2000s that they proliferated. European giants such as Auchan and IKEA threw themselves into the market earning record profits. Russia’s one IKEA store in 2000 had spawned fourteen by 2011. 22Modern malls were soon present in almost all major cities from Krasnodar in the south to Yakutsk in outer Siberia. The average spend was so much in many of these that foreign investors quickly realized that Russia’s GDP per capita was surely a heavy underestimate with perhaps as much as one-third of the economy still in the shadows. This is without even calculating what Russia’s value might be if money that was being stolen or smuggled out of the country could be counted.

The boom returned Russia into a solvent actor on the world stage. To Moscow’s enormous satisfaction, on 31 January 2005 the government paid off its entire balance of IMF debts, three and a half years ahead of schedule. In summer 2006 the remaining $23 billion debt it owed to its ‘Paris club’ of creditors was paid off. As pro-government commentators crowed from every federal TV channel, the state – which had effectively been in receivership when Yeltsin defaulted in 1998 – was ‘independent’ once again. However, it was not lost on the smartest observers, including Surkov, that this upswing was precariously reliant on commodity prices:

We are not like Kuwait. We are a very big country with a large population. We have stretched wide and we have a very big and costly infrastructure. Besides, we should also bear in mind that we are a northern country. Our expenses are too high. We will be unable to be a prosperous small emirate; we are a great big country, which oil will be unable to feed. We should learn to earn money with our brains. 23

The ‘grey cardinal’ failed to mention that it was during the first ten Putin years that Russia, the world’s largest oil producer, had seen its budget dependence on hydrocarbons remain firmly closer to the profile of the world’s second largest oil producer, Saudi Arabia, than that of the diversified economy of the then third, the United States. In 2001 oil accounted for only 34 per cent of export revenue, but it had grown to 52 per cent by 2011. 24In the same ten years, oil and gas exploded from just 20 per cent of government revenue to 49 per cent. 25

This was not entirely the fault of Putin’s economic planners. This is the pattern they inherited – and is as it has always been. The cycles of Russian history turn in accordance with commodity prices. Under the tsars, the government lurched from repression to reform in line with the price of its lifeline export – grain. In 1929 it was the collapse of the grain price that shattered the precarious balance of Lenin’s New Economic Policy and pushed Stalin towards collectivization, terror and totalitarianism. The Soviet superpower invaded Afghanistan when the price of oil was at historic highs in 1979–80 and collapsed as it tumbled, creating first a fiscal crisis, then a balance of payment crisis, then a food crisis as the state was forced to beg the West for credits to feed its cities. Such is the fate of a state that raises its revenues as a raw material exporter.

As always at the head of these historical cycles, the regime grew hubristic. The change that had taken shape could be seen in the capital’s skyline. The buildings thrown up in Moscow in the 1990s were glassy, forward looking and derivative in their design. They were built like they did not belong in this city – like the first forward units of a Western reconstruction army. Yet without anybody taking much notice at first, throughout the 2000s the style morphed. Russian petro-rubles began to throw up a fashion all of its own. Bullying towers sprouted round the ring roads, with gothic turrets over dark-tinted glass fronts, topped by sinister spires, their curves and points mimicking the Stalinist skyscrapers of the centre in their domineering presence, and their utter disregard for the old Moscow they overshadowed of crooked lanes, white churches and flecked pale paint.

The boom was not just dramatically changing Moscow but Russia. It was driving four megatrends below the surface. The boom was building up a middle class, bringing millions online and sucking in millions of mostly Muslim migrants. The surprise cultural winner of the boom years was not one of Putin’s projects – but a resurgent Orthodox Church. It also changed the way in which the Moscow political class behaved. As the price of oil soared, it was growing ever more ambitious, but its foreign-travelling children shunned Nashi and were in love with glamour magazines, blogging and being hipsters.

They were neither ‘new Russians’ nor ‘old Soviets’. These were people who dismissed as sad throwbacks both the old men that still pinned ‘hero of labor’ to their lapels and the leather-jacketed bandits they crossed in the streets. They read the Russian version of Elle , bought their furniture from IKEA, wanted iPhones and went on holiday in Turkey. This was the kind of Russian which flourished under Putin – those in a new rapidly growing, educated and globalized consumer class whose emergence is the best thing to have ever happened to this country.

The biggest myth that the Moscow elite and Western analysts held in the 2000s about Russia was that this ‘new middle class’ was a thin crust sitting on top of a huge retrograde mass of drunken urban peasants who would vote for Putin, Zhirinovsky and probably even Hitler if given half a chance. This elitist point of view – which was implicitly Putin’s and the purpose of managed democracy – did not recognize how deep, fast and thick social changes had taken place. The emerging middle class ballooned during this period, expanding to at least a quarter of the population, one-third of the adult population and became a majority in Russia’s major cities. 26Yet at first it confused people – meaning a dispute about what to call this class raged through the late 2000s. Was it really a middle class when it was a minority? Or should it be called the ‘independent class’ or ‘people who can live by themselves?’ Or the ‘creative classes’ as its more artistically inclined members insisted? No two analysts agreed, other than on that a vague, but tangible new way of being Russian was right in front of them.