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

The optimists argued that through Medvedev, Putin would transcend himself and be able to fade safely and politically away. They set the Moscow tone. Despite what had happened to Khodorkovsky, then after Beslan and Kiev, choosing Medvedev calmed the chattering classes. It seemed to say, Russia was not turning into a dictatorship after all. The new president seemed so unthreatening – after all, he was almost obsessively posting criminally bland pictures he had taken himself on his website: of snowmen, sea views, sunsets. One young diplomat who had accompanied him sightseeing after a major international summit summed up the President this way. ‘He’s not stupid… he’s pretentious, that’s the word for him, and obsessed by his camera, constantly rather comically taking pictures with it… But he’s still the worst photographer ever.’ There was very little aggression in Medvedev, something almost childlike about him, which everyone could pick up on, and which had doubtless allowed him to glide so inconspicuously to the top. In his own words:

I do not feel that I have become a person who is addicted to publicity like a drug. I do not feel a physical need to always be in the limelight. At the same time I have changed in certain ways. Otherwise I wouldn’t be able to do what I’m doing now. Such are the rules of politics; the nation must know about the actions of those in power – we did not come up with the rules, it is not up to us to change them, and that’s probably for the best. 8

In fact, this marionette presidency both underlined and undermined the power of Putin. The most dangerous moment for any authoritarian regime is always when it tries to reform itself. Medvedev built up the constituency, intellectual infrastructure and anticipation for reform only to have them bitterly disappointed when he failed to deliver, announcing he and Putin had decided ‘years before’ that he would return in 2012. After years of insisting he was ‘president’, that he wanted to run for that office again, this comment implied Russia had been duped and insulted by the very people who had wanted him over Putin. This was after years of bad news. It was under Medvedev that the financial crisis exposed Russia’s governance crisis. One after the other Putin’s claims to have ‘pacified’ Chechnya, established the ‘dictatorship of law’, ‘liquidated’ the oligarchs, turned Russia into a fast-growth BRIC economy and the state into the vertical of power, were exposed as boastful illusions.

Putin had so successfully branded Russia as a BRIC economy and GDP growth had been so impressive – second only to China in this quartet in the 2000s – that the Russian elite seemed to have forgotten the inherent frailties of an emerging economy dependent on commodities. At the first Davos meeting, focusing on mounting economic problems in 2008, the Russian elite came across as hubristic. Participating in a panel discussion entitled ‘If America sneezes does the world still catch a cold?’ the normally sober then finance minister Alexey Kudrin boasted that Russia would be ‘an island of stability’ and that ‘interest in Russia would grow’. 9Putin as late as December 2008, almost three months after the collapse of Lehman Brothers had triggered financial meltdown, in his first broadcast as prime minister suggested the crisis would never impact Russia. He said the country would experience only ‘minimal costs for the economy, and more importantly our people’. Behind closed doors, the elite almost welcomed the crisis, believing it would harm the West whilst leaving a ‘decoupled’ Russia stronger still.

A year later, none other than Surkov was now warning of the ‘waves of poverty and confusion rolling from the West’. Instead of minimal losses Russia suffered the worst recession of the G-20 countries in 2009. The economy contracted by 8.9 per cent, a deeper slump than insolvent Greece in 2009 or 2010. 10Russia’s Central Bank spent one-third of its then $600 billion reserves in an attempt to ward off the collapse of the ruble. 11From peak to trough the Russian stock exchange lost over 80 per cent of its value and the oil price temporarily collapsed by 70 per cent. 12The government was facing a budget deficit and private companies hit a credit-crunch as Western banks restricted lending. Bubbles were exposed in property and retail as their dependency on now-restricted foreign lending hit hard. Unemployment jumped and capital flight increased, hitting an enormous $131 billion in the third quarter of 2008 alone, or roughly equivalent to one-third of the government’s hydrocarbon revenue that year. 13

The crash had poured cold water on Russia’s overconfidence. It was no longer clear that Russia was really a peer to the other BRIC economies. The mood swing was so sudden, that Medvedev himself admitted in front of a high-powered American audience at the influential Brookings Institution, a Washington-based think-tank, that he was ‘astounded’ when the crisis exposed Russia’s systemic vulnerabilities. 14Nothing captures the elite’s panic more than reports that a programme had been installed on Medvedev’s computer, along with those of Surkov and the powerful Kremlin aide Sergei Naryshkin, mapping Russia’s crisis regions in a danger index composed of sixty indicators, including Putin’s local popularity. 15As one government-affiliated analyst put it, ‘We thought we were rising with China, now we know we are declining with Europe.’ Capturing the new disquiet amongst the oligarchs, the billionaire Peter Aven publicly warned (but discreetly in a think-tank publication): ‘The last Russian government to face such momentous questions was Mikhail Gorbachev. The fall in oil prices in the autumn of 1985 resembles what happened in Russia in 2008.’ 16

This worried crisis talk about systemic volatility was not a uniquely Russian thing – the Financial Times itself would run a series on ‘Capitalism in Crisis’ during the Medvedev presidency – but it had shaken the confidence of Putin’s own ministers in his ‘stability’. 17The first cracks appeared in the Putin consensus. Parts of the government had started to sound like opposition critics.

As the urbane communications minister Igor Shchegolev once explained in conversation: ‘The economic structure maintains tremendous risks. As soon as the markets tremble, the oil price falls and all our social problems come out as a threat.’ For him this had come as a shock: ‘What changed during the crisis was that Russia realized that it had been globalized, that a market move in the US could actually hurt normal Russians and make them vulnerable.’ The return to Moscow of fears of economic volatility had convinced certain ministers of the need to change course. As Shchegolev explained to me on the sidelines of an international conference: ‘We saw that the economy was too reliant on raw materials. We realized we needed to develop scientific, commercial skills. This is the key idea – we are simply far too reliant on raw materials.’

It was in this climate that Medvedev began to undermine Putinism by promising to reform it. As president he promised, but broadly failed, to modernize what he called the four ‘I’s: institutions, investment, innovation and infrastructure. But he did greatly develop a fifth ‘I’: ideas. Medvedev was powerful enough to define Russia’s problems, but not powerful enough to do much to solve them. His defining moment was the launch of his modernization campaign with his essay ‘Forward Russia’, in September 2009. In those pages he rhetorically asked, ‘Could a primitive economy based on raw materials and endemic corruption take us into the future?’ 18Sounding almost like an opposition activist, Medvedev lamented how ‘the global economic crisis has shown that our affairs are far from being in the best state. Twenty years of tumultuous change has not spared our economy its humiliating dependency on raw materials. Our current economy still reflects the major flaws of the Soviet system: it largely ignores individual needs.’ 19He bemoaned a ‘half Soviet social-sphere’, crumbling infrastructure and weak democracy. 20Medvedev argued that Russia’s political institutions were too weak to support the development needed to catch up with the West.