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

As Putinism by consent eroded, the legal infrastructure for authoritarian rule was put into place. A law passed under Medvedev that had decriminalized libel was reversed, the legal definition for treason was ominously widened to include threatening Russia’s ‘constitutional order’, a list of harmful websites drawn up, huge fines passed for ‘illegal protests’ and any NGO that received funding from abroad was forced to carry the label of ‘foreign agent’. Navalny was charged with embezzling on a timber transaction and confined to the capital. He was stunned; if found guilty he could be jailed for ten years. Historians were speechless – crimes with lumber were amongst those Stalin chose with which to prosecute Bukharin in 1932. It was as if the Medvedev years had never occurred. Now prime minister, even Medvedev himself talked like his presidency had been an illusion. ‘They often tell me you’re a liberal,’ he said to a United Russia audience, ‘I can tell you frankly: I have never had liberal convictions.’ 18

Russia seemed to be going backwards. Slowly, repression grew darker. ‘The good news is – I don’t have a sister,’ wrote Navalny when the police searched his parents’ business for the first time, then opened a criminal investigation into his younger brother. 19Internet surveillance systems and a new law that effectively allowed the FSB to spy on Russian citizens without restrictions were put in place. Out in the open, ‘Cossack brigades’ were put on patrol in Moscow and a ‘purge of the elite’ endlessly discussed on state TV. Starting with Anatoly Sverdyukov, the defence minister, dismissals swept throughout the bureaucracy. Their crime: ‘corruption’. Sounding ever more conservative, Putin started to say that Russia would resist ‘any outside interference in our affairs’. 20Russia, he expounded, was ‘a unique civilisation’ – different from Europe. 21He was on the offensive again. On the streets, protestors were outnumbered by thousands of OMON. He was winning again. ‘The opposition,’ Putin scoffed, ‘they ask for the impossible and then never do anything.’ 22

Moscow had come full circle. The ‘creative classes’ sunk into the anguish they had felt when Putin announced his return. It had really happened. Even the apparent concession that Khodorkovsky would be freed two years early in 2014 was only interpreted as a way to divide the opposition, by throwing in a new, divisive leader to undermine Navalny. The gigantic expectations of the protest movement had crashed against the old repressive routine. The opposition busied itself electing a coordination council to represent itself, but even in its own bars and hangouts, hope had given way to disappointment, even disorientation as it sank in the system had not changed. The polls made dreary reading: a majority of Russians were both unhappy with the Putin regime and felt the protest movement had failed. 23Amongst those elected to a new coordination council was Navalny’s deputy Vladimir Ashurkov, the man organizing all his initiatives. We met for breakfast in a cheapish coffee chain and ate burnt eggs and chewy salmon. ‘What did people expect?’ he sighed. ‘The expectations were just enormous. But we have come so far. When I met Alexey he was just one man on his own. First we turned him into a public figure. Then we created a team. Then we led a movement. Then we created this coordination council. This will take time.’ He picked at the salmon, imagining his future. ‘There are two fixed trends here. The declining popularity of those that hold power and our rising popularity.’ He then asked for my pen and, in my notebook, drew a biro line going exponentially up and another crashing down. Neither of us had any idea if those lines were years, or even decades long, ‘but sooner or later, they cross.’ Six weeks later his apartment was raided. They even searched his vitamins. Ashurkov could only tweet, nervously.

The Putin consensus had been replaced by class and culture wars. It implicitly acknowledged having lost the most advanced part of the nation; they would have to rally the most backward. The other Russia that Putin was now appealing to were the ‘vengeful losers’ who had suffered the most in the 1990s: pensioners, state employees, factory workers, war veterans and bureaucrats. There are a lot of them. Though Russia buzzed with talk of a new middle class in 2011, as many as 53 per cent of people were living off the state budget either as state employees, pensioners or on benefits. 24Even the most inflated measurements show over 100 million Russians cannot be considered middle class.

Putin’s aggressive politics meant new economics. The announcement of his return triggered the departure of the fiscal conservative Alexey Kudrin from the finance ministry, grumbling about not having been chosen as prime minister and worried about reckless loosening of the public purse strings totally dependent on the oil price. This meant there was now nobody trying to restrain Putin’s big spend. Ever since the hiss of dissatisfaction had grown audible in mid-2011, the regime had responded by making more and more astounding spending increases in pensions, military and police salaries.

Putin was spending like a Gulf sheik. These states had paid their way out of the ‘Arab spring’ exactly as the Kremlin was now doing. Payouts had risen drastically since the financial crisis first sent ripples of unrest. Between 2007 and 2010 funding to the regions leapt by $58 billion from 5.7 per cent to 9.2 per cent of GDP. 25The same year pensions were hiked 50 per cent. 26In 2011 pensions were raised by 10 per cent again, with a 6.5 per cent across the board increase in public-sector wages. 27Simultaneously, a gigantic $613 billion ten-year plan for the military was announced. 28This was not to fight a war but to keep the single-industry armament towns quiet, employed, and the military–industrial complex onside. Surrounding the campaign Putin doubled military and police salaries and promised $160 billion worth of giveaways. 29

In Russia, as was happening in the Gulf States, this big spend meant the necessary price of oil to balance the budget grew dramatically. The government’s break-even price had been less than $40 a barrel in 2007 but stood at over $110 by 2012. 30Even the head of the central bank had warned this is ‘too high’. 31Instead of making itself secure Putin had bought social calm at the cost of vast exposure should the price of oil tumble from its historically unprecedented highs. This seemed reckless when long-term trends such as an unreformed pension system, slowing growth and a shrinking trade surplus were undermining accounting certainties. The unreformed pensions system alone would see government expenditure here rise from 9 per cent of GDP to 14 per cent of GDP by 2030, which if financed by borrowing would send Russia’s debt to GDP ratio up from 14 per cent of GDP to 70 per cent the same year. 32

To support Putin, state finances were becoming ever more precarious. Even his finance ministry warned spending levels might be unsustainable. The same could be said for the propaganda. With his new image of a working-class hero utterly dependent on fulfilling the new expanded social contract, ostracizing the new middle class would leave the Kremlin without a constituency, should the oil price fall and rip a hole in the budget. Putin’s Russia is not cohesive or stable enough for austerity. Any fiscal tachycardia disrupting social payouts could send his new ‘support base’ into the streets, with bourgeois elites no longer there to buttress him.

However, there are grounds for Putin to feel secure about making such a spending increase: the country had amassed the third largest reserves in the world and has the lowest debt to GDP ratio of a G-20 member state at a mere 14 per cent debt, far behind most Western countries. 33Reforms were started on pensions. Nevertheless, the collapse of oil prices, no pension reform and a large return to international borrowing amid political risk could send Russian bond yields shooting up before it reached deep levels of debt. Russian stability was now as precariously balanced on market favour. Putin had rebuilt his ‘stability’ on the one thing in Russia he had no control over whatsoever – the price of oil.