Russia:
After Putin’s Reelection

May 10, 2004

Russia’s President Vladimir Putin wanted his reelection bid to be more than just a triumph. He wanted to demonstrate that no one in Russia was capable of challenging him anymore, either in an election, or more widely in the country. Putin now appears to be at the peak of his power—his own and that of the state he allegedly restored. Putin also benefits from unexpectedly favorable conditions that have somewhat improved public finances. But the basic problems that have confronted Russia for the past 15 years are far from resolved.

Putin’s reelection last March as president of the Russian Federation was no big surprise. He took advantage of the slight economic improvement and relative political stabilization. And, for all practical purposes, he was the only candidate in the presidential arena.

With the exception of United Russia (Putin’s electoral coalition), all parties had been discouraged by their defeat in the December general elections and they carried out only a minimal campaign. The main opposition party, the KPRF (Communist Party of the Russian Federation), did not even nominate their leader, Zhuganov, as their candidate for president. Instead, they designated a practical unknown. Populist leader Zhirinovsky asked his chauffeur to run for office. Other parties did not even bother to nominate anyone. This threatened Putin’s image that he so carefully cultivates outside Russia. So the Kremlin stepped in, helping maverick politicians to gather the millions of necessary signatures to be registered as candidates. The authorities went as far as to back the candidacy of somebody known only because he had called on people to vote ... for Putin.

With puppets and stooges running against Putin, his election was bound to be a farce. But the rituals of democracy had been performed. In these conditions, the only unknown was the winner’s score of what could be called a one-candidate election and what percentage of people would even bother to go vote. Both depended less on the voters than on the fact that the authorities wanted to prove that the country widely approved of Putin’s policy. Given the results of the first round—72% of the vote going to Putin, while only one of his five rivals gained more than 5%—it can be said that Putin won an overwhelming victory.

Four Years of "Controlled Democracy"

Putin achieved this by using the same tricks that have been used in each and every election organized under "Russian democracy." The overwhelming focus of the media’s coverage was on the official candidate. Those who might be tempted to abstain from voting were threatened with losing their jobs or social benefits. There were candidates who were just the straw men bearing the authorities’ stamp of approval. Ballots were rigged and results altered (in some regions, Putin’s score was nearly 100%).

The observers sent by the Organization for Security and Cooperation in Europe described these elections as "free but unbalanced." Putin prefers the phrase "controlled democracy." The word "democracy" is there to please Russia’s partners among the Western democracies—two of which are presently delivering a lesson on democracy in Iraq. But what Putin is particularly fond of in the "controlled" nature of his "democracy" is characterized by the "control" of everything and everyone by the state.

The previous decade (the period between the end of the USSR in late 1991 and Yeltsin’s resignation in late 1999, which opened the way for Putin) had been marked by the chronic weakness and instability of the central power. There were repeated conflicts both inside the leading bodies and between the national and regional leadership. This corresponded to the plummeting of production and the population’s standard of living. At every level, those in charge of the state machinery, that is the bureaucrats, were grabbing up everything they could of what was until then state property.

When he assumed power, Putin vowed to clean up the mess left by his predecessor. The theme of his first term was "restoring centralism," by which he meant restoring the state’s authority thanks to a recognized leadership that could make itself obeyed from the top to the bottom of the apparatus throughout the country.

The regions where the leaders and the leading cliques openly challenged the central administration were placed under the supervision of "plenipotentiary representatives of the president." Like Putin himself, the majority of these "super government officials" came from the higher layers of the "force structures," an expression used in Russia to refer to the army, the police and the secret services. Chechnya, which so badly wanted self-government that it proclaimed its independence, has since then suffered through two wars. Contrary to the Kremlin’s claims that the situation has been brought back to normal, the second war is obviously not over. This was made more than clear in early May, when the puppet president installed by Putin was assassinated.

The Duma (Russia’s Congress) had never given Putin’s predecessor, Boris Yeltsin, a majority, even after Yeltsin dissolved it with artillery shots in late 1993. But now the Duma no longer seems to be in a position to stand in the way of the Kremlin leader. Putin has the support of two-thirds of the members of the Duma, and its role has been reduced to that of a rubber stamp.

The most important media outlets have been brought under control, sometimes by expropriating the very same companies that during the privatization spree of the Yeltsin era had been bought by the former regime’s favorites. The misfortunes of two media magnates, who were eventually forced into exile, marked the beginning of Putin’s first stint as president and were seen as a warning addressed to the most conspicuous nouveaux-riches. Meeting these "oligarchs" soon after taking office in March 2000, Putin told them to stop interfering with the workings of the state, as they had done under Yeltsin. In exchange, they were allowed to carry on their business dealings, small and big.

The Confession of an Oligarch

Khodorkovsky, who was said to be the richest, most powerful man in the country, ended up in prison in October 2003 because he acted like the new rules did not apply to him, even hinting that he might run for president in the 2008 election. He is still behind bars, on charges of corruption and evading billions of dollars in taxes. One of his assistants, who was also jailed, is a suspect in the assassination of a governor and business rival. For the so-called "new Russians," this is nothing unusual. Their fall can be as dazzling as their lawless rise, and their careers continue to be tied to the fate of their protectors in the upper circles.

In early April, Khodorkovsky sent the press an open letter entitled "The Crisis of Liberalism." In a style reminiscent of the public confessions of the Stalinist trials, he claimed to be sorry for impoverishing the country by his own plundering. He wrote, "We [the business magnates] must accept the fact that 90% of the people feel that the results of the privatization process are unfair and that those who took advantage of it are illegitimate owners." Having beaten his breast, he then begged others like him to follow his example. In so doing, he imitated the main theme of Putin’s campaign in which Putin presented himself as a righter of wrongs, determined to punish the "oligarchs" because he knew how much the Russian people hated them.

Of course, Khodorkovsky shamelessly flattered Putin, hoping that after his reelection, Russia’s former top cop (who, according to Khodorkovsky, is a "better democrat" than the majority of Russians) would set him free. Khodorkovsky nevertheless gave a few interesting insights concerning the oligarchs’ real weight and the general workings of Russian society. He wrote, for instance, that though they were extremely wealthy, he and those in a similar position, "still depended on a very powerful top bureaucrat" for support. Indirectly, Khodorkovsky was indicating that, if capitalists like himself were now in the front of the Russia stage, they did not yet direct the production or the system.

According to Khodorkovsky, the heroes of the Yeltsin era—that is, the so-called "liberal" political leaders and that bunch of wheeler-dealers whose only concern was to make a fast buck—had led the country into an impasse, with no possibility of achieving either a democracy or the development of a market economy. He reminded his readers that "the aim of business is to make money, but you do not need a liberal environment to do that. The big U.S. companies which invested billions of dollars in the Soviet Union greatly appreciated the Soviet regime because it guaranteed stability." For what it is worth, the opinion of this "expert" is not very original—even among those who, ten or twelve years back, promised that a free market would bring Russia democracy and economic development.

Control from Above, but for What Purpose?

The creation of a free market in Russia has been under discussion for fifteen years now. One of the themes regularly discussed by the leading circles of the Russian government and those who are paid to comment on their thinking is that in order to create that free market, someone with a steel hand needs to be at the head of the state.

According to the fashion of the day or people’s own inclinations, some invoke the ghost of Czar Peter the Great, who wanted to cudgel Russia into the modern era and force it to catch up to 17^th century Western Europe. Or else they invoke Stolypin, a minister in charge of both the police and the economy under NicholasII, who after the 1905 Revolution tried to prevent another revolution by launching "reforms" while sending scores of workers and peasants to the gallows. But example called up the most is still Stalin himself. Today, Russia’s leaders openly refer to him in a way that is reminiscent of the Great Russian nationalism of the past and the religion of the strong state. Hardly a day goes by without someone making a speech or appearing on TV to say that under Stalin, the country was a "great power" which inspired fear and respect abroad and enjoyed law and order at home—thanks to the regime’s political police, the KGB.

Putin, who had himself once risen through the ranks of the KGB (re-dubbed the FSB) to become its leader, has now placed high officials of the FSB in every leading body and each one of the "force structures." Khodorkovsky’s present problems could be partly due to these apparatuses’ increasing weight in the power structure. Some of them might feel that they did not get their share of the gigantic, legal plundering of state property represented by the Yeltsin-sponsored privatizations; hence, they might well have decided to lay their hands on all or part of Khodorkovsky’s oil empire, Yukos, as a way to frighten the oligarchs and convince them that it’s in their best interest to share the wealth that they control. Their main concern is oil and other raw materials (wood, various ores, gold, gems, etc.), in other words, that part of the country’s production which is systematically exported to the fabulous enrichment of just a few. These sectors are also the backbone of a Russian economy not unlike the Third World countries that are plundered by Western imperialism.

The free-for-all fight between top bureaucrats to take over these sources of wealth is perhaps less bloody than during the previous period, but it is far from being over. Indeed, while the establishment of stable property ownership has been repeatedly proclaimed, it has also been repeatedly refuted by the facts, and it won’t be something that is achieved anytime soon, either.

In Russia, political power and economic power continue to be characterized by the strict dependency of the latter to the former. Today, Putin appears as the central power incarnate, having seemingly concentrated every single source of power in his hands. But it is far from certain if Putin will be able to fulfill his promise to launch the economic "reforms" necessary to stabilize the market economy in his second term in office. His power may not be as strong as it seems.

Phony Victories and Improvements

Putin’s victories over those who have stood in his way are fragile, if not illusory. He might have the official allegiance of members of the government in the different regions and federated republics, but he has yet to pay the full price for their support. In a lot of places, Putin’s appointees have developed so many ties with the local clan leaders and the wealthy of the area that they gradually went from being defenders of Putin’s central administration into instruments of the local cliques against Putin.

In an attempt to rectify the situation, Putin has agreed to install in these regions big economic and financial corporations managed by the oligarchs in the center. Given their size, they were expected to swallow up the less powerful companies controlled by the different republics’ presidents and governors. And this is what happened—in some cases. But the weaponry used by Putin to get the better of overly independent local "elites" turned out to be double-edged. The corporations that were supposed to rescue Putin grew even bigger, and their bosses realized that it might be in their own personal interests to strike deals with the local cliques against the center—much in the same way as what happened to Putin’s appointees.

So, Khodorkovsky’s case was no exception. He simply felt himself strong enough to strike deals with Western oil companies without referring to Moscow and, on top of it, to challenge Putin on the political scene. Abramovich, the head of Sibneft, another oil conglomerate, also followed Khodorkovsky’s example, but stopped short of provoking Putin. Abramovich sold a good deal of his Russian assets, transferred the money abroad and, like other oligarchs, registered his company and its subsidiaries in a foreign country in order to escape Russian law. Putin often refers to the "dictatorship of the law"—one of his favorite slogans. But, ironically enough, when he moved to prevent Khodorkovsky from transferring his company into foreign hands, he had to ask for Abramovich’s help.

The revenues of the Russian state are more and more dependent on the earnings of the big corporations which export raw materials. These corporations are run by oligarchs who, as Khodorkovsky said, are backed by top bureaucrats from the leading clans of the state apparatus. These people had and still have no reason to allow the central state to collect anything but the smallest possible taxes—while they salt away the profits from their operations in off-shore banks based in Gibraltar, the Cayman Islands and other tax havens.

This flight of capital has often been exposed. But it continues nonetheless, for the same reasons as it did five or ten years ago. It is less of a concern these days, not because the financial hemorrhage has stopped or diminished, but because the economic situation has changed, covering up the consequences of capital flight, and postponing the moment when the consequences will fully hit Russia’s economic and financial system.

Since the increase in the world market price of oil, which started three years ago, Russia has had a positive trade balance and balance of payments. This is in sharp contrast to the period after the 1998 crash, which was brought about by the intense plundering of Russia’s economy and public finances by the bureaucracy and different mafias, forcing the Russian state to declare itself insolvent. The recent and unexpected economic upturn has changed a lot of things for a state whose budget depends on the revenues derived from the sale of oil and gas. The taxes the big corporations have agreed to pay represent 80% of the state’s income. Also a lot of things have changed for different social categories, notably the petty bourgeoisie of the great cities which is often described as having been struck by consumer fever.

None of this means that conditions for the Russian population as a whole are improving, or that there is a genuine economic recovery. Still, this is exactly what some commentators are saying.

Concerning the standard of living, the number of people under the poverty threshold has not changed since 1998, according to Russian authorities. It is still 30% of the population. And, despite an accrued economic growth rate of some 14% over the same period, real wages (which had lost 44% of their purchasing power between 1993 and 1999) are still below their level of a decade ago—according to the European Bank for Reconstruction and Development, which wascreated to marshal financial "aid" to the economies of the ex-USSR and East European countries.

Growth Without Development

To the extent that a country’s gross domestic product (GDP) is an acceptable approximation of its economic performance, then Russia’s economic weight is roughly the same as the Netherlands, a country with a population that is one-tenth the size of Russia. Moreover, as pointed out by the European Bank for Reconstruction and Development and other economic experts, the raw material sector, which employs only one percent of Russia’s workforce, accounts for 25% of its GDP—a situation also found in countries like Saudi Arabia.

Russia was a largely underdeveloped country at the beginning of the 20^thcentury. Thanks to the October 1917 Revolution, which paved the way for a radical change of society, it managed to develop an industry that was diversified on at least two accounts: it covered the full array of activities and, geographically speaking, it spread through the whole country, breaking the isolation of entire regions doomed to remain underdeveloped under the czarist system. It even became one of the world’s economic superpowers. However, today’s Russia is in the process of becoming an underdeveloped country—once again. This is not merely due to the dramatic drop in production which came with the "reforms" of the Yeltsin era—in other words, with the country’s plundering by its "elite." It is also explained by the fact that Russia’s economy increasingly depends on the export of raw materials (oil and gas). More and more, the country resembles those countries that live off the production of a single commodity—in this case oil, like Saudi Arabia and the other oil fiefdoms of the Middle East.

The price of oil may shoot up. In the end, the main beneficiaries will turn out to be the big Western oil companies, despite the huge sums raked in locally by the wealthy and the oligarchs.

After establishing themselves in former Soviet Republics (Azerbaijan, Kazakhstan, Turkmenistan), Western oil companies are now present in the Russian Federation itself, in regions and republics that have rich mineral resources. The central power can hardly do anything about this, because the local authorities deal directly with the foreign companies, as they always have done. The same holds true of some mergers between Russian and Western oil companies (one was completed, while Khodorkovsky’s arrest stopped another one at the last minute).

Because its budget increasingly depends on oil, the Russian state has little choice: it must try to regain control of that source of income. For one thing, the current economic growth depends not just on oil, but on its current higher price on the world market, and Russia does not control this market. Finally, even if there isn’t an economic downturn soon, the so-called "recovery" has had almost no impact on the economy as a whole. The sectors not involved in the extraction of raw materials continue to be viewed as poor relations and get only limited investments, if any. This explains the recent declaration by Russia’s minister of finance who once again noted: "In Russia, there is some growth but no development."

To change things, the state would have to take the bull by the horns and try to wrest control over the main economic sectors from the oligarchs. However, when Putin says that it’s out of the question to reverse the privatizations that have already happened—even while he refuses to recognize them as legal—he is merely admitting that his claim to have tidied up "Russia House" and to rule with a firm hand is all a sham. It exposes the state’s enduring failure to impose its rule, in reality and not just in words, on those members of its own leading circles who have ransacked the country’s riches.

This explains the true meaning of Putin’s declaration to an audience of oligarchs that he brought together after Khodorkovsky’s arrest: "It is sometimes difficult to see where the business world ends and where the state’s world begins." A pretty trite thing to say in the West, but not so in Russia, where the "business world" is the state, or rather a few very powerful and rival sections of the state apparatus, competing with each other but united in their opposition to the genuine, long-term reestablishment of central power.

Today, the most that can be accomplished by the person who represents the state is to put a pressure on these people, by putting one oligarch in jail one day, and then asking another one’s help the next; or by asking the same man (Abramovich) and his oil company to pay a billion dollars in overdue taxes. In fact, recovery or no recovery, the Russian state does not have the means of ensuring its basic functioning.

This is why the state continues to rifle the workers’ pockets for the money it needs. As soon as the presidential election was over, the new government announced a whole series of measures attacking the population: a freeze and planned termination of a number of benefits enjoyed by retired people and older citizens; attacks on the public education and health care systems, including official recognition of a paying private sector (the public sector being left in its present state of neglect and decline); the "regionalization" of wages for public service employees, thus leaving it up to the different regions to pay their workforce, if they can; and so on.

Of course, as in the rest of the world, the working class in Russia does not feel it can overcome these measures. This is mainly because no one, who stands for the defense of the working class’s interests, has yet addressed the workers from that point of view. But if that were to happen, Putin, who repeats over and over that he does not have a single challenger, could well find himself in a situation in which the "center" will no longer be able to hide behind the old excuses—like the obstruction of the members of the Duma or the refusal of local authorities to apply the center’s decisions.