Authoritarianism and Economic Decay in Russia

Published by Irfan Bashir on

Much debate has surrounded the rise of authoritarianism across the globe. Be it the election of right-wing extremist Narendra Modi as the Prime Minister of India in 2014, the election of Donald J. Trump as the 45th president of United States of America in 2016, or the rise of Recep Tayyip Erdoğan in Turkey. All these leaders have one thing in common: they have used divisive approaches to maintain their favorability in the public. And it has worked. Globalization as a concept has dwindled against protectionist attitudes of the right-wing extremist powers. On top of this chain of authoritarianism stands Vladimir Vladimirovich Putin. Since his election to power, Putin has perpetuated a divisive rhetoric that has not only swept Russia but many other global powers. But why the need for divisive regional or global politics? Because using the ‘us vs them’ approach as a tool stands unmatched in deviating public attention from genuine economic grievances. The lack of sustainable domestic economic development is overshadowed by the ‘us vs them’ paradigm that countries like Russia and USA, India and Pakistan, etc. have engaged in. Similar trends can be found in the Middle East, North Korea and many other countries that keep their populations quiet by using the ‘they are out to get us’ card. Behind the facade of Russia’s international might, we can see a country which is failing and still recovering from the fall of Soviet Union — the utopia that Putin tries to sell even today. The Russian electorate is controlled through an ironclad rule and sold nostalgia and international perceived threats (read USA) as a means to curb the frustration of the Russian populace. 

Let’s look deeper into the depreciating economic condition of Russia and the rise of the divisive agenda in Russian politics as a means to hide all that is wrong with the present-day Russian Federation.

“One who does not regret the passing of the Soviet Union has no heart; one who wants to bring it back has no brain,” Putin once — said in an Interview with German television channel ARD and ZDF, May 2005. The quote symbolizes everything that Putin stands for. A man of the 90s, Putin belongs to the bygone era of Soviet Union, a former KGB spy with a reputation of crushing any resistance with any means necessary. Fast forward to today, and we see not much has changed. The economy remains in tatters and Putin maintains the same rhetoric. While he has never shied away from exploiting the soviet nostalgia, Putin has often claimed that those days were different than today’s times. Yet when the president of the Russian Federation says that those who don’t regret the fall of Soviet Union have no heart, he is anchoring the public to that nostalgia — a card he plays a lot. And of course when this card doesn’t play out, Putin focuses his rhetoric on America, a country Russia has had an on and off relation with since world war one. In addition to the US, Putin also blames the hostile western powers to blame Russia’s poor economic growth.

Take for instance this statement made by Putin in 2013: “Nobody should have any illusion about the possibility of gaining military superiority over Russia. We will never allow this to happen. Russia will respond to all these challenges, political and military.” This was Putin trying to reinforce the idea that Russia is the world’s greatest military strength. As a leader of tremendous wit, Putin doesn’t shy away from indirectly warning the western powers of Russia’s military might. Putin uses his rhetoric to deviate the Russian people from the negative effects of international economic sanctions put by the US and its western allies. Deployments in Crimea and Syria serve as a reminder of Russia’s growing control in the international arena. But truth be told, both the United States and Russia have used ‘National Security’ and ‘Human Rights Violations’ to meddle in the affairs of other countries. In Russia’s case deployment in Crimea was justified as an approach to curb rising fascist movements, and military intervention in Syria to curb rising Islamic extremism. President Obama accurately put it when he said Russia’s economy “doesn’t produce anything that anybody wants to buy, except oil, gas and arms.” 

However, there is another power dynamic at play here. Slowly and steadily Putin has managed to seize strongholds in international waters and countries. In an article for The Atlantic, Edward Delman explained how Russia’s intervention in Ukraine and Syria allowed it to seize control of important ports by establishing naval bases in Tartus and Sevastopol. With control over Tartus, Russia established a strong presence in the Mediterranean. By gaining a strong presence in the high seas, Russia gains more and more space in the international waters. In Sevastopol alone, Russia’s naval presence was a strong 15,000 naval personnel. An article in New York Times argued that by seizing Crimea, Russia seized a “maritime zone more than three times its size with the rights to under water resources potentially worth trillions of dollars.”

Military might is important to Putin, as it makes it possible to sell the ‘strong leader persona’ to the Russian populace during a time when increasing protests against the government by a pro-Europe population threaten his unchallenged regime. More interestingly, Putin’s interest in the middle-east has many facets of motives. The war in Syria allows Russia to both sell arms and display and test its military strength — a message to the world that Russia is a global power with strong military might. In theory Russia, one of the largest exporters of arms to countries like India and even a superpower like China, through the Syrian civil war, has displayed the might of its weapons, an opportunity it wouldn’t have otherwise secured.

Richard Reeve, director of the Sustainable Security Programme at the Oxford Research Group said that by intervening in Syria, Putin has access to a battleground where he “gives the military real war experience — for their own confidence — and it sends a message to the rest of the world that Russia is a capable, modern military player. Also, it shows those weapons in action to potential customers.”

He further adds that any negotiation to end the conflict couldn’t be without involving Russia in it. Clearly, there exists a power dynamic at play here where Putin has managed to become one of the most influential personalities in the modern times, a fact corroborated by the fact many experts believed that Time’s Person of the Year in 2016 should have been Putin rather than Donald Trump. 

There is also a growing concern and evidence of Russian interference in America’s past elections and in the upcoming election processes of other countries. A pattern of cyber-attacks and money laundering supporting Putin’s favored parties poses a threat to the very democratic fundamentals of electoral processes. From Ukraine, Estonia, Germany, Austria, France, and Bulgaria to the mighty United States, there is a trail of Russian interference in internal matters of western countries — places where Putin doesn’t have any locus standi. Let’s take a look at the evidence.

Oren Dorell, in an article for USA Today, connects the dots. Starting with Estonia, hackers shut down the internet in 2007 in response to removal of Soviet World War II memorial from central Tallinn. The IP addresses were traced to be Russian. In Ukraine, a pro hackers group, CyberBerkut, attacked the Election commission website attempting to fake voting results. In addition to that, Ukrainian officials in 2015 accused Russia of a power grid attack. In Germany, similar patterns of hacking computers of the Lower house of parliament by Russian hackers were observed. Oren quotes BFV chief Hans-Georg Maasen, who accused Moscow of manipulating public opinion through fake news propaganda. In Bulgaria, the same hackers hacked local elections in 2015. France and Poland also based similar cyber-attacks that were traced back to pro-Russian hackers’ groups. 

Even so, Moscow’s alleged reach was not limited to just cyber-attacks. Huge sums of money were also laundered from Russia to banks in the UK. In an article for The Guardian, Luke Harding, Nick Hopkins and Caelainn Barr provide insights into how huge sums of money were laundered into offshore accounts — a trail that led to 96 countries. The article reveals that big banks like HSBC, the Royal Bank of Scotland, Barclays were among 17 UK based banks that had links with Russian Government. From 2010 to 2014, $20 to $80 billion was laundered out of Russia. Among 70,000 banking transactions, 373 were from US banks, the article claimed. So what does this mean? Many experts claim that the money was used to further Russia’s interests in other states. How much of this accusation is true is up for debate, but it clearly showcases Russia’s reach into major corporate banks — all this evidence forecasts ominous portents.

Moscow may have dominated the global scene but a look inside the domestic condition in Russia reveals an eerie reality, that of a lack of sustainable economic development and a growing percentage of population that has started raising its voice against a dictatorship that hides behind a democratic facade. All this while, Putin has reinforced his image of being a strong dynamic global leader with high approval ratings that sustain his politics of fear and power.

Coupled with Russia’s growing influence in the electoral process in the west, Putin has proven to his people that democratic freedom is overrated and that other countries are faring worse than Russia is. But as the time progresses, Russia’s internal issues and his own deteriorating health will pose an inevitable challenge to the former KGB spy. A stark contrast is revealed when we look at Russia as an increasing global power in a time when its economy is having a free-fall. Clearly, Russia’s greatest challenge is domestic. Putin, so far, has played it smart by deviating all attention to international matters, but the ground beneath Moscow is sliding and only forecasts the inevitable decline of the oil dependent economy that Moscow has become. Let’s take a look at problems that Russia’s economy faces both domestically and internationally.

Perhaps one of the biggest worries Russia faces today is the increasing rate of poverty. With an unprecedented decline in household incomes, Russia faces alarming poverty levels. With businesses cutting wages and increasing their profits, the Russian labor force suffers amidst lack of effective trade unions. The economy, simply put, is not functioning as a consumer-based economy. To put things in perspective, by the end of 2015, purchasing power had decreased by 10%, worse than 1998 or 2009. Company profits during the same time increased to 49% compared to a 4.6% increase in nominal wages. The number of Russians with incomes below the subsistence level amounted to 19.6 million people or 13.3% in January-September 2020.

With decreasing purchasing power and no proper mechanism to distribute wealth, the future looks stark, even if the GDP is forecasted to grow after years of recession. As of 2017, among the 85 official regions that Russia is split into, only 10 were financially stable. As poverty increases, there is emerging a trust deficit between people and government. Even though the favorability ratings (which many believe to be rigged) of Putin have remained around 60-65% through the years, things can change if the Kremlin doesn’t address growing fundamental concerns of the masses.

Many believe that the social fabric of Russia is deteriorating, which is bad for any functioning economy. Frances Hudson, in an interview with Forbes, said, “The number of professionals seeking to leave Russia exceeds 50% in certain segments. This not only reduces the creative potential to support economic development in the country, but accentuates capital flight and reduces domestic consumption. The same conditions also affect the country’s ability to attract foreign talent, which could play an additional role in the next stage of developing the Russian economy.” This is an alarming sign, especially when such a large number of people want to leave Russia. It’s a known fact that Moscow has always operated like a lesser democracy, with limited press freedom and rights almost resembling an autocratic rule. Before, the people were okay with such an ironclad rule because of the promise of increasing wages and prosperity, but now tensions seem to rise as a growing segment of population has started to oppose Putin’s rule. If Russia doesn’t revamp its domestic economic policies with measures to elicit proper distribution of wealth and intelligent use of taxes, chances are the social fabric will continue to decay, leaving the Russian federation in troubled waters.

The biggest cause of the decaying social fabric and decline in real wages is inflation. The primary driver for high inflation is the free floating exchange rate policy that the Russian Central Bank adopted in 2014. As a result, the government no longer protects the rubble against depreciation, making the Ruble dependent on the Market. However, some economists think it will have positive effects, but the expected gains have not yet manifested. As of May 2021, one Russian Ruble is equivalent to 0.014 US dollars, down from 0.017 in 2017. A good news though is inflation has decreased from 5.38% in 2016 to 4.91% in 2020. Nonetheless, there is still a long way to go before the inflation rate can fall below 4%. 

High rates of inflation, coupled with poor management of distribution of wealth, have led to a decrease in purchasing power for the public and private sector. On the outside it may seem that comparative low inflation has led to a leeway for economic growth but truth is the country still has a long way to economic recovery, especially after the COVID-19 pandemic.

The biggest contributor to economic inconsistency has been Russia’s dependency on oil and other non-renewable sources of energy. Russia receives 60% of income from exporting oil and natural gas. This is problematic considering that many countries are increasingly opting for clean renewable sources of energy. If Russia has to sustain its economy in the long run, it will have to divest its dependency from oil to other sources of production. 

If Moscow wants to maintain its positive GDP growth, it will have to find a way around these problems through sophisticated economic reforms in the domestic sector which increase the purchasing power of the private sector and keep inflation in check. But instead on focussing on policy reforms to boost capital expenditure or consumption, Putin has only tried to further consolidate his regime, focusing attention on international affairs through shows of power, rhetoric, and state-owned media to keep his authoritarian regime alive. 

Economy though is not the only concern facing Moscow right now. From what appears, it seems there exists a power struggle inside Russia between the Federal and Regional government. Add to that increasing levels of corruption and Russia is looking at political instability. With a humongous 84 regions to govern, the Kremlin has granted substantial autonomy to the regions. With ridiculous debt-to-revenue ratios of over 85% of more than 25 Russian regions, there seems to be no other way for regions but to borrow more and more money from the Federal government. And on the other side, Kremlin’s demand for debt repayment has not stopped leading to more borrowing from Regions to simply pay the debt. With many regions having stopped payment of debt, there seems to exist a sense of disregard shown to the Federal government’s power by the regional governments amid growing frustrations of debt and rise in poverty. Besides economic grievances with the regions, the Federal government also has political grievances with the regional leaders, many of whom were also arrested by the Putin administration.

Russia also faces problems with its agricultural sector. With only 30% of its territory falling in favorable weather conditions, most of the country offers an unfavorable environment for the agriculture sector. The Agricultural sector cannot compete with European market due to lack of total factor productivity in the labor sector and shortage of machinery. To improve its agricultural production, Russia needs to aggressively invest into new technology and upgrade its machinery, besides investing in education of the labor force to increase the total factor productivity.

Yet, of all the threats Putin faces, one deserves a special mention: the pro-democracy protests that have swept Russia since 2017, led by Alexei Navalny, a Russian opposition leader, politician, lawyer, and anti-corruption activist. Navalny came to international prominence by organizing anti-government demonstrations and running for office to advocate reforms against corruption in Russia. The 44-year-old has millions of Russian followers on social media and shot to fame when his blogs began exposing the corruption in the Russian government in the late 2000s. In December 2016, the opposition leader announced the formal start of his campaign to run for the Russian presidency in March 2018. However, he was barred from running for the post after multiple allegations of the corruption were levelled against him.

Navalny’s campaign against Putin had resulted in him getting arrested multiple times and surviving multiple assassination attempts. In 2018, Navalny was attacked with a bright green liquid in the Siberian city of Barnaul by an assailant who pretended to shake his hand. In 2019 he suffered an allergic reaction in jail, allegedly from an unknown chemical substance. On August 20, 2020, Navalny’s spokesperson announced that after drinking tea while in an airport, the activist became violently ill during a flight. The plane made an emergency landing, and he was rushed to a hospital in Germany. Navalny accused Putin of being responsible for his poisoning and an investigation implicated agents from the Federal Security Service (FSB) in his poisoning. Later, the German government said labs in France and Sweden both confirmed that Navalny had been poisoned with the Soviet-era nerve agent Novichok. The EU and UK responded by imposing sanctions on Russian officials. In response, Mr. Putin denied that he was behind the near-deadly poisoning of his most prominent political opponent, telling journalists with a laugh that if Russian agents had wanted to kill Mr. Navalny, “they would have probably finished the job.”

On 17 January 2021, when Navalny returned to Russia, he was immediately detained on accusations of violating parole conditions. On 2 February, Navalny was sentenced to prison where he will have to spend over two and half years in a corrective labour colony. Following his arrest and the release of the documentary Putin’s Palace (by Navalny) which accused Putin of corruption, mass protests across the country were held. The YouTube video narrated by Navalny, titled “Putin’s Palace”, got more than 100 million hits and kicked off a nation-wide movement against Putin. Many consider these waves of protests across Russian cities as the most widespread challenge yet to Putin’s power. The protests have already led to 11,000 detentions. Russia even ended up expelling diplomats from Sweden, Germany and Poland for participating in ‘illegal’ protests against the jailing of Alexei Navalny. 

Russia today is approaching a tipping point, one that can only be delayed but not evaded by the Kremlin’s high-handedness. Sooner or later, the political reality of the Russian Federation is bound to undergo changes. If history teaches us anything, it is that no nation can win a war against its own people. The COVID-19 pandemic and the accompanying global recession have only catalyzed the already volatile Russian economy, with Russians staring at a decline in real disposable income, rising unemployment, falling wages, political instability, EU sanctions, and the constant rise of authoritarianism are all challenges Russia is facing today. From economy to foreign policy, the Kremlin needs to tread carefully, or it risks destabilization whose ripples will be felt in all the places where Russia has a military presence. After the amendments of 2020, Putin can now stay in power for another two terms until 2036, but his credibility as a leader will only face more regional and global opposition as time progresses. Meanwhile, the Russian populace faces the greatest threats to their liberties due to rising crackdowns on freedom of speech and freedom of press by the government. Whether the propaganda machine will be able to quell the new wave of mass protests remains to be seen. One thing is for sure, a tipping point doesn’t seem far away for the Russian Federation, especially now that the US has a new government which will no longer turn a blind eye towards the excesses of Kremlin.