The End of the Power Vertical? Corruption and Stagnation in Putin’s Fourth Term

Russian President Vladimir Putin has repeatedly promised to tackle corruption. But in his new term, corruption is likely to get worse, not better. The rot of corruption in Russia is no failing of the system – in many ways it is the system working as intended.

Shady practices like the recent discovery that state organs may be complicit in the Latin American narcotics trade, or backroom discussions between senior officials and oligarchs on yachts, will seep only deeper into the foundation of Russia’s politics.

Graft has been present in Russian society for centuries. It was visible in interactions between aristocrats and judges in Imperial Russia, the unofficial “gray markets” in the Soviet era, and more recently in everyday bribery and influence peddling. Nearly every Russian leader has sought to fight corruption – or, when that fails, to shape it to their benefit. Vladimir Putin’s third term in office as president has shown that corruption is not a bug but a feature of government. Corruption and informal dealings serve as a stabilizing force that can manage in the place of formal politics.

Putin’s coming reelection on March 18 will confirm for him and for Russia’s elite that this style of governance works. Shifting from formal to informal methods of rule will deepen during Putin’s fourth term. Corruption is what’s needed to keep informal networks working.

Corruption, in other words, is not an accident, the consequence of insufficient state capacity or a lack of willpower. Rather, corruption responds to political incentives. My research shows that accountability limits how much corruption elites engage in – even when elections are unfree or don’t exist at all. Faced with political competition, authoritarian leaders respond to incentives to decrease bribery. For example, I found that when Russian governors are up for reelection or reappointment, they work to reduce bribe-taking by up to 13 percent.

This is bad news for Russia. So long as Putin ensures his allies face no negative consequences for corruption, there is no reason to temper their greed. The result has been a surge in graft – from the misspent billions for the Sochi Olympics to the National Anti-Corruption Committee’s announcement this month that bribes had tripled year-over-year – accompanied by a withering of the much-discussed “vertical” of formal political institutions that Putin constructed in his early years in office. The vertical of hierarchical control has been displaced by informal deals. Where before the regime was focused on building some semblance of stable state institutions and formalizing authority, the new norm after these elections may well be the abandonment of those institutions and structures in favor of reliance on informal deals and personalized authority-for-hire.

Consider, for example, the case of former restauranteur and Putin associate Yevgeny Prigozhin. He has been involved in everything from multi-million-dollar defense contracts to allegedly creating a troll factory to influence the U.S. presidential election and fielding a mercenary force in Syria. Putin’s judo sparring partners receive inflated government contracts, while unqualified regime insiders are appointed to governorships. Rather than a strict hierarchy, this system of government is more like a network of acquaintances, bound together by self-interest.

Distinctions between politics and business, state assets and private assets, and security services and criminal networks have blurred. Having demonstrated that a system premised on corruption and personal connections is able to keep them in power, Russia’s elite is unlikely to abandon this system after the elections. The result will be an increasingly informal method of government made possible by more theft and graft. In Putin’s expiring third term, paths to development and stability based on institutional rules still seemed viable. But the recent degradation of Russia’s geopolitical position, the resulting scarcity of free resources, and the risks of restraining your own authority with institutional structures (such as political parties or even a viable cabinet of ministers), are pushing the regime towards corruption as the most comfortable political mechanism. 

Indeed, my research has found that elections in authoritarian regimes don’t always promote accountability. The goals of meritocracy and effective governance often take a back seat to day-to-day political management and suppression of opponents. This does not bode well for the aftermath of an election with no real choice – and thus will impose no constraint on the main candidate.

True, Russia has launched numerous waves of “reforms” in recent years. But renaming the police or reintroducing hobbled gubernatorial elections do not create a real contestation of political power. Nor do they drive a wedge between the grabbing hand of the state and networks of crony elites.

As complacency rises after what will no doubt be a resounding victory for President Putin, expect a surge of infighting as the government increasingly relies on personal ties to govern around formal rules. This system has proven it can work for Russia’s elites. But it “works” only thanks to corruption, the last grease capable of keeping the wheels of the political system turning.


This article was originally published by Eurasianet on March 9, 2018. Geopoliticus has republished the essay, without further editing, with permission from Eurasianet.

Tags: ,

What Another Six Years of Putin Spells for Russia’s Economy

This blog draws on a report written by David Szakonyi for FPRI’s Russia Political Economy Project, titled Governing Business: The State and Business in Russia.

Most Russians would be forgiven for skipping this month’s presidential election. With less than two weeks until polls open, we can say with strong confidence that Vladimir Putin will win his fourth term in office. Officials are taking no chances to ensure turnout isn’t embarrassingly low, however, mobilizing students and workers, plastering the regions with pro-Putin materials, and seemingly handpicking the other candidates allowed to run.

There are many consequences to holding stage-managed elections. Clearly they are a violation of basic political rights. But in most developed countries, campaigns also prompt debates over the most pressing policy issues of the time. Candidates must defend reasonably coherent positions on foreign and domestic policy. That way voters have some idea what their next leader will do upon taking office.

In contrast, the Russian presidential campaign offers nearly zero discussions of substantive issues. In his nearly two decades in politics, Putin has never publicly debated his rivals, preferring to spell out his goals in his annual state of the nation speech, this year on March 1. Given only this broad outline of his priorities, what can we expect from another six years of Putin? This analysis looks at the economic front.

Dependence on debt

Just as in 2012, the run-up to this election has seen Putin make a broad swath of promises. Even amidst aggressive saber-rattling, Putin also used his speech last week to announce a “war on poverty.” Spending on health care and infrastructure will be doubled, he promised. Salaries will rise, and these state interventions will halve the effective poverty level. These ambitious goals come in response to criticism about falling living standards in recent years.

However, Putin was vague on details about where the money will come from. On one hand, Russian authorities have made concerted efforts to squeeze taxpayers wherever possible (only, of course, after an election). Proposals have been floated to raise tax rates on individuals and companies, as well as crack down on tax evasion. But these measures will not be enough: The business lobby already began fighting new taxes last fall; taxpayers will not take kindly to seeing more of their incomes go to a government plagued by corruption.

Instead, we should expect the Russian government will look to international credit markets to fuel growth. The opportunities to borrow abroad are many. S&P recently upgraded Russia’s credit rating to investment grade, while the Trump administration has shied away from sanctioning Russian sovereign debt. Finance Minister Anton Siluanov may oppose this new push, but the outcome is inevitable: Russia can’t afford to increase spending without foreign cash.

Domestic borrowing is also the rise, the result of government support for loans. With inflation low, the Central Bank will continue to cut interest rates to pump cheap money into the corporate sector. Putin has also made a point of subsidizing lower mortgage rates, now promising a new low of 7 percent. With salaries low, Russian consumers already are borrowing at record levels to cover basic expenses.

Borrowing creates a short-term stimulus. However, Russia’s financial sector is ripe for abuse and corruption. Regulators’ attempts to purge bad banks have not yet changed a culture that prioritizes connections and kickbacks over due diligence. We could see the emergence of a risky debt bubble that comes back to haunt Russia in the same way the events of 2008 rocked the U.S. economy.

Hungry, hungry state officials

The Russian state now accounts for 70 percent of GDP, and the next six years are expected to see a doubling-down on this strategy of state ownership. Beginning in the early 2000s, the Putin government acquired large stakes in Russia’s corporate giants, positioning state-owned enterprises as the backbone of the economy. At first only “strategic” sectors were targeted, such as those connected to national security and social stability: oil and gas, metals, defense, banking, etc. This wave of state intervention outlasted even the economic headwinds of 2014, with privatization taking a back seat in the government’s crisis response. Putin’s economic approach holds that effective management can be achieved without private ownership.

Over his next term, state officials will target sectors traditionally reserved for private ownership. Authorities have tasted success in developing Russian agricultural firms; since the Soviet Union collapsed, Russia has gone from being a net wheat importer to being the world’s largest exporter. Last month, state-owned bank VTB bought a plurality stake in Magnit, one of the country’s largest retail chains, and was revealed to own part of Russia’s Burger King affiliate. It won’t be long before Russia’s fiercely competitive mobile phone and IT industries find themselves invaded by bureaucrats.        

The main reason we won’t see the state stepping back from the economy is politics. Putin is entering his presumed final term in office and the biggest question on the mind of every powerbroker in Moscow is not who will win this month, but who will succeed him in 2024. Analysts are already seeing the development of influential fiefdoms, jostling for position and accumulating state resources to support their claims to power. Under such political uncertainty, any attempts at liberalization will be paralyzed. No level of debt-fueled spending can overcome the stagnation caused by the state’s continued domination of the economy and refusal to enact real structural reforms.


This article was originally published by Eurasianet on March 7, 2018. Geopoliticus has republished the essay, without further editing, with permission from Eurasianet.

Tags: , , ,

Conspiracy Theories & the St. Petersburg Metro Tragedy

Everyone likes a good conspiracy. Conspiracies explain a complicated world.[1]

                                               

“Some things are so wrong,” wrote Karl Kraus nearly a century ago, “that not even their opposite is true.”[2]

The day after some number of Islamist terrorists carried out a suicide bomb attack in the St. Petersburg metro system, Russian social media abounded with Putin-as-protagonist conspiracy theories. Speculation was not limited to the intellectual fringes. Consider this statement by the well-known Russian political commentator Andrey Piontkovskiy:[3]

For more than two thousand years, the world’s lawyers, brought up in the tradition of Roman law, began any investigation by asked this question: Cui bono? There is a person, and you all know this man, to whom the attack in St. Petersburg is extremely beneficial. Faced with (for him) the unexpected scale of protests extending to all strata of Russian society, he sees salvation in twisting the screws and sharply tightening political repression. He can be credited with a history whose bloody trail extends from apartment building bombings in Moscow and Volgodonsk, and then attempted one in Ryazan where he was stopped. The NKVD Major repeats himself ineptly.[4]

Piontkovskiy is not alone. The inveterate Putin critic and former banker cum political blogger Slava Rabinovich wrote the following in the online Ukrainian newspaper Apostrophe under the header “Why Putin can continue to blow up Russians, like in 1999:”

Putin and his OPG [note: acronym for organizovannaya prestupnaya gruppa or “organized crime group”] have a reputation, on the basis of which the principle of the presumption of innocence cannot be applied to them. Today’s explosion in the St. Petersburg metro is not a terrorist act, but a special operation of Putin and the FSB, until proven otherwise. And now it’s time to take to the streets. Otherwise, Putin will continue to blow us up, like in 1999. We know the methods and techniques used by gebukhi. Today’s tragedy, like the one in 1999, is just another phase in yet another special operation so secure another Putin reelection. I repeat: it’s true until the opposite is proven.[5]

Rabinovich sets up the classic Verschwörungsfalle [6] or “conspiracy trap.” Henryk Broder elaborated the notion.

After 9/11, a talented conspiracy theorist posed the question Cui bono? He answered his own question, stating, “If the question, just six months after the attacks, is which countries and governments benefitted, there are only two: the United States and George Bush, and Israel and Ariel Shimon.[7]

A conspiracy trap leads one to commit two fundamental errors. The first is to ignore the plain facts of the case, in this instance, the internal threat posed by Islamist fundamentalism and the Russian government’s long running battle against Islamist-inspired terrorism. The second is to ascribe to the Russian government the ability to pull off a false flag event and evade discovery. It is paradoxical because Mr. Putin’s most vociferous critics seem, at one and the same time, the most determined believers in his ability to orchestrate events. What conspiracy theories miss is this: the common character of the threat across Europe—from St. Petersburg to Paris—posed by alienated young men who become ensnared by the siren’s song of Islamic fundamentalism.

In her much discussed New York Review of Books essay, Russian scholar Masha Green warns those determined to find a Putin-Trump nexus about falling onto the conspiracy trap.[8] The same warning might extend to those determined to find Mr. Putin’s fingerprints on the St. Petersburg metro tragedy.


[1] From Gary DeMar’s essay, “Don’t Be Caught in a Conspiracy Trap.” http://americanvision.org/1666/dont-be-caught-conspiracy-trap/. Last accessed 4 April 2017.

[2] The quote reads in the original German: “Es gibt Dinge, die sind so falsch, daß noch nicht einmal das absolute Gegenteil richtig ist.”

[3] The author of the 2006 book Another Look Into Putin’s Soul, Andrei A. Piontkovsky wrote this about Russia’s 1994-1996 and 1999- 2006 wars with Chechen separatists in his May 2011 essay, “The Caucasian Dark Circle:”

In reality, Russia has lost the war against the Chechen separatists . . . The resulting mayhem has served only to spawn new suicide bombers willing to bring fresh terror to Russia’s heartland. Indeed, the paradox today is that Islamists seem to be losing influence in the Arab world while strengthening their position in the North Caucasus, where the Kremlin has fought a twelve-year war without understanding the scope of the tragedy taking place – a civil and ethnic war for which the Kremlin itself bears significant responsibility.

See: https://www.hudson.org/research/8062-the-caucasian-dark-circle. Last accessed 5 April 2017.

[4] Andrey Piontkovskiy (2017). “On ukhodit ot vlasti tak zhe, kak vkhodil v neye.” Kasparov.ru [published online in Russian 3 April 2017]. http://www.kasparov.ru/material.php?id=58E26DD5B4DEC. Last accessed 5 April 2017. His “NKVD Major” allusion is to Mr. Putin’s rank of Lieutenant Colonel in the Soviet-era KGB, also known as the “Committee for State Security”.

[5] Slava Rabinovich (2017). “Krovavyy boy: pochemu Putin mozhet prodolzhit’ vzryvat’ rossiyan, kak v 1999 godu. Rossiyane dolzhny massovo vyyti na ulitsy, chtoby predotvratit’ budushchiye terakty.” Apostrophe [published online in Russian 3 April 2017]. https://apostrophe.ua/article/world/ex-ussr/2017-04-03/krovavyiy-boy-pochemu-putin-mojet-prodoljit-vzryivat-rossiyan-kak-v-1999-godu/11441. Last accessed 5 April 2017.

[6] Regarding German compound words, Mark Twain wrote that some “are so long that they have a perspective.” Twain (1880). “The Awful German Language.” In A Tramp Abroad. (Hartford, CT: American Publishing Company) 611. https://www.gutenberg.org/files/119/119-h/119-h.htm. Last accessed 5 April 2017.

[7]  Henryk M. Broder (2017). “Mit dem Ersten bombt man besser.” WeltN24 [published online in German 23 July 2011]. The quoted text reads in the original German:

Einer der begabtesten “Verschwörungstheoretiker” hat es nach 9/11 gar geschafft, beide Tätergruppen zu amalgamieren. Er fragte “Cui bono!?” und antwortete: “Bezieht man knapp ein halbes Jahr nach den Anschlägen diese Frage auf die Länder und Regierungen, denen sie genützt haben, bleiben nur zwei: USA und George Bush sowie Israel und Ariel Sharon.

[8] Masha Gessen (2017). “Russia: The Conspiracy Trap.” The New York Review of Books [published online 6 March 2017]. http://www.nybooks.com/daily/2017/03/06/trump-russia-conspiracy-trap/

Tags: , ,