Tag Archives: Vladimir Milov

The West Must Not Sacrifice Human Rights for ‘Strategic Interests’ in its Relationship with Russia

It is a popular misconception that human rights and foreign policy do not coexist. As has been proven time and again by Vladimir Putin’s Russia, such a vision can have dangerous consequences.

In “Reality Check #4: Focus on interests, not on human rights with Russia,” the authors, Emma Ashford and Mathew Burrows, note that while then-US President Jimmy Carter had initially pledged to put human rights at the top of his agenda in relations with the USSR, he scaled back his promise for pragmatic reasons. The authors imply that this was a good, rational move. It wasn’t.

A close look at history reveals that what followed was the Soviet invasion of Afghanistan, the downing of a South Korean civilian aircraft in 1983, and one of the darkest periods in the US-Soviet relationship in the early 1980s. The US-Soviet relationship improved under Mikhail Gorbachev when human rights were put back on the menu.

While it is hard to say definitively that the West’s firm stance on human rights was the key issue that “caused the Soviet collapse,” it certainly added strong tailwinds to the positive changes that were taking place at the time.

Historical lessons

In the early 2000s, when Russia cracked down on democratic freedoms and shifted toward one-party rule, the West responded with concern, but little action. The West viewed Russia as a key global partner on “strategic” issues. As long as Russia had a transactional relationship with the West, its bad behavior would be overlooked in favor of “strategic” considerations. How the Russian government treated its domestic political opponents was not a concern. This was a terrible mistake; one that should never be repeated.

The West’s weak response emboldened Putin. He realized he could get away with disregarding the rule of law. What flowed from this realization was Russia’s attempt to expand its territory by attacking Georgia in 2008 and Ukraine in 2014.

Russia’s actions may have come as a surprise to the West, but not to those of us in Russia who realized early (and wasted no time warning our Western friends) that once Putin completes his authoritarian consolidation at home he will inevitably seek to export it abroad. Sure enough, after reinstating Russia as a dominant force in the post-Soviet space, Putin went on to meddle in Syria, Venezuela, Afghanistan, Africa, the list goes on.

A couple of lessons can be drawn from recent history.

First, human rights violations and domestic political crackdowns are early warning signs that a regime has no regard for the rule of law. If not contained, the regime will inevitably seek to export this lawlessness into foreign relations because it is confident that it can get away with such behavior as long as the West’s strategic interests are being met.

It is wrong for “rational strategic thinkers” in the West to expect that Putin will push back when shown a stick and behave when offered a carrot. Such a belief grossly underestimates him. Putin is a wily strategist who knows the West’s weaknesses all too well.

It is only a matter of time before someone in Washington will ask why there is a need to defend Ukraine or Estonia or even Europe against Russia. They may say: “Let’s focus on our ‘strategic interests’ and just withdraw and leave European affairs to the Russians!” Unfortunately, such ideas are not fantastical. They have increasingly been voiced in the US policy debate in recent years.

Putin is patiently waiting for more “rational strategists” to appear on the Western political scene who would be willing to forego human rights, or even allies, for the sake of achieving strategic interests.

The second lesson is that there is enough evidence that Putin has no regard for any rules. He breaches them at will. Putin’s strategy is to outwit the West’s attempts to bring Russia back into the rules-based space, and to erode this effort through attempts to reinstate transactional politics.

Ashford and Burrows wrongly suggest that Russia can be a “reliable” transactional partner on “strategic” issues even if it breaches the rule of law elsewhere. How can anyone seriously suggest that the United States enter into a new “strategic” agreement with Putin that runs the risk of being breached? When was the last time Russia honored its international commitments? To encourage “resets” would give Russia a free pass to continue to disregard the rules-based order.

Reality check

Ashford and Burrows lightly dwell on false narratives. Take, for example, their assertion that Western sanctions on Russia are not working because they haven’t brought about a policy change. This is a popular misconception in the West. There is a need for a fair and objective review of what the sanctions have (and have not) achieved. But two points are worth noting.

First, sanctions require patience and continuity. Second, sectoral sanctions have virtually cut off Russia’s corporate sector from borrowing in the West; major Western players have withdrawn from key projects, which has contributed to a lack of meaningful economic growth in Russia since 2014; and the economic situation is a key factor in Putin’s plunging popularity and his current domestic political troubles. In the upcoming Duma elections in September 2021, for example, the ruling party faces the prospect of losing a majority for the first time since 2003.

Ashford and Burrows write: “democratization in Russia would not necessarily be good for US foreign policy interests.” This echoes talking points often used by Russian government-backed celebrities who turn up on TV before an election declaring “political change is scary because fascists would come, and things will be worse.” This mantra, usually crafted by the Kremlin, resonates with a lot of Russians who fear change.

Ashford and Burrows go on to say: “Alexei Navalny… is an open nationalist who is widely known to agree with Putin on many foreign policy questions; he backed the Russian seizure of Crimea and has made racist and Islamophobic remarks.” In fact, Navalny condemned the annexation of Crimea; he merely said that it will be politically difficult to return Crimea to Ukraine for reasons that were beyond his control. As for the claim that Navalny has made racist and Islamophobic remarks, his comments on immigration policies are often misinterpreted.

While the prospect of democratization of Russia remains an open question, human rights must not be ignored. Ashford and Burrows wrongly suggest policymakers “resist further sanctions” on Russia and shift focus away from human rights. US sanctions are, in fact, a response to Russia’s violations of the rules-based order. Reconsidering sanctions for “strategic” considerations will only embolden Putin to further expand his sphere of influence at the expense of the West.

Putin is Panicking

Vladimir Milov explains why Russian president started constitutional reforms well before 2024 elections.

On Wednesday, Vladimir Putin did a rather unusual thing. Three years before the formal end of his presidential term, without any obvious motivating circumstances (the situation in the country is complicated, but it is no worse and no better than in recent months), he simultaneously announced the unprecedented restructuring of the power mechanism, and the resignation of the Medvedev government, which, it would seem, has already received an informal status of an eternal supplement to Putin’s presidency. It is important to understand what really happened and why.

First, let’s talk about the announced constitutional changes and the reform of the country’s governance system. We have to acknowledge the failure of theories that predicted power transit, the emergence of some influential successor, or exotic options of transferring power through integration with Belarus (which did not imply that Putin’s dominance would be unconditionally preserved, since Alexander Lukashenko is very popular in Russia, maybe even more than Putin himself). Those who were right (including the author of this article) envisaged that Putin wouldn’t leave, as current control over political institutions allows for any type of constitutional redrawing. The latter is the most probable move to preserve Putin’s actual power. This is the easiest and safest way for the Russian leader, compared to options such as appointing a successor or integrating with Lukashenko. As we can see, this scenario was actually applied.

Putin has every reason not to trust any successor candidates. The current situation is different from 2008 when he transferred formal leverage at the peak of economic success and his popularity. First, Putin understands better than others that the Russian establishment is tired of him, do not trust him, is aware of his negative role as the main deterrent to Russia’s advancement and will try to dump this legacy at the earliest opportunity. Our state officials, for all their negative role in Russia’s present situation, however, have not signed to sit forever in a swamp and would appreciate some kind of movement towards progress. Secondly, Russia can’t get out of the crisis paradigm, and the future is threatened with new risks and shocks. No one is waiting for a quiet progressive development – in this situation, letting go of the reins and experimenting with successors is definitely not typical for Putin. He would prefer to implement control personally, as he used to. And, thirdly, there are no signs of Putin’s desire to give up power, no matter what political scientists and commentators say – these are fantasies and groundless speculations.

A mistake made by commentators in the analysis of Putin’s proposed constitutional changes is an attempt to give them a concrete shape through their own interpretations. In fact, there is nothing definite there. The design voiced by Putin simply says: “I want to have room for maneuver, and I will decide everything myself.” The State Council is to be created with no clear power; the State Duma is to be endowed with expanded authority to influence the formation of the government. But Wednesday’s message to the Federal Assembly does not clarify how exactly this system will look.

One thing is clear: Putin wants to create a new system of checks and balances in order to prevent the loss of his own influence. He sends a clear signal: “I will form this system myself, and I will still think how. And this system will be approved by a completely controlled group of film directors and figure skating champions – in the way I say when I decide.”

The key difference between the system proposed by Putin and the current one is that this system eliminates the “president-prime minister” dichotomy. In Russia, many mistakenly look at the Prime Minister as the person responsible for the “national economy.” This is not the case: the head of government is a constitutional post, it is an analogue to the vice president who automatically assumes the presidency if something happens to the first person (for example, he was forgotten at the cottage in Foros without any connection with the outside world). It is not surprising that in such a design the prime minister is a natural reason of nightmares for the power-hungry president: if someone wants to initiate a palace coup, then he will first try to gain over the prime minister, and then the national leader catches a light form of flu – and here he is, the new acting president. That is why Putin has been holding the absolutely unprofessional Medvedev for so many years. He did not care about Medvedev’s professional qualities, the main thing was that in 2008-2012 he passed a loyalty test, unlike anyone else from Putin’s circle.

Constitutional changes, instead of this simple dichotomy, create a more complex system with more players and more opportunities for behind-the-scenes management. You are no longer dependent on the particular candidate for the prime minister. It is worth underlining once again that nothing has been decided yet, the specific configuration will be discussed, but Putin’s statement is obvious: “I am creating a new system of checks and balances in order to stay in power, I will determine this system and control it.” This is what we now know for sure. All the rest is still unknown, and there’s no sense to discuss them. It remains to be seen.

The next question: why now? It is clear that the adoption of amendments to the Constitution takes time. Yet there is another three years until the end of Putin’s term, and he is used to keeping all secrets behind seven seals until the last moment. His secrecy has its own logic: when you designate your decision too early, you expose it for criticism, and people get tired quickly from specific configurations. When you throw out a new construction three months before the election (as with Putin-2000, Medvedev-2008 or Putin’s return-2011), your rivals are taken by surprise, and Putin’s political strategists, on the contrary, have every chance to take temporary advantage and secure the desired result, while voters still believe you and the scheme is not “rotten.”

A certain answer to this question can be detected by the sudden change of prime minister (which, as many sources in the executive branch confirm, even the members of the government themselves did not suspect). Now there is no point in changing Medvedev – the elections to the State Duma are still a long way off. Given the short memory of voters, the effect of this decision will quickly disappear and will not live up to the Duma’s election campaign. There is no disastrous economic situation either. It is bad, but no worse and no better than it was yesterday or will be tomorrow. A change in the cabinet would make sense if Putin had appointed a decisive prime minister for new reforms, who would change the situation, but the new candidate for the post of head of the cabinet, Mikhail Mishustin, is certainly not the one (more on that below).

What is the meaning of such a decisive action on several fronts at once and so early? By way of exclusion, we come to the only possible explanation—Putin panicked when he saw some new “closed” sociological data, which showed how bad his situation was. And then he decided to hastily give out all the preparations he had: to dismiss Medvedev and promise a new package of social measures for 450 billion rubles, and also to announce constitutional amendments in advance so that if people don’t like them, there was time to cancel them under the pretext that unreasonable artists and ice skaters gave the wrong advice. Frankly, I see no other rational explanation for the fountain of radical measures announced three years before the 2024 election. There is not a trace left of the calm, prudent and expectant Putin of past years; He throws all his cards onto the table at once.

The information background of the previous weeks created by the Kremlin political strategists in preparation for the Duma elections also speaks in favor of the theory of panicking authorities. Everything looks frivolous and resembles real panic: from the decision to create a “party of tanks” (non-political parties of let’s say beer lovers in Russia have never worked) to the rumors about the creation of Shnurov’s and Dudy’s parties without the consent of Shnurov and Dudy themselves. We are waiting for the emissaries to Kim Kardashian with a generous multi-million dollar contract for obtaining Russian citizenship, real estate in Saransk, and proposals to lead the party in the State Duma-2021 elections. What else can you expect from panicking Kremlin technologists who feel that the country is slipping away from their hands and they have nothing but stale ideas from the 90s in their heads?

Paradoxically, another indirect piece of evidence of Putin’s panic is the candidacy of the new prime minister, Mikhail Mishustin. What is this man known for? Only one thing: as the head of the tax service, with his iron hand he put the dying economy through the wringer and still constantly boasted of the rapid increase in the tax burden on Russian entrepreneurs and citizens. This looked particularly outrageous in relation to self-employed people. Mishustin just a few weeks ago reported that they had managed to collect taxes of about 3 thousand rubles per person in 2019, presenting it as a huge achievement of the service entrusted to him.

Mikhail Mishustin has been working in the government since the late 90s and is well known in this area. He does not have any skills in terms of growth and development, he is a typical tax controller who really knows how to knock the last out of taxpayers in the form of a levy in favor of the state. This is his only strong professional quality. The fact that Putin nominated such a person for the post of prime minister gives us a clear understanding of the psychological state of the Russian leader. Putin feels insecure, anticipates economic difficulties and possible collapse of his own system. He wants to rely on a person who will provide him with cash in his accounts at any cost – including at the cost of further destruction of the Russian economy. Judging by his message to the Federal Assembly, Putin doesn’t care about the economy, because he still looks at the solution to the problem of low incomes of Russians exclusively through the prism of a fragmented distribution of “gifts” to certain groups of the population. Putin clearly isn’t interested in returning to the topic of full-fledged economic growth and development.

In this regard, Mishustin’s appointment looks like hiding under a fiscal “mommy,” who will protect Putin in difficult times. Сommentators argued over the possible candidates to replace Medvedev as prime minister. It could have been either the decisive statesman like Glazyev or Rogozin, who closes the borders, “invests in industry,” and the statist-chavezist economic model would flourish under him, as it has not blossomed anywhere in the world; or liberal Kudrin who would lure investors with sweet speeches and a reformist appearance without real denationalization of the economy. These were emotionally strong options that gave hope to different groups in society. What hope can be inspired by the appointment of the obedient robotic fiscal inspector, who became famous only for squeezing more from the economy into the treasury than it could give? No, this appointment is not about elections, growth or the future. This appointment is about Putin’s personal confidence that everything will not fail, although it is very likely. Mishustin’s appointment is an event from the field of psychology, but not economics or political technologies.

In any case, everything that happened on Wednesday is rather good news. Putin could come up with something that would really preserve the Russian dictatorship for decades, renew its image, and eliminate at least the most obvious contradictions. Instead, we have 1984, not in the Orwellian sense, but in the sense of the Secretary General of the CPSU Central Committee, Konstantin Ustinovich Chernenko, during whose term the last parliamentary elections in the USSR took place, where the CPSU received uncontested 99% of the vote. The key here is not “99%” and not “uncontested”, but “last”. Putin clearly does not understand this. Well, probably, he doesn’t need it – it’s time already. The historical era is coming to an end. The new prime fiscal inspector will finally finish it off. As Gleb Zheglov put it in the film ‘The meeting place cannot be changed‘ “Then so be it.”

This article was originally published in Russian on The Insider

Russian Youth: A Look Inside the “Black Box”

The 2017 protests across Russia surprised many observers both inside and outside the country—no one quite expected to see so many young people, including high school students, taking to the streets to express dissatisfaction with the current political leadership.

For years, young Russians were criticized for political apathy, conformism, and proneness to trade freedoms and rights for careers and consumerism. Last year, as a new crop of Russian voters came of age in time for Vladimir Putin’s re-election for his fourth presidential term, numerous media outlets across the globe called them the “Putin generation.” Still, the 2017 protest sentiment that seeped into 2018 was a crucial political phenomenon: this series of protests highlighted the complexity and diversity of the Russian youth—the social group that over the last years has been misunderstood or overlooked by both the Kremlin and independent observers. This fact puts young people at the center of political discussions with regards to Russia’s future and raises a plethora of critical questions. What is actually going with the young Russians? What are their values, attitudes, beliefs, and how are they shaped? Are these youngsters, in fact, disinterested in politics and loyal to the regime, as has been pointed out so many times before, or have they become aware of the regime’s flaws and begun to look for opportunities to overcome them?

This report is an attempt to look inside the proverbial “black box” that Russian youth (formally defined here as the group aged 17-25 in 2019) turned out to be to many observers. The report taps into two different approaches to studying youth—the traditional generational approach and the so-called “solidarities” approach, which allows for a deeper understanding of the youth’s subcultural differences and behavior strategies. A combination of different approaches underscores the fact that diverse, sometimes opposing groups co-exist under a broad term of “Russian youth.” To address this issue and provide a more comprehensive and nuanced picture of the future generations of Russians, this report dissects the following aspects of the new phenomenon: sociological characteristics of the Russian youth and their key attitudes (as shown by various national polls); the way they differ from or match those of their counterparts in several CIS countries (particularly, Ukraine, Belarus, and Kazakhstan); the Kremlin’s youth policy and the efficiency of the pro-government youth organizations within a larger context of the Putin regime’s strategy.

The analysis conducted in this report led us to several important conclusions: 1) the phenomenon of Russian youth is understudied, complex, and laced with internal cultural, subcultural, and value-based conflicts that should not be underestimated and must be researched in further detail; 2) the notions of political apathy, conformism and cynicism among Russian youth are often not rooted in reality, as many youngsters tend to mistrust existing political infrastructure and prefer to organize on a grassroots level and online to solve small, pragmatic issues (this comes as a global trend, as young people in the West also grow increasingly disappointed with traditional forms of political participation); 3) Russian youth’s access to global internet and social networks exposes them to a much more diverse and rich information space (the space that the Kremlin has not been able to fully control), which inevitably shapes a different set of attitudes and beliefs among young people compared to older generations of Russians; 4) despite early success in engaging and mobilizing the youth, the Kremlin’s youth policy has failed on crucial points of consistency and strategic vision for the future as it is largely driven by the regime’s goal of its own survival. Based on this analysis, the report also offers some recommendations for Russia experts, media and policymakers.

Going forward, the analysis conducted in this report yields cautious optimism: as younger generations of Russians will begin to take over the country’s labor market and political force, their vision of the world—shaped by digital culture and more diverse information as well as by different experiences—will diffuse current tensions and create opportunities for opening up of the country.

The Case of Baring Vostok: foreign investment is not safe in Putin’s Russia

The February 15, 2019 arrests of Baring Vostok Capital top managers on fraud charges sent shock waves through the ever-shrinking community of those still investing in Russia. The incident, however, is rather illustrative of the so-called “investment climate” of Putin’s Russia, and should not surprise anyone.

With its investment portfolio valued at over $3.7 bln, Baring Vostok is the largest private equity firm investing in Russia and the former Soviet States. It has operated in Russia since 1994, weathering through the rough period of the post-Soviet transition, and managing to stay out of trouble with the Russian government. In fact, a quick look at the Baring’s investment profile makes it apparent that the firm succeeded in what the Russian government had said repeatedly it wanted to do, but failed — namely, diversify the Russian economy and develop technologically advanced industries.

Baring has invested extensively in IT and telecom companies, as well as in the Russian retail sector and financial services. It took the plunge and became one of the first private investors in the leading Russian IT company Yandex. That’s the legacy the firm is obviously proud of, as its official website prominently features a quote from Yandex’s founder and CEO Arkadiy Volozh:

“Baring Vostok Fund and its professionals have become true partners and sound advisors, and we are counting on our relationship to continue for many more years.”

Despite Russia’s worsening economic downturn of recent years, Baring had stayed put as the last active venture investment fund in Russia.

German Gref, the CEO of a Russian state-owned bank Sberbank, when commenting on the arrest of Baring’s founder Michael Calvey, characterized him as “an honest and decent man who has done a lot to bring investments into Russia, to develop a high-tech economy.”

What grave transgression has led Baring to such a fall then? The answer is quite mundane.

Baring is currently in the midst of a corporate conflict over the control of a troubled bank Vostochny (ranked #32 in Russia by assets) with a man named Artyom Avetisyan. In recent years, Avetisyan has become Putin’s darling, and has been appointed as  Director of  the “New Business” initiative at the Agency of Strategic Initiatives, a nonprofit organization established by the Russian government to advance the Russian economy with the  ambitious goal of “taking leading positions in the world.”

Avetisyan seems to move in lofty circles. The Bell reports that he is a longtime friend and partner of Dmitry Patrushev, the Russian Agriculture Minister and the son of a former FSB chief and the current Secretary of the National Security Council Nikolay Patrushev.

Not so long ago, Forbes Russia has published an in-depth profile of Artyom Avetisyan, detailing his business partnerships with sons of former head of the Kremlin Administration Alexandr Voloshin; his dealings with the current deputy head of the Kremlin Administration Vladislav Surkov (who is also in charge of the Russian occupation of Eastern parts of Ukraine, and from 2000-2011 was the domestic policy czar infamous for his brutal crackdowns on the opposition); as well as his relationship with Oleg Gref, the son of a former Minister of Economy and currently the CEO of Sberbank German Gref.

The Baring arrests have been instigated by Avetisyan and his partners who had managed to enlist the support of the FSB, claiming that shares of International Financial Technology Group (IFTG) with which Baring had repaid the debt of one of its subsidiaries to bank Vostochny are “worthless.” Baring values these shares at 2.5 bln rubles (or $37.5 mln.), whereas the FSB has claimed in court that they are worth next to nothing. An independent Russian media outlet the Bell, however, reports that a formal KPMG audit suggests that IFTG’s assets roughly correspond to the value cited by Baring.

Disagreements over value of assets, like the one between the Baring and Avetisyan camps are quite common. They are commercial disputes that should be settled in arbitration courts in accordance with the civil law. However, in today’s Russia, civil law is virtually non-existent. Arbitration attorneys lament difficulties with finding work, as it is cheaper for businesses to bribe the police or the FSB and have them open a criminal case against competitors (the scenario that frequently ends with the victim quickly conceding to minimize the disruption to business operations), than to engage in an unpredictable and protracted due process. The Baring arrests scandal is an example of exactly this type of a scheme.

Avetisyan, instead of resolving a corporate dispute through a civil law process, prompted  the infamous siloviki (strongmen) to interfere and arrest the top management of Baring Vostok. Absurdly, the charges against Baring are not even within the official purview of state prosecutors. What’s even more absurd is the fact that the allegations of fraud are based on valuation — a subjective category established by expert assessments — and not on objective figures of losses, actual write-offs, etc.

Clearly, Avetisyan with his high-level political access and protection feels confident engaging in such games. They are commonplace in today’s Russia, and he is just one of thousands of functionaries of Putin’s regime seeking enrichment at any cost. But can Russia afford to bear their consequences for the investment climate? Forbes calls this development “fatal.”

As a member of Russian political opposition, I have no business defending Baring Vostok. For decades, they had worked well as loyal cogs in Putin’s machine. They  cynically validated with their participation the endless string of sham economic conferences organized by the Russian government. They came as special guests invited by officials, and nodded their heads while listening to hypocritical speeches about Russia’s “business climate.” They had known what was going on in the country, but preferred to stay silent, thinking that they would be the exception, and they would able to profit from investing in Putinomics, with someone else having to pay.

Baring arrests last week made it clear that there is no such thing as “someone else.” The foundation of Putin’s system is the predation of the siloviki and their alliances with thieving “businessmen” who advance their interests by using their affiliations with the FSB or police as “competitive advantage.”

According to Putin’s own business ombudsman, Boris Titov, in 2017 alone, over 268,000 new criminal cases were opened against entrepreneurs in Russia. This is a 20% increase from 2013. Only about 20% of “fraud” cases opened are heard in court, and when they do, most of them are dismissed due to demonstrated intention to extort or the failure to establish the element of criminal act.

The Russian opposition has long argued that economic disputes must be settled in accordance with the civil law, and law enforcement agencies must not be allowed to interfere in cases that can be settled through basic arbitration. Arrests of entrepreneurs on charges that involve commercial disputes are simply unacceptable.

The essence of the Baring Vostok case is not in the specifics of the dispute regarding Bank Vostochny, but in the pervasive abuse of power to advance commercial interests, which has become the hallmark of Putin’s regime, and has spread throughout the entirety of its hierarchy down to the proverbial Avetisyans. It delivers a sobering message to foreign investors who thought that they could remain safe, conduct their business and make their profit as long as they were careful to  stay out of politics and not cross the big guys like Gazprom or Rosneft.

Today, even a small guy like Artyom Avetisyan equipped with proper connections will use them to smoke their competition — and so they go up in flames, with the whiffs of Russia’s “business climate” along with it.

It’s time to face the reality — as long as Putin and his criminal system remain in power, fair and legally protected investment in Russia is simply not possible.

A piggy bank of $6 trillion for Putin’s cronies to “salt the stash away”

Tomorrow, on October 24th, the State Duma will be considering a proposed draft of the federal budget for the years of 2019-2021 in its first reading. One cannot be calling that document anything else but short of sensational, and Vladimir Milov, a leading Russian political and economic analyst, explains why. We have just recently heard about the “absolute lack of any other alternatives” but raising the taxes and increasing the retirement age. However, now the Putin’s government has found trillions of surplus cash in the excess revenues. And that impressive stash will be given away into a piggy-bank for Putin’s cronies.

Continue reading A piggy bank of $6 trillion for Putin’s cronies to “salt the stash away” →

Constitution and Economy after Putin. A Roadmap for a new Russia

Vladimir Putin’s regime has arguably surpassed the Soviet Union in its artful employment of propaganda. One of the most widespread myths that the regime energetically pedals is that there is “no life” – or any viable political options – after Putin. This line is fed both to domestic and foreign audiences in different but overlapping forms.

Continue reading Constitution and Economy after Putin. A Roadmap for a new Russia →

Russian pension reform: a “black swan” for Vladimir Putin?

Russian pension reform aimed at sharply raising the retirement age has all the chances to become a long-anticipated political “black swan” for Vladimir Putin’s government – a mistake that may not necessarily lead to immediate political problems for Putin, but would definitely deliver one of the strongest blows to his grip on power in years. The media has already picked up the decline in Putin’s approval ratings to pre-Crimea annexation levels, and there’s a good reason for it. There was hardly any major element of governmental policy in the past couple of decades that was met with such overwhelming rejection (and “approval” nearing the statistical margin of error, if any) by the society as the proposed “pension reform.”

A recent opinion pollby the Levada Center (dated July 5th, 2018) illustrates explicit rejection of Government-suggested pension reform by Russians—only 7-8% view raising retirement age totally positively or somewhat positively, whereas 89-90% view it somewhat negatively or strongly negatively, with “strongly” negative responses clearly prevailing (70-73%). (The fluctuation in percentage points is explained by the fact that two different questions were asked: one about raising retirement age for men from 60 to 65 and one about raising it for women from 55 to 63. Similar figures are shown by another pollster, FOM (dated June 29th): 80% of the respondents reject raising retirement age, whereas only 6% approve.

Russian opposition is currently actively working the political grassroots in the Russian region, and was behind recent sizable protests in provincial Russian cities. Our interaction with ordinary Russians in Moscow and in the region, suggests that people view the proposed retirement age raise not simply as just another economic reform, but instead as a breach of one of the few available major social guarantees. This guarantee remained untouched for decades, from Stalin’s era through very difficult reforms of 1980s and 1990s. Frankly speaking, there are very few solid social guarantees available to ordinary Russians from the government, and pension is arguably the most fundamental one. Many people build their living strategies after 40 on “holding out until retirement age,” as demand for elderly workers in Russia is quite limited. Vedomosti cites a recent study by the Higher School of Economics which shows that the salaries of Russians peak, on average, at age 45, after which begin to severely decline (by 15-20% compared to peak). This is a stark contrast to developed Western countries with higher retirement ages, where peak salaries are observedbeyond 45 and 59 years. Russian hiring ads traditionally include provisions like “inquiries from candidates aged above 40/45 are not considered.”

The age group which falls under the provisions of current “pension reform” – for whom retirement will be delayed beyond 60 years for men and 55 for women – fall under very high risk of ending up unemployed or forced to take extremely low-wage jobs. Analysts at Raiffeisenbank have calculated that about 660,000 Russians per year will be affected by a raised retirement age, of whom 200,000 risk ending up unemployed – that’s 5% of the total current numberof unemployed Russians.

Yet another problem is poor health of Russians: according to already cited a Levada poll on July 5th—58% of Russians stop working after reaching retirement age due to poor health. According to many independent experts, the majority of Russians around pension age have chronic diseases which complicate their competitiveness in the labor market and their ability to continue to work. See, for instance, Tatiana Maleva and Oksana Sinyavskaya: “Raising retirement age: pro et contra”. The poor health of elderly Russians also devalues the government’s promises of “higher pensions after 65”. Since many peoples’ health sharply deteriorates after 65, they basically have no time to enjoy their retirement and instead begin to fight for physical survival. The Russian government is aiming to take away these relatively smooth first five years of pension

In this regard, raising retirement age as proposed by the Russian Government puts tens of millions of Russians in the risk zone for the upcoming decade, potentially driving unemployment higher and creating millions of “new poor” people who will not be in demand by the labor market and will have a very difficult time living through to reach the new, raised retirement age.

This perspective is completely understood by the Russians in the risk zone. According to our surveys, about one fifth of the attendees of protest gatherings against raising the retirement age in provincial Russian cities in the past weeks were completely new people who have never attended opposition rallies before. These people have very strong feelings about what they believe to be dishonesty and betrayal by the authorities:

  1. There was not a word about such swift raising of retirement age during the “presidential elections” campaign. In fact, Putin and many top ruling party officials have categorically rejected such a perspective many times on record in the previous years;
  2. As said above, the current retirement age was one of the very few solid social guarantees by the government surviving decades of changing policies, and people truly believed in it and built their basic living strategies upon it;
  3. Unlike other countries where retirement age has been raised before, there was never an open debate in society about it—instead, the government recently switched on its full-throttle propaganda machine spreading ridiculous and poorly crafted messages that “working longer is great and everyone will just be happier.” This clearly heightens the negative reception of the reform. Instead, critical voices are suppressed. This atmosphere does not help build trust to suggested measures, to say the least;
  4. Aggressive governmental propaganda is so out of touch with reality: nice looking TV hosts in designer clothes discussing how nice it is to work after 60, whereas the bitter reality for many Russians at that age is poor health, enormous medical costs, and the total inability to find a job.

Also, it’s worth noting that the pro-reform message is extremely weak in terms of its argument. The comparison with other countries simply doesn’t work due to poorer health and quality of life in Russia. Talk about the “inevitability” of raising the retirement age due to pension fund deficits hardly sells itself on the background of fresh news about record surplus of the federal budget, which is expected to hit over 1 trillion rubles this year due to rising oil prices.  According to Minfin, the government’s National Wealth Fund reached $77.1 billion on July 1st. That amount alone is sufficient to close down the debate on raising retirement age for at least a decade.

So, our feedback from the Russian region tells us that this time it’s serious. Relations between the public and Vladimir Putin’s government are broken. Yes, Putin always has the option of interfering and softening the proposed scale of raising retirement age, but it seems unlikely that he will completely cancel the reform after decades of discussion. Key political decisions to proceed with the raise have already been taken, and any such softening gestures will not be able to restore the trust of those people who lost it after the pension reform was announced in June.

Of course, the retirement age factor alone can’t radically transform the Russian political landscape. Russian society in many ways is traditionally driven by inertia and adaptation rather than revolt, as people have very limited historic experience of democratic governance. Many Russians believe that their lone voice can’t make a difference, but postponing the retirement age – a blatant breach of an important provision of informal social contract – will definitely be one of the game changers that will ultimately contribute to ruining trust in Vladimir Putin and his system. It is already becoming one.

The Current Russian Government Will Become a Textbook Example of Administrative Stagnation

Dmitry Medvedev’s new Administration has already been dubbed “the stagnation cabinet” and for a good reason. Despite some rotations, the new government is dominated by well-known bureaucrats who have hopped between various positions within the Putin system for years but have never established themselves as agents of change. There simply are no reformers or rabble-rousers in this cabinet, and consequently, no reasons to expect substantial changes in economic policy. The overwhelming majority of officials from the previous administration have kept their posts, just like Medvedev himself, who has long become the national symbol of stagnation and imitation of competent economic management.

At the same time, certain shifts within the government do offer clues on exactly what kind of adjustments of the economic management style we should expect in the coming years. Let’s discuss this in detail.

The most glaring change is the dramatic beefing-up of the fiscal component of the cabinet. The opposition of the fiscal hawks to all development proposals had figured prominently in all of the previous administrations. As a rule, all breakthrough proposals require either lower taxes or increased spending for purposes of development. The fiscal hawks are categorically against such proposals, as a balanced budget is their foremost priority. This is exactly what type of standoff shook the Kasyanov government in early 2000, when Kasyanov and Gref sought to lower the taxation burden, but Finance Minister Kudrin was opposed.

The most striking feature of Medvedev’s “old new” cabinet is the unprecedented power of the fiscal hawks; they are probably the most powerful they have been in the past twenty-five years. First of all, the government now has a de facto shadow Prime Minister — Anton Siluanov — who has not only been given the powers of a First Vice Minister and now is in the supervisory position over everyone else in the government but has also kept his full control over the powerful Ministry of Finance, the very agency that regulates the state financial flows.

Siluanov will inevitably grow stronger due to the weakness of Medvedev himself, who is by far less proficient financially, and to the new arrangement where Siluanov will oversee the political process of budget negotiations with the Duma lobbyists — he would always have the pretext of telling other agencies: “apologies, you will have to take a hit on this issue due to the current political situation.” A balanced budget and growing reserves to fight off inevitable future crises are the traditional priorities of Siluanov. That means we should anticipate an increasingly restrained discussion of spending increases and, conversely, very lively discussions of tax hikes.  Such fixation on balanced budgets and reserve growth is not great news for Russia’s weak economy.

Siluanov is not the only bad news. Tatyana Golikova, the new public-sector czarina, in fact, is yet another fiscally rigid official who has spent years overseeing the budget process at the Ministry of Finance. That fact is even more important than the widely-publicized business interests of the Khristenko-Golikov family in the pharmaceutical industry, — it’s hard to imagine Golikova aggressively demanding dramatic increases in spending for health and education.  The opposite is more likely.  Against the backdrop of the bureaucratically weak Ministers Skvortsova and Vasilyeva, who were retained in their posts, we anticipate new waves of public sector “optimization”.

In that regard, a telling appointment is that of the new Minister of Science and Higher Education Mikhail Kotyukov. The appointment came a few days after the announcement of the abolition of the Federal Agency of Scientific Organizations (FANO- ФАНО) and the creation of the new Ministry. The scientific community was jubilant— finally, the benevolent President had responded to the pleas of the learned men and fired from the FANO the squad of heartless boys with no real science background who were intent on consolidating their control of the budgets and properties of the scientific sector.  But their glee was short-lived, for appointed to the post of the new ministry was precisely the head of the much-hated FANO Mikhail Kotyukov, barely over 40 years of age, who has spent most of his career in finance and has no background in science. This was a sophisticated way for Putin and Medvedev to spit into the face of a scientific community. To put it bluntly, the “old new” Medvedev Administration will basically finalize the process of cashing out Russia’s social services and science — and that explains the current appointments very well.

One should not expect a comprehensive policy of human capital development when everything is administered exclusively by finance cadres with a very different way of looking at things. Veronika Skvortsova can be an award-winning doctor three times over, but we have already seen her real position within the decision-making process. In that regard, the situation has gotten even worse.

Consistent with this overall picture is the reappointments into the “old new” financial block of two ministers — Siluanov and Oreshkin.   Before the new cabinet was announced, a broad range of forecasts was floated that Putin may surprise everyone with appointing into the government new strong cadres with a mandate to resuscitate economic policy.

Dirigistes had hoped for the appointment of their own gurus; traditional in-system liberals for Kudrin’s appointment. But it is clear now that Putin is quite content with the people who keep the government piggy-bank under control and keep feeding us fairy tales about the growth which is not even on the horizon.

Of course, there are a number of other odious appointments offensive to those who understand our country’s problems even a little. For example, Mr. Kobylkin, under whose governorship the Yamalo-Nenents Autonomous Okrug witnessed the first epidemic outbreak of anthrax in 75 years, has been appointed the Minister of Environment and Natural Resources. Medinsky, with his plagiarized dissertation, has kept his Minister of Culture position. Everyone has heard about Mutko and the Ministry of Construction.

However, the most scandalous appointment, of course, is that of Dmitry Patrushev, the son of former FSB Director and closest friend of Putin Nikolai Patrushev, to the post of Minister of Agriculture. Must we highlight the fact that Patrushev Jr. has only worked in agriculture for…. never! He has never worked in agriculture, not a single day. He has worked in banking, and not very successfully: the Rosselkhozbank (the Russian Agrarian Bank — Россельхозбанк) which he headed since 2010, has not managed to get out of the red, despite numerous promises of the management, and is now one of the largest recipients of government subsidies. The reason — reserves backed by bad debt which consume all of the bank’s interest profits. To put it bluntly, loans were generously issued for random projects and now the taxpayers (that is you and me) are bailing them out.  By the way, my personal theory on Patrushev’s appointment to the Ministry of Agriculture is that he was removed from the Bank because he simply was not up to the job, and the Ministry of Finance got fed up with constantly having to bail him out. So, it was an honorary discharge, of sorts. However, considering the high-powered daddy Dmitry Patrushev, this is definitely not the end of his career.

Therefore, the new edition of Dmitry Medvedev’s Administration — is not just a stagnation cabinet, but also a parade of egregious incompetence as well as the first in history barefaced attempt to introduce the corrupt practice of appointing the sons of the new high nobility to ministerial posts (I am struggling to recall such an impudence, frankly).

At the same time, we should note that the numerous forecasts of anonymous Telegram channels foretelling the strengthening of Igor Sechin’s position in the new Administration have not come true. Not only has Sechin not realized any gains, he has lost ground. For example, even the new head of the Ministry of Environment Kobylkin is much closer to Novatek (Новатэк) and Gazprom, but definitely not to Sechin himself, in contrast to the previous head of that agency Sergey Donskoy. It is hard to say whether Donskoy was a “Sechin man” in the full sense of that term, but the obvious trend is definitely not to the advantage of the head of Rosneft.

Sechin’s frenemy ArkadiyDvorkovich has left the government. However, Dmitry Kozak who replaced him as the Energy Czar is not any closer to Sechin. Another obvious opponent of Sechin, Prime Minister Dmitry Medvedev, has managed to wrangle an important position of the Chief of Staff for his college classmate Konstantin Chuychenko, despite Medvedev’s conspicuous lack of competence.

However, overall, it would be fair to say that Medvedev’s Cabinet is consistent with Vladimir Putin’s view of the situation. He is content with everything, he does not want any radical changes, he does not want any reforms. All that he is after is further fiscal consolidation. Putin is satisfied with fairy tales about economic growth told him by the Ministry of Finance and Ministry of Economic Development. An old joke comes to mind: “Experts say people’s incomes are growing. — But our income has not grown! — Clearly, you are not the experts!”

He is unwilling to undertake any serious attempts to change the situation, just as he is unwilling to alter fundamentally the existing balance between the power clans.

It’s difficult to come up with a better illustration of the term “stagnation” (or in common parlance, zastoy) than the composition of the new Medvedev Cabinet. In some distant future, this Administration will become the textbook example of regulatory stagnation

This Article first appeared in Russian at the Insider’s site. 

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