Russia A History

by Gregory L. Freeze

  While such accusations do not seem credible, they do highlight an important reason for Putin’s skyrocketing popularity: the Chechen conflict enabled Putin to demonstrate his mettle in an all-out military campaign to establish Russian control over Chechnya and eradicate terrorism. Contemporary polls showed that the ‘second’ Chechen war elicited public support both for the campaign and the prime minister, whose decisive leadership promised a clear military victory. And the military campaign appeared to succeed: within months, after relentless artillery bombardment, Russian forces stormed the Chechen capital of Groznyi—from which they had been so ignominiously expelled earlier—and launched search-and-destroy operations against pockets of guerrilla resistance. Although Chechnya hardly became a model of tranquillity, Putin demonstrated a willingness to use massive force, on a far greater scale than in the first Chechen war, and these early victories propelled his approval rating ever higher.

  All this provided a favourable background for the new Duma elections of 19 December 1999. This time the Kremlin was determined to ensure the election of a supportive Duma—in contrast to the hostile majorities that prevailed in the 1993 and 1995 elections. Within a month of Putin’s appointment as prime minister, pro-Kremlin figures established a new party, ‘Unity’ (Edinstvo), to represent the regime in the election; it offered no specific programme other than to proclaim a commitment to the country’s ‘territorial integrity and national greatness’. Bankrolled by the oligarchs, bathed in favourable media coverage, and endorsed by a growing number of weathervane governors, the new party catapulted from nothing to win almost as many votes as the long-established Communist Party. Together with allied parties and independents, Unity headed a pro-government majority in the Duma and, given Putin’s popularity (even among Communists), ensured a cooperative Duma—quite unlike what Yeltsin had had to endure.

  In the flush of that electoral victory, Yeltsin used his new year’s address on 31 December 1999 to drop a bombshell: he announced his resignation, effective immediately, with Prime Minister Putin (as the constitution stipulated) ascending to the office of acting president. Although Yeltsin rhetorically spoke of inaugurating a new millennium with a new president, the main purpose was to hasten the elections, which by law had to be held within three months of his resignation. Seeking to capitalize on Putin’s popularity, perhaps fearful that it might fade by summer (especially if the country became mired in a protracted Chechen war), Yeltsin resigned early in order to ensure Putin’s election. Putin immediately rewarded the former president: his first act was to guarantee immunity to Yeltsin and his immediate family from prosecution—a step widely regarded as a payback (if not precondition) for his early promotion.

  With elections scheduled for 26 March 2000, Putin was the only real candidate. The few serious contenders, such as the former prime minister Evgenii Primakov and Moscow mayor Iurii Luzhkov, became the target of smear campaigns in oligarch-owned media and withdrew their candidacy. As in 1996, the nominally ‘independent’ media provided lavish coverage of Putin, from his everyday perorations to his bravado as co-pilot in a military jet flown to Chechnya six days before the election (a dramatic contrast to ‘Tsar Boris’). Putin won a majority (53 per cent) in the first round and thus avoided a run-off such as Yeltsin had had to endure in 1996. Indeed, whereas Yeltsin barely edged out the communist Gennadii Ziuganov in the first round in 1996, Putin received nearly twice as many votes (39.7 million) as Ziuganov (21.9 million). Despite claims of vote-rigging, Putin was a clear winner; even if a run-off had been necessary, few doubt that he would have dealt Ziuganov a crushing defeat. Putin thus became president with both a cooperative Duma and a popular mandate; he had an unprecedented opportunity to embark on a new course and realize his vision of a new, more prosperous, and more powerful Russia.

  The Putin Vision

  Boris Yeltsin had no coherent political philosophy or goals, but the same could hardly be said of Vladimir Putin. On 29 December 1999, two days before Yeltsin resigned and made him acting president, Putin posted on the internet a manifesto called ‘Russia at the Turn of the Millennium’, which had been prepared under his guidance by the newly established Centre for Strategic Development. Thereafter Putin regularly presented his views in an address to the Federal Assembly (a joint session of the two houses of parliament), a ‘state of the union’ speech identifying achievements, elucidating problems and setting goals. He also held an annual televised press conference ‘with the nation’, a kind of virtual town meeting, where citizens phoned in, wrote emails, and appeared on live TV asking Putin to address broad issues and their own personal problems. These three-hour town meetings were carefully staged, excluded political critics, and allowed Putin to demonstrate his amazing grasp of detail and data (aided, to be sure, by having the questions in advance). But these personal appearances, interviews, and speeches (routinely posted on the presidential website) revealed a firm commitment to several core principles and values.

  One was patriotism—a salient theme in his rhetoric. He emphasized that patriotism was essential for binding so heterogeneous, so dispersed a nation together, especially at a time of adversity which required the country to rebuild its basic institutions, economy, and power. In his first day in office Putin reiterated that a crisis dictates decisive action: ‘Russia is in the midst of one of the most difficult periods in its history. For the first time in the past 200–300 years, it is facing a real threat of sliding into the second, and possibly, even third echelon of world states.’ In the face of adversity, he declared, ‘patriotism is a source of courage, staunchness and strength of our people. If we lose patriotism and national pride and dignity, which are related to it, we will lose ourselves as a nation capable of great achievements.’ To nurture that patriotism, Putin refurbished evocative, and unifying, national symbols. In December 2000, for example, he persuaded the parliament to adopt a new national anthem (with new lyrics, including references to God, but using the music from the Soviet anthem), to proclaim the two-headed tsarist eagle as a state emblem, and to codify the use of the tricolour as the Russian flag. He also amended Yeltsin’s decision to rename 7 November (the Soviet commemoration of the October Revolution) as ‘the day of concord and reconciliation’. Putin shifted the holiday to 4 November to celebrate ‘the day of national unity’, recalling the defeat of Polish occupiers in the Kremlin by a popular militia in 1612. He later restored the red flag, and then the red star, for Russian military forces. It seemed entirely natural when, asked at a town meeting ‘What do you love most?’ Putin instantly replied: ‘Russia.’ Disingenuous or not, such rhetoric helped to consolidate his image as national leader and to revalorize commitment to the country and its resurrection.

  A second leitmotif was Putin’s nuanced conception of Russia’s past and its place in the larger scheme of things. In general, he portrayed Russia as an integral part of Europe and bore little sympathy for the then fashionable theory of ‘Eurasianism’, which holds that Russia is a civilization nurtured by both European and Asian roots. Although a Europeanist, Putin none the less rejected the idea that Russia must replicate European development and insisted that it must follow its own course, that it need not obey the demands of Western countries: ‘We are a major European nation; we have always been an integral part of Europe and share all its values and the ideals of freedom and democracy. But we will carry out this process ourselves, taking into account all our specific characteristics, and do not intend to report to anyone on the progress we make.’ He also expressed a positive, but qualified, view of the Soviet experience. His ‘Millennium Manifesto’ declared that it ‘would be a mistake not to recognize the unquestionable achievements’ of the Soviet era, but added that ‘it would be an even bigger mistake not to realize the outrageous price our country and its people had to pay for that social experiment’. He reiterated that view in April 2005 when he characterized the break-up of the Soviet Union as ‘the greatest geopolitical catastrophe of the twentieth century’ but promptly added that it was impossi
ble to fantasize about resurrecting the old Soviet state. That qualified nostalgia corresponded to the general public mood; a 2001 poll showed that 79 per cent regretted the breakup of the USSR, but that 58 per cent deemed its re-establishment impossible.

  A third core element was Putin’s belief in a strong state. As the ‘Millennium Manifesto’ stressed, ‘our state and its institutions and structures have always played an exceptionally important role in the life of country and its people’. A strong state, he argued, was a precondition for individual liberty, for only it could provide security and stability. As he explained in July 2000, ‘an effective state and democratic state’ alone can defend basic freedoms and create ‘the conditions for the social well-being for our motherland’. Six years later he defended his efforts to rebuild a strong state, which could ensure ‘the implementation of the laws that have been adopted’ and see that they were adopted in the first place. In particular, Putin insisted on the need to reclaim the power that Yeltsin had devolved on the eighty-nine regions of the Russian Federation. Putin’s idea of a ‘new federalism’ was essentially a call to restore the ‘power vertical’, the hierarchy of authority that accorded primacy to central institutions, laws, and practices. Putin’s stint as Yeltsin’s deputy chief of staff for relations with the regions had convinced him that ‘the vertikal, the vertical chain of government, had been destroyed and that it had to be restored’. In some sense, Putin was simply affirming the importance of ‘good governance’—a central theme since the late 1990s, when even ardent advocates of globalization (such as the World Bank) rejected the neoliberal programme and emphasized the need for effective governance. The United States, itself once a bastion of neoliberalism, came to the same view; its Millennium Challenge Accounts, established in 2002, made good governance a precondition for US foreign aid. Putin, at least in part, simply applied that new theme in global development to Russia itself.

  But Putin went further, arguing not only for good governance but for a strong state, which should play a prominent role in the economic sphere. Reflecting the new emphasis on the linkage between ‘good governance’ and economic growth, as well as the strong statist traditions of Russian history, Putin insisted that the state must direct economic development. That view permeated his kandidat dissertation, ‘The Strategic Planning of Regional Resources during the Formation of a Market Economy’, defended at the St Petersburg Mining Institute in 1997 (after Putin moved to Moscow and became immersed in administrative duties). The 218–page dissertation, distilled in an article published two years later, specifically argued that the state should have the final voice in energy and natural resource policy. It was not, however, a reversion to a Soviet command economy: ‘The state must regulate the extractive complex using purely market methods, and in this regard the state must assist the development of processing industries based on the extractive complex.’ Such a state, argued Putin, would enable Russia to grow at twice the rate of the West and reduce ‘Russia’s lag behind developed countries in terms of GDP per capita’. Although some passages were allegedly plagiarized, the dissertation expressed Putin’s own vision of a ‘managed economy’, the antithesis of the neoliberal ‘Washington Consensus’, yet in no ways identical with the étatisme of the Stalinist command economy.

  A fourth, less salient component of Putin’s thinking was a stress on social solidarity and justice. At one level, he referred to the need to provide the social services and safety net that so distinguished the Soviet system; even if that meant adjustments (converting some benefits to monetary amounts, or reconfiguring the social security system of pensions), Putin professed a commitment to the idea of a ‘social market’—one rooted in the fundamentals of the free market, but constrained to serve the essential needs of the population. In May 2004, for example, he declared that the market must support the social sphere—by developing a mortgage market, reforming health care, and implementing educational reform. That ‘social market’ idea remained a consistent theme; when asked in December 2008 to define Russia’s political and social system, he responded that it is ‘a social welfare state with a market economy’.

  Economy: From Bust to Boom

  The crisis of 1998 triggered a catastrophic drop in GDP, but then gave way to a burst of sustained economic growth. The turnaround was already apparent in 1999, with clear signs of recovery, including a modest increase in GDP, and that heralded eight years of impressive growth, with an average annual increase of 7 per cent in GDP. By 2007 Russia had largely overcome the devastating contraction of the 1990s, its GDP slightly surpassing that of 1991 (but still below the level in 1989). Under Putin the GDP in ‘purchasing power parity’ (PPP, which corrects distortions of nominal currency values) rose from 1.115 trillion dollars (2000) to 2.087 trillion (2007), making Russia’s economy the eighth largest in the world.

  This economic surge had a salutary impact on a host of indicators. The per capita GDP (PPP) rose from 4,200 dollars (2000) to 14,600 dollars (2008); personal income also increased (fourfold). The growth also brought a huge increase in state revenues, which enabled the government to increase expenditures on social needs (e.g. pensions) and state institutions, yet run a budget surplus for seven straight years. The government was also able to retire some of the public foreign debt inherited from Soviet times and doubled in the Yeltsin years; by 2008 early repayment had saved billions of dollars on servicing the debt and reduced public debt from 130 per cent to 18 per cent of GDP (below that of developed European states). Putin’s government simultaneously amassed huge foreign exchange reserves (rising from a mere 8 billion dollars in 1999 to 460 billion dollars by the end of his presidency, peaking a few months later at 598 billion dollars)—the third largest foreign exchange reserves (surpassed only by China and Japan). In 2004 his government created a Stabilization Fund (special resources for a ‘rainy day’), which was divided in February 2008 into a Reserve Fund (liquid assets to cushion fluctuation in budget revenues) and National Well-Being Fund (based on a Norwegian model and designed to turn petrodollars into profitable investments in blue-chip companies).

  This rapid growth was primarily due to the red-hot global economy of those years, which generated a sharp surge in demand for commodities, especially hydrocarbons, metal, and timber—Russia’s principal exports. The rising demand for oil, for example, brought a 1,225 per cent increase in the price on global markets (from 12 dollars a barrel in 1998 to 147 dollars in July 2008). Each dollar increase in oil prices, in turn, meant approximately an additional billion dollars in Russian export earnings. This same pattern prevailed in the prices for other Russian commodity exports, such as natural gas and metals like steel and aluminium. The Russian economic boom was also due, paradoxically, to the crisis of 1998, which led to a sharp devaluation of the rouble that, in turn, made exports ‘cheaper’ and imports ‘dearer’. The result was not only more exports but a surge in domestic demand, especially for consumer goods; the increase in personal incomes also stimulated greater consumer demand that provided a further spur to production and growth.

  But the global economic boom was not the only cause of Russia’s economic recovery: government policy was also a factor. In contrast to the neoliberal ‘Washington Consensus’ that dictated Russian policy in the 1990s (privatization, deregulation, macroeconomic stability, and budget austerity that marginalized the state), the new ‘Moscow Consensus’ ascribed a major role to the state. Given Russia’s traditional étatisme and the new global emphasis on ‘good governance’ (propounded by the World Bank and leading economists), Putin’s stress on the state was neither original nor surprising. In Russia’s case, it meant more government control, even controlling ownership; that was especially true of ‘strategic’ sectors—the energy and metal production that dominated Russia’s exports and generated growth and prosperity. It was not, however, merely a matter of ‘renationalization’ in key sectors: Putin also sought to stimulate private investment by improving the business environment—by simplifying the licensing procedure, by introduc
ing international accounting standards, and by requiring greater transparency. His government also cut the corporate tax rate from 32 to 24 per cent to encourage foreign direct investment (FDI), which had been negligible in the 1990s—in contrast to other transition communist states. Although the accrued FDI did increase (from 12 billion dollars in 2000 to 45 billion in 2007), it remained comparatively modest and tended to be narrowly focused in the hydrocarbon sector, as multinationals attempted to exploit Russia’s enormous natural resources. Putin took steps to staunch capital flight, as Russian entrepreneurs and enterprises shifted their wealth to safe havens abroad; he not only reduced the outflow of capital but even managed, by 2006–8, to achieve some capital repatriation for investment in Russia. Impressive as the growth was, it did have its dark sides.

  Above all, Russia was heavily dependent on commodities, but the demand (and price) for these goods directly reflect international economic conditions, good as well as bad, and historically these have been highly volatile. Russia’s commodity dependence was extraordinary; in 2006, for example, oil and gas alone accounted for 55 per cent of export earnings and 52 per cent of treasury revenues (up from 25 per cent in 2003). The sheer profitability of commodities tended to distort investment and growth, with far less allocation of fixed capital for other sectors, such as manufacturing. Failure to diversify, in turn, left Russia unusually dependent on commodity exports and hence all the more vulnerable to global economic dynamics. No less important, Russia found it difficult to increase, or even sustain, current production levels. The pipeline system was thirty to forty years old and costly to maintain; new oil fields in the north and north-east posed severe climatic and soil conditions, making their development increasingly expensive and problematic. The government compounded these problems by limiting the role of foreign companies in ‘strategic’ economic spheres, thereby forfeiting the chance to attract the FDI needed to exploit the new deposits.