Putinism in Crisis

MOSCOW - "Owing to the harsh economic situation, it was decided to cut off the light at the end of the tunnel as a temporary measure." That is but one of the jokes making the rounds in Russia these days, as the country faces its most severe crisis in a decade.

Having been born in the early 1960's, my generation remembers two crises. The first, following the collapse of the USSR, was almost cataclysmic - nothing in the shops, the country in bankruptcy, all savings lost. The other affected everyone but was less severe - Russia's 1998 default, which saw a fourfold devaluation of the ruble. Today's crisis is acute, but there is no sense of an approaching apocalypse.

Yet the crisis will be severe, not only because prices for the major Russian export commodities - oil, gas, and metal - have plummeted, but also because the government, which believed in its boundless force and wisdom, now seems inadequate to the challenges that Russia faces. Yes, Russia has enormous gold and currency reserves, but they are being depleted fast. They will not last for long while being spent - mostly in defense of the ruble - at the current pace.

Most importantly, there is no one in power who can change the country's economic policies. Instead, Russia is ruled by "yes men" who are only able to agree and echo: "As you say, Mr. Prime Minister…"; "As you wish, Mr. President…" One reason is that the country's leadership now appears to be digesting the same garbage information it feeds to the public.

Whole regions - the Urals and Mordovia, for example - are stagnant. Moscow, which used to rain gold on the economy, is also suffering, because it, too, depends on natural resources, and its biggest taxpayers - Gazprom, Lukoil, Transneft - are now in bad shape. Indeed, Moscow's budget has lost about a quarter of its revenues. But, given the tastes and appetites of Moscow's mayor, you can assume that he will continue to pour what money remains into the city's building boom. What does not bring in money - roads, schools, hospitals, and kindergartens - will suffer.

As in the early 1990's, everyone is again afraid of unemployment. But back then, there was almost no unemployment, peaking at 12%, because Russia's Labor Code makes firing employees hard and very costly. Moreover, most Russians do not object strenuously to wage cuts, reductions in working hours, and unpaid leaves.

There is a good reason for this docility. Moving and buying a new apartment in a different place is almost impossible, which makes Russian workers highly immobile. In Soviet times, people were proud of the fact that they had only one or two jobs during their lifetime. Those who acted differently were referred to pejoratively as "job-hoppers."

So, today, people stay near idle factories - kind of employed, but having nothing to do and earning virtually no money. Occasionally the factory pays them something, but people mainly live off their own vegetable gardens. The outcome is widespread alcoholism, poverty, and lack of prospects.

Yet real signs of crisis are emerging. Electricity consumption fell 6% in November from a year ago, and freight traffic has decreased by 20%. Even the Ministry of Economics recognizes that Russia has entered a recession that will last at least six months.

The strange thing about today's crisis is that Russia's billionaires have been hit harder than others. Don't worry, Russia's oligarchs are not starving, but the fortunes of many of them have collapsed. In another joke making the rounds in Moscow, a billionaire borrows 300 rubles (just over $10) from another to buy Forbes to check his place in the latest rankings of Russia's richest people.

Indifferent to the poor, Russia's government is actively supporting its fallen oligarchs, especially those who are close to the Kremlin. For example, the state has granted a $4.2 billion loan to the aluminum magnate Oleg Deripaska (who held first place on the Forbes list before the crisis) to pay off Western creditors. While experts are not sure whether Deripaska will repay the loan, the Kremlin and the oligarchs have their own ways of settling debts.

Deripaska, who accompanied President Dmitry Medvedev on his recent trip across Latin America, appealed to Russia's rulers to study Franklin Roosevelt's "New Deal" in the 1930's as a model for economic recovery. Roosevelt's idea of a treaty between industrialists and the authorities appeals to the Russian oligarch. Notably, Deripaska has suggested that the government create an "aluminum stabilization fund," because the industry - his industry - is losing money and global market share.

Of course, Vladimir Putin had already put in place a treaty between Russia's government and the country's richest men, who agreed not to comment on the actions of the state in exchange for the freedom to earn as much money as possible in any way they wanted. And if a well-placed official wanted to enter into a successful business, refusals were not accepted.

Fortunately, Russians know how to survive hard times. I remember the late 1980's not only for its hopes for freedom, but also for a total absence of baby food for my newborn daughter. Twenty years have passed. My daughter has grown up. There is enough baby food in the shops. But now there are no hopes for freedom.

Moscow intellectuals debate whether the current economic crisis will bring a new wave of liberalization to Russia. This is the key question for me. With a feeling of approaching freedom, any economic crisis can be endured more easily. So far, that feeling remains a ghost.

Copyright: Project Syndicate,2008

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