Uncle Volodya’s flagging Christmas spirit

The Economist
December 30th 2008

The Russian government is beginning to run out of the goodies that it has traditionally used to buy popular acquiescence

JUST over a year ago Vladimir Putin sprang a surprise on his country: Dmitry Medvedev, a former lawyer and confidant of his, was his preferred choice of successor as Russia’s president. Optimists rejoiced, as a young, marketwise and non-KGB man offered some hope of a thaw. Pessimists predicted that, at best, Mr Medvedev would play a nominal role, with Mr Putin retaining real power. So far the pessimists have won. Nobody, in Russia or the West, doubts that Mr Putin, who is now prime minister, is still the boss.

Mr Putin makes all the main decisions and hands out money. He acts as leader of the nation—and doubles as Father Christmas, making little boys and girls happy. He took on this particular role in a recent televised phone-in session with the Russian public. One caller was a nine-year-old girl from a village in south-east Siberia who asked Mr Putin to be a magician and give her a new dress, like Cinderella’s. The speechless girl and her family were whisked to Moscow to meet Uncle Volodya and receive the present from his hands. The Kremlin media added dollops of syrup to the saccharine tale.

Yet on the very day the girl arrived in Moscow, riot police were brutally beating up protesters and journalists in the country’s far east. The immediate trigger of the protest was the government’s decision to raise import duties on used foreign cars so as to protect Russian carmakers. Selling (and servicing) right-hand-drive cars imported from Japan has long been one of the economic mainstays for thousands of people in the region.

Significantly, the Kremlin could not rely on the compliance of local police (who also drive used Japanese cars). Instead, it had to fly special police units from the Moscow region to disperse the 1,000-odd demonstrators in Vladivostok, on the Pacific coast. Kremlin-controlled television channels chose to ignore the clashes, which only made the protesters even angrier. What started as a rally against a specific economic measure turned into a political demand for Mr Putin to step down. The protest was not the result of the economic crisis but of the government’s actions—which, as Vladimir Ryzhkov, a liberal politician, says, exacerbated the distant region’s sense of alienation from Moscow.

Russian interior ministry officials admit that the country’s worsening economic situation could spark further protests among the working population over unpaid wages or threats of lay-offs. The risks are especially high in “monocities” that depend on a single large factory or industry for employment. There is no shortage of these in Russia. Sergei Guriev, head of the New Economic School in Moscow, says that social discontent across the country is the Kremlin’s worst nightmare, which explains why it monitors the situation in industrial cities particularly closely. It has drawn up a list of some 300 firms that could receive state help, many of which are the chief employer in their area. Yet, after watching some $150 billion in foreign-currency reserves melt away in the first few months of the crisis, the Kremlin is now being careful with money, making more promises than actual payments. The government has also averted a banking meltdown, says Mr Guriev.

What Russia’s economic crisis certainly marks is the end of an implicit social contract between the Kremlin and the people. This was based on rising real incomes and selective repression. Economic growth, which has averaged 7% a year recently, has now come to an abrupt halt. Indeed, Russia faces a real risk of recession, as industrial production is declining fast. Real incomes, which have been growing even more rapidly than the economy, fell in November by 6.2% on a year earlier; wage arrears have almost doubled. The rouble is steadily losing value against the dollar. There is little doubt that Russia is heading into one of its most difficult years.

Television propaganda, which has portrayed improving living conditions as part of the Kremlin’s grand design for lifting Russia off its knees against the ill wishes of the West, has proved helpless when it clashes with cold reality. One recent opinion poll shows that, over the past two months, trust in media coverage of the economic situation has declined dramatically. Only 28% of Russians now think that their media coverage is objective (against 37% two months ago).
As Kirill Rogov, a political analyst, puts it, the Kremlin now has the choice of allowing politics back on to television screens or clearing people off the streets. The violence in Vladivostok suggests that it has so far chosen the second. As if in preparation for unrest, Russia’s servile parliament has just abolished jury trials for such crimes as organising mass riots and treason, while also expanding the definition of treason. In a conflicting signal, though, the Kremlin has appointed a former opponent and liberal, Nikita Belykh, to govern the difficult Kirovsk region. It has also allowed human-rights campaigners to gather in central Moscow recently.

It is unclear what a new social contract might look like, but some political shift is inevitable. This does not mean that Mr Putin’s regime will simply crumble, as some liberals hope. The Kremlin still has plenty of money, plus a reserve of popular trust in a “good tsar”. So far the spin-doctors have successfully insulated Mr Putin from responsibility, portraying him as a benefactor instead. A recent change in the constitution lengthens the presidential term from four to six years, giving him an option to return as president in 2012 (or even earlier) for another 12 years. But if Russia runs out of money before oil prices recover, Mr Putin’s magic will quickly run out.

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