Richmond World Affairs Council

Putin’s Russia, Part V: A Political Machine – Economy

The Russian economy is a blend of liberal free market and statist socialist features, plagued by pervasive corruption.
Under Putin’s system, the economy is carefully managed by the state.  Since Putin assumed the presidency in 2000, the Russian government has nationalized and seized control of the country’s raw materials export economy, which is especially pertinent to its energy sector. Through his management, Putin was able to siphon revenue from Russia’s oil and natural gas trades during the oil boom years of 2000-2008 to build state reserves large enough to pay off the countries’ outstanding Soviet-era debts to foreign countries—over $40 billionaccrued after the collapse of the USSR. Moreover, remaining revenue in the government coffers have helped sustain Russia in times of economic crises, such as during the 2008 global recession and 2015 collapse in oil prices.
For the first time since the decade long economic depression of the 1990s, the Russian economy experienced continuous and impressive economic growth—averaging a rate of 5% annually—during Putin’s first term (Lynch 25). Although Russia’s economy has declined since 2008, most Russians are still better off now than during Putin’s predecessor, President Boris Yeltin’s, rule in the 1990s. The standard of living improved among poor and rich Russians as national incomes rose and poverty rates declined. Studies show that throughout Putin’s years of rule, Russia’s economic performance has helped sustain political support for his regime (Rose 151-152).
The nepotism of Putin’s system, however, has allowed elites to capitalize on the subsequent inequalities created by it (see “Putin’s Russia, Part IV: A Political Machine – Politics”). In Russia, it is said that the way to great wealth is through political power (Lynch, 2015). By hand-picking those who will run Russia’s bureaucracy, Putin has bestowed the gift of wealth upon select members of Russia’s population. In fact, these members of the elite class are estimated to control 40-45% of Russia’s economy (Lynch, 2015).
Among the common people, however, Putin’s social welfare policies remain one of the most important factors in maintaining his political legitimacy. Putin returned to the Soviet institution of providing widespread social benefits to the Russian people—unemployment wages, pensions, free healthcare, and more—that were once privatized and difficult to pay for during the economic depression of Yeltsin’s rule. With Putin in power, pensions and wages were paid regularly on time. Unemployment fell from 10.4% in 2000 to 7.5% in 2003. Meanwhile, the median income increased by half during Putin’s first term (Lynch 25). Under Putin’s rule, the average Russian enjoyed a relatively prosperous life compared to the Yeltsin years.
In 2005, therefore, when Putin’s government abolished a wide range of state-funded social services for pensioners, veterans, and the disabled to reduce its spending, Russian senior citizens rallied together to protest in one of the largest and most significant challenges to Putin’s political rule. A poll by the Levada Center revealed that Putin’s popularity as a trustworthy politician dropped to 39 percent from 58 percent. Almost immediately, Putin reversed the decision and reinstituted free public transportation and subsidies for housing, prescriptions, telephones, and other basic services. In the eyes of the common Russian people, the Putin regime’s most significant contribution has been improving the general welfare of their being.
Putin’s management of his country’s political economy has elevated Russia to new heights of global prosperity, power, and relevance—and centralization, authoritarianism, and corruption.