As highly important September elections in Russia draw nearer, the Kremlin is trying to shore up its positions, using the usual tacks—from vague promises of additional spending to growing crackdowns on opposition. The late Putinism’s “offers” to Russian elites—especially those outside the highest echelons and tightest circles of power—are also changing. A closer look at recent developments reveals some awkward contradictions.
Recently, Duma chairman Vyacheslav Volodin (above) called for the "national orientation" of the Russian elites. "The elites—local, regional, federal—must share the country's successes and challenges," he said. Photo: duma.gov.ru.
This springtime in Russia is the latest season known as “gubernatoropad,” or the falling of governors—the period of elite purges that usually occurs a few months before an important election. Four regions have lost their leaders: the Penza and the Ulyanovsk Regions as well as the Republics of Tuva and North Ossetia. Three of these dismissals were unsurprising, as they felled leaders considered to be liabilities in regions slated to hold gubernatorial election in September. The firing of Ivan Belozertsev, the governor of the Penza Region, on the other hand, was a surprise not only because he was not a particularly unpopular or problematic governor, and not even because he was only recently re-elected, but mostly because of the way it happened. Belozertsev was arrested together with Boris Spiegel, a pharma executive, and accused of accepting bribes and, later, electoral fraud. His home was raided, and the stash of cash and other valuables allegedly found there were put on public display.
Later several observers suggested that the real target in this case was Spiegel and his lucrative pharma business, Biotek, a medical equipment provider. Spiegel himself claimed that the Federal Security Service (FSB) was trying to shake up the market. Whether his accusations are true is difficult to tell, but the fact remains that both the businessman and the governor were arrested ostensibly for unlawful activities. In modern Russia, such behavior is far from unheard-of among high-profile officials, and Belozertsev could have reasonably expected to get away with it.
A different tune
Elite purges are not new. Belozertsev is the twentieth governor to be arrested since 2005; and among mayors the chances of ending up in jail are even higher. Still, there is a sense that these crackdowns are gaining momentum as the regime is running out of political stamina and economic fodder. In the decade between 2005 and 2015, only nine governors were arrested; in the slightly over five years since, there have been 11 such arrests. Recent years have also seen several high-profile criminal cases that looked very much like attempts to settle business disputes—from the 2014 arrest of Vladimir Yevtushenkov, which resulted in the seizure of the Bashneft oil company by the state-owned Rosneft, to the related 2017 arrest of then Economy Minister Alexei Ulyukaev, to the 2018 arrest of Ziya Magomedov, who had a dispute with Transneft, a state-controlled pipeline company, to the arrest of Mikhail Abyzov, another former minister and energy executive, who has been in pre-trial detention since 2019. The FSB’s role in these investigations and arrests prompted observers to point at the growing power and audacity of the security apparatus, also evident in the Kremlin’s recent remarkably fast and hard authoritarian turn toward criminalization of opposition activities.
The official tone accompanying these crackdowns might present a different picture. Between Duma chairman Vyacheslav Volodin speaking about the need for “nationally oriented” elites and Central Electoral Commission head Ella Pamfilova painting the September election as a battle against foreign influence, there are plenty of recent examples of Kremlin-adjacent actors using a pretend “national emergency” to justify keeping elites on a tighter leash. But this is nothing new either. In 2014, Vladimir Putin used a similar tack to push for the repatriation of elite wealth from abroad—a campaign that achieved only moderate success. In 2018, the Kremlin relied on the same rhetoric to justify a bill that would have criminalized complying with U.S. sanctions, and thus would have shifted some of the financial damage caused by Putin’s foreign policy onto the business elite, but the bill was subsequently shelved.
Perhaps because none of these efforts was particularly successful, or because they nonetheless set the Kremlin on a specific track, or because the government is making a conscious attempt to purge and rejuvenate certain elite groups, it appears that the Russian authorities are shifting gears. The fact that scare tactics against the population seem to work, inasmuch as they force the politically inactive mass to choose acquiescence over activism, may also have emboldened those who seek to rally the elite around the Kremlin with the crack of a whip. And framing dissent as a national security issue gives the special services a whip that is easy to wield and difficult to shield from.
It is still unclear whether the intent, or at least the impulse, for these crackdowns comes from the resolute center, or, on the contrary, it is the result of the Russian president becoming too weak to prevent score-settling and reiderstvo (“raidership”)—as the forceful seizure of economic assets is known in Russia. It is probably a mixture of both trends. The independent newspaper Novaya Gazeta recently published an investigation revealing that in 2010–2019 almost 4,000 cases were initiated against private firms under the extremely ambiguous Article 201 of the Criminal Code (“Creation of a criminal organization and participation therein”), primarily to seize property—a clear case of predatory behavior. But political motivation also drives these cases. The president’s approval ratings might look strong, but this reflects a lack of alternative rather than public enthusiasm or even consent to his rule: public trust in the president has taken a tumble, and Russian voters’ concerns over rising prices, falling real incomes, and environmental issues created by bad governance are intensely political. This makes any political experiments with the elite potentially dangerous.
The risks of putting money where your mouth is
When it comes to symbolic declarations of loyalty or short-term political favors, a combination of threats and calls to national unity works. Carrying the can for bad policies and putting money into insecure investments are a different story. There is a contradiction between the authorities using targeted crackdowns to prevent the emergence of independent power centres or to seize lucrative enterprises, and their expecting the elite to invest. Oligarchs are happy to join forces with Rosneft to sue the publisher of Putin’s People: How the KGB Took Back Russia and Then Took On the West (Macmillian, 2020), authored by the British journalist Catherine Belton. They can be talked or coerced into refraining from putting their money behind candidates that the Kremlin considers problematic in regional and federal elections. But these efforts only solve surface-level issues and do little to address the real underlying danger—a crawling economic and social crisis.
From the National Projects that are supposed to kickstart nationwide growth, to politically important investments in social infrastructure, state spending relies on the private sector to succeed. And Russia’s investment-to-GDP ratio has consistently lagged behind the roughly 30 percent observed in emerging markets: the figure was 21 percent in 2020 and in the past decade has never exceeded 25 percent. Even industrial parks intended as investment drivers saw a significant drop in money injections in the past years, which have been recovered only partially, if accounting for inflation. The fiscal multiplier—the ratio of change in economic output resulting from an increase in fiscal spending—is consistently low: according to economist Sergey Aleksashenko, it amounts to about 0.2-0.3, lower than in most developed countries.
Consequently, the onus is on regional political leaders to incentivize investment or use the means at their disposal to invest. Putin himself told governors so much in his recent address to the Federal Assembly, where he encouraged them to be more “self-reliant” when it comes to social investment projects, that is, to come up with ideas, preferably before the September elections, and take responsibility for them. The government will increase their fiscal space in the coming months and years by replacing some of their commercial debt with cheap budgetary loans, by expanding the maturity of existing loans, and by releasing at least 500 billion rubles ($6.75 billion) of new infrastructure loans.
This is real money, but it is hardly more than a temporary boost. There is no talk of actually allowing the regions to gain more control over their own resources. According to ACRA, a credit rating agency, the sum of the new budgetary loans named by the Ministry of Finance will make up only about half of the total amount of the commercial debt that it is meant to replace, suggesting that recipients of the money will be determined by additional conditions and, perhaps, political favoritism. If, as Putin suggested, the government takes a region’s indebtedness into account when distributing infrastructure loans, then such loans may disproportionately benefit the oil- and gas-producing regions and regions relying on grants rather than loans—hardly a sign of structural changes.
Following two decades of fiscal and political centralization, 2020 saw the Kremlin’s attempt to centralize data collection and crisis management at the federal level through creating the government’s Coordination Center and collecting citizens’ complaints bypassing regional authorities. Likewise, projects funded through infrastructure loans will be subject to rigorous federal review. Governors can demonstrate political support for the federal center by guaranteeing election results or by complaining about price-fixers. But it is difficult to see how and why regional political leaders and the business elite would show more initiative and take risks.
Spreading the risks
Similarly to the intensifying crackdown on the opposition and various forms of dissent, the main risk for the regime is that repressions could destroy the existing understandings and incentives that have made the system work so far—side effects that would be almost impossible to reverse. Convincing business actors to invest is already difficult, given that they face heightened risks of having their property seized. Regional leaders are confronted with a similar dilemma: until recently, many of them—especially the technocratic outsiders appointed by the Kremlin in recent years—have derived their legitimacy primarily from the federal center, together with the understanding that as long as they didn’t question the political order (or didn’t allow it to be questioned), they could reasonably expect to get away with things that would get an independent or opposition politician arrested. If these privileges diminish, these political appointees will face the unpleasant reality of voters not caring about their fate, as opposed to the support they gave for the candidates whom they actually like and managed to elect, such as the Khabarovsk governor Sergei Furgal, whose arrest last summer caused a massive protest in the region.
The jury is still out on whether popular support can help an arrested politician—a systemic figure, like Furgal, or a non-systemic one, like Alexei Navalny—get out of prison. But as crackdowns become harsher and more random, officials will inevitably start questioning whether simply turning out the vote, keeping their house in order, and executing the Kremlin’s directives will keep them out of prison. Just like the business elite, who are looking for safer portfolios for their money, regional elites might want to diversify their assets.
