Over the last week, Russia has gone through a political upheaval initiated by Vladimir Putin: proposal for constitutional reform, resignation of the government, appointment of a new cabinet. The pace and scale of these events led some commentators to call them a “constitutional coup.” However, if one is to follow the logic of the regime, the president’s latest decisions should not come as a surprise. As IMR trustee, businessman, and philanthropist Leonid Nevzlin points out in his analysis of Putin’s 20 years in power, the result of his rule is the transformation of Russia into a mafia state.
This January, 20 years after his ascension to power, Vladimir Putin launched a large-scale constitutional reform that would allow him to remain Russia's leader beyond 2024, when his fourth presidential term is set to expire. Photo: kremlin.ru.
On December 31, 1999, Russian President Boris Yeltsin announced his resignation and named former KGB officer Vladimir Putin as his successor. Putin’s rule is often divided into sharply contrasting periods. But let us look at his rule in its entirety: what did Russians get as a result?
Putin’s early presidency was perhaps misleading: he launched reforms, lowered barriers to business, revived negotiations to admit Russia to the WTO. According to economist Sergei Guriev, these steps led to a “dramatic acceleration of economic growth, inflow of foreign investment, and strengthening of the ruble.” Still, about one third of growth in Putin’s first decade came off the back of the eightfold increase in oil prices in 1998-2008. Ultimately, though, the reforms promised by Putin, and the anticipated economic results, never came to fruition. Even after a rapid post-crisis recovery in 2010-2011, the Russian economy soon started to slow down: in 2013, GDP grew just 1.8 percent. As a result of the decrease in oil prices, annexation of Crimea, war in Donbass, and consequent self-isolation, any hope for reforms and accelerated economic growth were buried for good. Foreign investment significantly dropped, capital outflow increased.
At Putin’s confirmation as Russia’s prime minister in 1999 in the State Duma, he claimed that the key objective of his government would be overcoming poverty. Having become president, Putin promised he would provide social security for the Russian people. He promised to fight poverty in 2003, 2005, and subsequent years. Even in December 2019, at his annual press conference, he once again reiterated that the key issue facing the country remains poverty. Meanwhile, according to a survey on living conditions in Russia conducted by the Federal Service of State Statistics (Rosstat), 22.6 percent of Russians do not have access to a centralized sewage system (two-thirds of these people reside in rural areas, half of them use sump-type sewers).
Putin’s most noticeable recent “achievement” is the increase of the retirement age: to 60 for women, and 65 for men. One of the arguments offered to support this decision is the increase in life expectancy. But even according to official data (2017), average life expectancy in Russia is 72.7 years, which is lower than in most former Soviet countries, let alone the developed world, where it is normally over 80. Another argument was the expected budget surplus of 3 trillion rubles in 2019-2024, which was earmarked to fund the increased indexation of the pensions. However, amendments made later to the pension reform cut this amount by 500 billion rubles in six years.
On January 1, 2019, along with the retirement age, the value-added tax was also raised—from 18 to 20 percent, leading to price hikes on numerous goods and services. Meanwhile, real incomes in the country have been consistently declining since 2014.
Substantially growing incomes are a key myth of the Putin system. Incomes did grow, but one should not forget that the highest rise in real paid wages (by 20.9 percent, according to Rosstat) took place in 2000. This became possible due to the economic recovery after the global financial crisis and against the backdrop of Russia’s 1998 default on its foreign debt when wages decreased dramatically. The low base effect, oil price hike, and the Kremlin’s efforts to throw its support behind Yeltsin’s “successor” in the coming elections allowed this significant increase in wage rates to be achieved. A year later, real wages grew by a further 20 percent, and then began to decline.
Among the other “achievements” of the Putin system are the anti-sanctions program and the partially related import substitution program. Every time the Russian authorities get bogged down in another political or diplomatic scandal, the Russian public suffers. Russians were temporarily deprived of mineral water and wine from Georgia, then of dairy products from Belarus. Since 2014, various agricultural products from the United States, the European Union, Canada, and Ukraine are banned in Russia. The import substitution program in the pharmaceutical industry was adopted with the alleged goal of “providing medicinal security for the Russian Federation,” but since 2013 the key criteria to qualify for government procurements in this industry is not quality, but price, which results in original drugs losing competition to generics. In effect, foreign pharmaceutical companies are leaving Russian markets. But since Russian drugs often either fail to perform or produce side effects, families of many seriously ill patients are forced to scout for the needed drugs all around the world.
What about order? Was it not for the sake of order that the Russian people elected Putin? Officially, over the last 20 years, crime rates in Russia have, in fact, decreased (by 32.6 percent), as has the prison population (by 39.2 percent, mostly due to the 2015 amnesty). At the same time, the number of prisoners aged 56 to 60 has grown by almost four times, and those aged over 60 by 36 percent. It is an open question as to why ever more Russian pensioners are doing time...
On balance, over the last 20 years, the population has been given failed economic and social policies, questionable order, and rule by siloviki.
According to Rosstat, over the last two decades, the number of court and prosecution officials has doubled. Political scientist Nikolai Petrov estimates that Russia currently counts about 4.5 million siloviki and law enforcement officials, or 6 percent of the total working population: “[That] is more than in the Soviet Union, even as Russia is half its size.”
The number of non-guilty verdicts has reached a historic maximum. A report released last year by Russian ombudswoman Tatiana Moskalkova indicates that in 2018 non-guilty verdicts were handed down in just 0.25 percent of all criminal cases, which is 20 percent lower than in the previous year. In other words, the Russian judiciary works exclusively in the interests of the prosecution, and the very notion of the presumption of innocence seems to have sunk into oblivion.
Regardless of the law enforcement alleged efforts to establish order, high-profile assassinations and mysterious deaths take place just as often under Putin as they did in the 90s. During Putin’s rule, the following people were killed: politician Sergei Yushenkov (2003, Moscow), editor-in-chief of Forbes Russia Paul Klebnikov (2003, Moscow), journalist Anna Politkovskaya (2006, Moscow), former State Duma deputy Ruslan Yamadayev (2008, Moscow), lawyer Stanislav Markelov and journalist Anastasia Baburova (2009, Moscow), human rights activist Natalia Estemirova (2009, Ingushetia), politician Boris Nemtsov (2015, Moscow). These are just a few examples. The Russian authorities are also responsible for the deaths of lawyer Sergei Magnitsky and Yukos vice president Vassily Aleksanyan, who had been kept in detention despite being terminally ill.
The original social contract between Putin and the Russian public was based on the former delivering economic stability and order at the expense of curbing citizens’ political rights and freedom. On balance, over the last 20 years, the population has been given failed economic and social policies, questionable order, and rule by siloviki. During this time, they were also stripped of basic rights and freedoms available to the citizens of democratic countries: freedom of speech, right to peaceful assembly, right to fair elections, right to an impartial trial. They also lost an opposition voice and free media—the institutions that guarantee society’s ability to control the government.
Before Putin’s ascension to power, Russia’s 2nd State Duma (1994-1996) counted seven political factions and 25 independent deputies. United Russia, a pro-Putin party created in 2001, managed to gain a majority in the 2003 Duma elections and a constitutional majority in 2007 (losing it for six years in 2011). It helped the Kremlin secure full control over the legislation, which allows it to pass any laws.
Starting in 2000, independent media in Russia have been purposefully destroyed, brought under the state’s control or that of industrial groups close to the Kremlin, and pressured into loyalty by the government. In parallel, a machine of total state propaganda has been built in the country, targeting both domestic and foreign audiences. One of the messages of this propaganda is Russia’s reclaiming its status as a great power. But if we look objectively, how does this status manifest itself?
It is shown, for example, in the ways that Russia annexes foreign territories, takes foreign citizens hostage, interferes in the elections of other countries, and runs doping schemes. Or in the fact that it bribes Western politicians and employs hackers, spies, and troll factories to do its bidding, all the while Russian intelligence officers commit crimes across Europe. Putin gives protection to criminal and dictatorial regimes around the world, using various methods: providing diplomatic and military support to the regimes of Nicolas Maduro in Venezuela and Bashar al-Assad in Syria; offering the services of illegal private mercenary companies in Syria, the Central African Republic, and other countries; giving asylum to criminals, including former president Viktor Yanukovich, who fled Ukraine. All these activities are supplemented by the Kremlin’s systematic discrediting of democratic values, while Putin himself announces the end of liberalism.
Who, then, are the beneficiaries of these two decades?
According to research conducted by economists Filip Novokmet, Thomas Piketty, and Gabriel Zucman (From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016), Russians’ offshore wealth is approximately three times larger than the country’s official net foreign reserves and is similar in size to the overall financial assets of onshore households. In other words, rich Russians possess as much wealth abroad as the entire Russian population inside the country. Over the period 2005 to 2015, the total wealth of Russian billionaires amounted to 25-40 percent of the national income. This is a much bigger portion compared to Western countries, where billionaires hold 5-15 percent of the national income.
Over the last 20 years, a special type of elite has been grown in Russia, steered toward Putin personally and dependent on him. This elite has built a system of feudal rule inside Russia, and views the country solely as a source of personal enrichment. In 20 years, entire dynasties have risen within this system: Timchenkos, Rotenbergs, Kovalchuks, Patrushevs, Murovs, Shamalovs, Bortnikovs, Sechins. The Russian economy has been rehashed to serve their interests. State and political institutions were reformatted in a way that, while retaining a veneer of democracy, they would strengthen the regime and preserve it for years to come. Essentially, the result of the Putin rule is the transformation of Russia into a mafia state.
* A version of this article was published in The Liberal magazine.
