3 - How Putin’s economy is governed: commanding heights and controlling elites

Summary

The evolution of the Russian state and Putin’s capacity to govern since 1999 follow established patterns of centralizing political authority over the economic sphere to serve security needs. At the same time, Putin’s policies also reflect the specific problems Putin faced coming into power. Successive turns towards the market in Russian history have occurred when leaders struggled to negotiate the potential loss of power for the following reasons: potentially decentralized economic development, the influence of foreign capital and markets, and the need to raise financial resources to fund basic material and political needs. Witte and Stolypin sought foreign capital to sustain investment into infrastructure while promoting grain exports, Stalin launched collectivization campaigns to increase grain exports to pay for industrial inputs to “catch up” to Western powers, Kosygin’s reform agenda was cut short by the sudden influx of export earnings that allowed the Politburo to avoid reform, and both Gorbachev and Yeltsin lacked strong oil earnings or access to foreign capital necessitating painful domestic reform efforts and political adjustments.

The difference between successful and unsuccessful leaders in Russia has been whether each is able to exert direct and indirect control over the allocation of capital, production, and use of exports, strategic industries, and finance to achieve political goals or not. Whenever reforms have threatened that political control, the successful leaders are the ones who can scale it back and maintain control over the market and over Russia’s exposure to globalization. This chapter tells the story of how the Russian economy and political system are governed in such a way as to instrumentalize the market while insulating the regime from potential shocks and preserving and expanding the dominance of the state over economic life so that it can reward allies and neutralize threats. The mechanisms by which leaders maintain control has differed between varying regime types but ultimately rest on the ability of a leader and his inner circle to establish a social contract with the elites and networks that administer different parts of the economy and state, subject to revision and the centralization of final decision-making authority.