News | State / Democracy - Eastern Europe - Authoritarianism No Longer “Above” Conflicts

Russia under Putin, the state capitalist oligarchy, and the economy of authoritarianism

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Protest gegen die geplante Rentenreform in Moskau am 9. September 2018
The raising of the retirement age by five years in Russia in 2018 sparked significant public opposition. The "contract" between Putin and Russian society is beginning to crumble. (Protest in Moscow, 9 September 2018) REUTERS/Grigory Dukor

On the face of it, Putin’s success in the 2018 presidential elections seemed to suggest that his new term would get off to a good start. However, several decisions made in the months following the election set an unexpected course. Putin must now come to terms with the fact that this resulted in a dramatic loss of trust in him, as is clear from public opinion polls: in Russia today there is a steady increase in dissenting voices. Only a minority is satisfied with the country’s economic, social, and domestic policy, although foreign policy seems to have been much less affected by this loss of confidence.

The decisive blow was the pension reform, raising the retirement age. Putin backed the plan despite early resistance. The impacts of the reform must have been clear to the government cabinet—it must be assumed that the conflict was intentionally sought out. These changes should be understood as part of a large-scale project to privatize the pension system, the aim of which is the implementation of a retirement scheme that is completely privately funded.

This reform takes place in the context of the search for new sources of accumulation in Russia. The state budget and investment in general are highly dependent on earnings from the export of raw materials. To alleviate this, the pension plan involves collecting payments from the mass of wage-earners which would flow into the banks and be earmarked for pension programmes.

Atop stagnating real incomes, scarcely visible progress in the transformation of the Russian economy, unresolved problems in the health and the environment sectors as well as regarding working conditions, the pension reform puts an additional strain on wage-earners while benefiting the upper class in the public and private sectors.

At present, the basis upon which the different fractions of the upper class will negotiate the terms of the post-Putin social model is being created. The upper class’s model of consensus, incarnated in the system established under Putin, is becoming clear. This consensus no longer stands “above” conflicts, it has become an integral part of them. Yet Putin’s “contract” with society, people are saying in Russia, is beginning to disintegrate.

The course set by Putin’s decision to support pension reforms marks only one of the increasingly explosive lines of conflict in Russian society. It also shows how fragile social relations are.

Experts claim that the government funds set aside to combat the resurgence of poverty, including among the elderly, and the problems in the health sector are insufficient. The plans currently being discussed are well-known and are in many ways reminiscent of the Fördern und Fordern (demand as well as support) policies implemented by Gerhard Schröder. For a long time, “lean healthcare centres” have been used as a model to improve care, albeit without increasing the number of skilled workers. These cost-cutting policies in the health care sector have been met with increasing resistance among employees. Putin also took up a line of conflict within environmental policy.

But the extent to which such announcements are capable of bringing about real political peace is becoming increasingly uncertain with each passing year. The barrage of projects announced to accelerate Russia's economic and social development have had hardly any visible benefits, especially for wage-earners, whether in the public or private sectors. All of this explains why calm did not simply return following the protests against pension reform.

The protests are substantially supported by small and local initiatives opposed to both state policies and entrepreneurship. Among the trade unions, it was primarily the Confederation of Labour (the country’s second biggest union with about two million members) which had a large impact in the movement against pension reform. This confluence of social and trade union protests is no mere coincidence. Social rights, workers’ rights, and union rights are all under enormous pressure. Accordingly, workers’ struggles are becoming increasingly fierce and protracted. In 2018 they focused on the receipt of outstanding wages and resisting lay-offs.

However, the number of protests is not increasing to the same extent as the problems themselves are. This is mainly due to the fact that it remains extremely complicated to organize strikes and other forms of social protest. Russian correspondents point out that in addition to social protests being difficult to organize, social organizations are having their activities increasingly controlled.

The lack of possible avenues for articulating protest leads to elections themselves increasingly becoming a means of protest. In the last few months, opposition candidates have been particularly successful at the regional level, winning election as governors or mayors.

Economic growth was originally expected to exceed three percent by 2021, and the introduction of new technologies and digitalization was expected to lead to an above-average spike in labour productivity, resulting in a 50 percent increase in the export of products (but not raw materials). However, economists of different tendencies ultimately tend to observe stagnation in all areas.

The reality of economic policy is determined by the interests of big business and its representatives as well as by various leaders within the state apparatus. Intensive exchanges of personnel between private enterprise and the state ensure that wealth is redistributed within this oligarchy. Contrary to the conventional assessment that the state suppresses the oligarchs, Putin’s Russia is dominated by them. This means that the state, which takes the form of an “ideal total capitalist”, must act repressively against parts of the oligarchy to act in favour of its interests as a whole—as it is currently doing with the aggressive regulation of fuel prices, which is causing losses to companies like Rosneft.

In this context, economic and social development is blocked by three crucial points: weak domestic demand, a security-oriented fiscal and monetary policy, and the dominance of the clique of administrative leaders, large corporations (especially in extractive industries), and banks. The resulting ruling elite constitutes a state-capitalist oligarchy whose doctrine—according to Putin—calls for innovative strategies. In reality, it recoils from the practical consequences of such innovation, and relies on state measures to hamper the development of new economic sectors.

Aside from the development of military equipment, Russia’s lack of renewal in industry reinforces the predominance of agricultural products and raw materials in the country’s exports. This paralyses all innovative economic activity. Along with wage-earners, this type of economic policy is most detrimental to smaller companies in innovative sectors. They receive hardly any loans and are subject to numerous regulations and inspections. Any attempt to reduce the burdens on this area of business has so far been futile. Mind you, what is at stake is never the protection of employees’ rights, but accounting, reporting, and so on.

With an orientation towards privatization, the increasing redistribution of wealth into an ever richer oligarchy, restrictions placed on trade union and social rights and benefits, as well as the growing influence of nationalist and right-wing extremist positions on increasingly significant national conflicts, the “West” and Russia are becoming ever more similar. This convergence of systems subject to different historical and geopolitical circumstances results in a constellation more similar to the beginning of the twentieth century than to its end. The EU’s Neighbourhood Policy and NATO’s activities are driving Russia to mirror their actions by fixing and legitimizing its own zones of influence.

The global demands of the EU and NATO combined with Russia's regional interests are starting to provoke a highly dangerous situation, since the countervailing forces on both sides are extremely weak. The internal and external contradictions form a knot that it is becoming more and more complicated to unravel. The real problem is not Putin's policies or Putin's successor in 2024, but this interplay of internal and external problems.

This article first appeared in maldekstra #4. Translation by Hunter Bolin.