Peterson Institute publications
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
RSS News Feed Search

Op-ed

Unmasking President Putin's Grandiose Myth

by Anders Aslund, Peterson Institute for International Economics

Op-ed in the Moscow Times
November 28, 2007

© Moscow Times


Most political leaders are mediocre, a few are heroes, and some are just plain lucky.

In Russia, many see President Vladimir Putin as a hero—an authoritarian reformer who has brought economic growth and stability to Russia. But let's scrutinize his record a little closer. Russia's outstanding achievement is that its gross domestic product has increased six-fold from $200 billion in 1999 to $1.2 trillion this year, but this is primarily a result of the market reforms undertaken in the 1990s.

The real growth rate is not outstanding. The whole Eurasian region, from China to the Baltics, has been growing at rates from 7 to 11 percent annually since 2000, but Russia's growth rate has only been 6.7 percent. In spite of its abundance of oil and gas, it ranks 9th among the 15 former Soviet republics in growth for this period. The reason is that Russia is lagging behind in most reforms.

Financial stabilization remains incomplete. Last year, inflation stopped at 9 percent, but it is rising. Before the State Duma elections, the government has abandoned macroeconomic caution. Although inflation is rising, the government is sharply increasing public spending. At the same time, it has imposed informal price controls on gasoline and food, and this has caused some shortages. In this way, detrimental Soviet economic thinking has been revived.

What political stability is possible when nobody knows anything about Russia's political future after March 2008? In his speech on November 21, Putin said, "In the next several months, a complete renewal of Russia's highest state power will take place," but he refuses to explain what he meant, thus leaving the country in complete uncertainty. He also has not explained what the well-advertised "Putin's Plan" is.

Putin has built a personal authoritarian system in which he makes all major decisions himself. This overcentralization of power leaves the decision makers poorly informed about everything they decide, and the government-controlled media has suffocated all policy debate. As a result, fear is rising with the steadily increasing repression.

As a consequence, central decisions are few and of poor quality. During his second term, Putin has undertaken virtually no economic reforms, and therefore has not contributed to economic growth. His entire endeavor has been to reinforce authoritarianism and to let his KGB friends from St. Petersburg indulge in lawless renationalization and larceny that has impeded investment and production, especially in energy.

Personal authoritarian systems are not very stable because they depend entirely upon one ruler. If he leaves office, such a system usually collapses. Since Putin has conscientiously undermined many state institutions, he has obviously intended to stay on all along.

This system has no other legitimacy than economic growth. Fortunately, Putin has not developed any ideology, even if he toys with Russian nationalism. Nor does he have any party. After all, United Russia is only a bunch of state bureaucrats. It is interesting that Putin's big Moscow speech on November 21 managed to mobilize only 5,000 supporters. When the regime fails to deliver steady high economic growth, it is likely to be frail even while maintaining a policy of repression.

Everybody around Putin is completely corrupt, but many think that the president himself is honest. In February 2004, presidential candidate Ivan Rybkin named three men as Putin's bagmen, including Gennady Timchenko, cofounder of oil-trading company Gunvor. After Rybkin made this statement, he vanished from the political stage. In September, the Polish magazine Wprost wrote that Timchenko, a former KGB officer and member of Putin's dacha cooperative in St. Petersburg, has a net worth of $20 billion. Officially, Timchenko sells the oil of four Russian oil companies, but how are the prices determined to generate such profits?

In a sensational interview in Germany's Die Welt on November 12, Stanislav Belkovsky, the well-connected insider who initiated the Kremlin campaign against Yukos in 2003, made specific claims about Putin's wealth. He alleged that Putin owned 37 percent of Surgutneftegaz (worth $18 billion), 4.5 percent of Gazprom ($13 billion) and half of Timchenko's company, Gunvor (possibly $10 billion). If this information is true, Putin's total personal fortune would amount to no less than $41 billion, placing him among the 10 richest in the world.

These shareholdings have been rumored for years, but now a prominent international newspaper has published such allegations made by a well-informed source. If these numbers contain any truth, Putin would be the most corrupt political leader in world history, easily surpassing Ferdinand Marcos of the Philippines and Zaire's Mobutu.

Last year, a private arbitration tribunal in Zurich, Switzerland, ruled that Putin's close St. Petersburg friend from his days in foreign intelligence, IT and Telecommunications Minister Leonid Reiman, is the beneficiary of telecommunications assets presently valued at $6 billion. Putin's only reaction was to block this information in Russian media.

Both the World Bank and Transparency International assess that corruption in Russia has increased after 2004, while it has declined in most post-Soviet countries. Recently, a few senior officials have been arrested for organized crime, but this has nothing to do with the actual fight against corruption. The common view is that these arrests are only part of a turf war among Putin's KGB men from St. Petersburg.

Nor has Putin brought some law and order to Russia, according to an excellent analysis by Brian Taylor of Syracuse University. Despite sharply rising expenditures on law enforcement, the average annual murder rate under Putin has been higher than under Yeltsin. According to Taylor's report, no country outside of Iraq and Afghanistan has suffered so many terrorist attacks as Russia (even outside of Chechnya) after September 11.

The final claim of Putin's supporters is that he is reestablishing Russia on the world stage and restoring its military, but even that is not true. Military reform has stopped, and hundreds of conscripts are driven to suicide every year because they are exploited as slave labor. Military procurements and wish lists focus on the priorities of the Cold War in the 1970s—intercontinental ballistic missiles, nuclear submarines and aircraft carriers—rather than new smart weapons for contemporary military needs.

My verdict is that Putin has had tremendous luck, which he has utilized to build up an anachronistic authoritarian reign. One could draw a historical parallel between Putin and Tsar Nicholas I, who ruled from 1825 to 1855 to the benefit of nobody except his own close circle. Abundant oil revenues have made it possible for Putin to avoid difficult reforms and to allow his inner circle to indulge in some of the worst corruption the world has ever seen.


RELATED LINKS

Op-ed: There Is Only One Cure for What Plagues Russia December 17, 2014

Op-ed: Russia's Economic Situation Is Worse than It May Appear December 1, 2014

Op-ed: What Kiev's Democratic Turn Means for Moscow February 25, 2014

Op-ed: Russia Is Losing Sources of Economic Growth January 22, 2014

Op-ed: Putin Without Putinism February 8, 2012

Policy Brief 11-20: The United States Should Establish Permanent Normal Trade Relations with Russia November 2011

Book: Russia after the Global Economic Crisis May 2010

Book: The Russia Balance Sheet April 2009

Book: Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed October 2007

Policy Brief 09-6: Pressing the "Reset Button" on US-Russia Relations March 2009

Paper: Russia's WTO Accession November 21, 2006