The New Putin Era:Crisis Symptoms and Governance Choices

Wu Dahui

On May 7, 2012, Vladimir Putin was sworn in as president of the Russian Federation. For Putin, it not only marked a change from the Prime Ministership to the President. The change came at a time of unprecedented problems and challenges. Russia today is no longer the power that it used to be. The political and socioeconomic conditions in the country today are quite different from those a decade ago. In the wake of the December 2011 Duma Election and the March 2012 presidential election,Russia has shown four symptoms of crisis. The previous rigid authoritarian regime was applicable to the post-Soviet society and the energy-based economy, but it has proven inadequate in fulfilling the surging demands of Russia’s civil society and moving its national economy to a higher level. This forced Putin to make rare commitments to limited political changes in his presidential campaign platform. In his view, Russia has ended its era of Post-Soviet reconstruction and is now moving into an era of new development. Shortly after he resumed the presidency, Putin implemented a number of political and economic initiatives, suggesting that he is trying to actively promote change and while maintaining stability. Russia’s“new development era”and Putin’s new term have come at the same time. Today, Russia is asking for a new form of governance.Facing pressures from home and abroad, whether Putin will outdo his previous efforts and make these changes remains a question that will decide Russia’s future development direction over the next six years.

I. Putin’s Crisis of Public Confidence

Before March 4, 2012, Russia saw a rare wave of demonstrations against Putin. Despite these developments, all four presidential opposition candidates were clear that the coming election would involve no suspense. The biggest drama was whether Putin would win the first round of the election, determining whether a second round unnecessary. Despite this attitude of fatalism, the opposition presidential candidates - especially Gennady Zyuganov of the Communist Party of the Russian Federation - still hoped to see the election moving onto the second round so that they might be able to generate some bargaining power with Putin. For Putin, a fair and transparent election was more important than the victory itself. Judging from the election process, Putin’s election preparations were more active and extensive than they were in 2000 and 2004,and he did his utmost to mobilize a variety of resources. He even promised to his opponents that their representatives would hold some important offices in the future government.Such compromises indicate that Putin was preparing for the possibility that the election could be dragged into a second round. This made the Russian Liberal Democratic Party’s presidential candidate, Vladimir Zhirinovsky, believe that his party“would probably gain 2-3 ministerial positions and 10-15 leaderships of the local federal subjects.”On March 7, 2012,the Russian Central Election Commission announced that Putin and his United Russia Party had received 45,602,075 votes, accounting for 63.6% of the total, winning the election to become the Russian Federation’s new president. If one compares this election with previous elections, it is not difficult to see that Putin is encountering a crisis of public confidence unprecedented since he first came to power.

First, this election witnessed the lowest rate of public support in Russia’s recent three presidential elections. Putin’s approval rate was much higher than that of the United Russia Party in the State Duma elections — the United Russia Party, whose chairman is Putin, earned a 49.3% approval rating in the December 2011 lower house elections. Nevertheless, it is still the lowest rate of public support in the three most presidential elections. In this election, the approval votes for Putin were 7 million fewer than Medvedev’s in the 2008 presidential election, and 4 million fewer than the approval votes he received in 2004. In 2008 Medvedev gained 52.5 million votes,amounting to a 70.2% approval rating, and in 2004 Putin won 49.5 million votes, equaling a 71.3% approval rating. In the 2004 election, only in three regions did Putin’s approval ratings drop below 60%; in Belgorodskaya Oblast his approval rating was lowest, striking 59.26%. In the 2008 election, only in one region did Medvedev receive less than a 60% approval rating: in Smolensk State, the figure was 59.26%. In the most recent March presidential election, Putin received less than a 60% approval rating in 35 regions. In addition, the voting rate in this presidential election was only 65.32%, which was far less than the rate in previous elections: in 2008 and 1996, the figures were nearly 70%; in 2000, it was 68.64%, and in 2004 it was 64.38%.

Second, Putin lost the“ticket bunker”of the middle class in major cities. Approval ratings that Putin gained in major Russian cities did not reach the national average. For example,in Moscow Putin’s approval rating was only 46.95%. Prokhorov,who ranked second, received 20.45% of the vote, and Zyuganov got 17.18%. In St. Petersburg, Russia’s second largest city,Putin only won 58.77% of the vote. In the 2004 presidential election Putin was supported by 68.6% of the voters in Moscow,and in the 2008 election Medvedev won 71.5% of the votes in Moscow. If the 2012 election had only been held in large cities,where middle class residents concentrate, Putin may not have been able to win the first round easily.

Geographically speaking, Putin’s approval ratings were among the highest in remote areas and small and mediumsized cities, where people expect stability, the economy is underdeveloped, and the middle class population remains small. For example, in the North Caucasus, which is plagued by frequent terrorist attacks, Putin was supported by an overwhelming majority of voters. His voting rate was 99.76%in the Chechen Republic, 92.84% in the Republic of Dagestan,91.91% in Ingushetia, and 91.36% in the Karachayevo-Circassian Republic. In the poverty-ridden Republic of Tuva,the figure was 90%. Regarding the sources of his votes, Putin’s key supporters were mostly residents of small and mediumsized cities, where people are heavily dependent on traditional media (such as television, radio and print media) and access to internet remains inadequate. Putin is hands-down the most photographed and publicized politician in the country, and he is particularly favored by many middle-aged and elderly voters,as well as female voters, from small and medium-sized cities.Putin’s supporters also include civil servants at all levels and the staff of the state-owned enterprises. These two groups’social statuses and living standards are closely related to the current regime, so they would suffer from the turbulence of a regime change. Voters in favor of Putin also included those who despise other candidates - they had no other choice but Putin; on the ballot paper there is no option of“against all candidates.”

Third, since Putin won the election, public trust has not increased significantly. On the day following the election, there were thirteen anti-Putin demonstrations in Red Square alone;in fact similar protests had been going on for several months.According to Western observers, despite Putin’s re-election,Russia has undergone enormous changes, and anti-Putin groups have continued to swell rapidly. Due to the spread of discontent, Putin’s approval ratings will probably drop. A survey by Levada, Russia’s prominent independent polling agency, shows that since Putin returned to the presidency, the Russian public has not significantly increased its trust in him.Since January 2011, Putin has maintained his top position as the keeper of national stability in a survey of“politicians trusted by the Russian people,”but his support rate has always been around 40%. This clearly indicates a crisis of trust in Putin,who for a long time maintained a support rate of over 70%.Russia’s political reality shows that even a politician such as Putin, who was once commonly compared to“Peter the Great,”may see his popularity plunge over time.

II. The Symptoms of a Middle Class Crisis in Russia

The Russian urban middle class staged massive demonstrations in the wake of the most recent Duma elections, and Putin’s support in large cities weakened in the March 4 presidential election. These two developments do not necessarily mean that Putin is encountering an unprecedented public confidence crisis, but they do, however, show that Putin is experiencing serious troubles in his third presidential term, troubles that are the result of a political awakening among Russia’s middle class.“After the first protests in December he said he was proud that Putin’s Russia had produced a middle class that was willing to stand up for itself — glossing over the fact that loathing for Mr. Putin himself was what united the opposition.”According to Western observers, the middle class protests show that“politics, after a 12-year slumber, have re-awoken.Just months ago, it was assumed Mr. Putin could be back for two more presidential terms. Instead, the poll marks the beginning of what is in all probability his final six-year term;the beginning of the end of the Putin era.”

In defining Russia’s middle class, there is no uniform standard in the country. After the disintegration of the Soviet Union, the Yeltsin government proposed a strategic task affecting the nation’s stability and development, a task that defied the expectations of Western society: cultivating the Russian middle class. Yeltsin attempted to undertake radical privatization-centered reforms to establish the social basis of for new political system, represented by the middle class. But until now, whether Russia has a real middle class similar to those of EU countries is still a controversial topic. In July 2008,the independent polling organization Levada released a special investigation report. According to the report, if one’s monthly income is $2,000 in Moscow, $1,300 in St. Petersburg, and$800 in other cities, then one can be included in the ranks of the Russian middle class. The Russian middle class is still growing rapidly. According to The Economist, when Putin first came to power 12 years ago,“the middle class made up some 15% of the population. But much has changed over the intervening decade. A richer and more vocal middle class has sprung up, accounting for 25% of the population and nearly 40% of the workforce.”Russia’s Centre for Strategic Research has predicted that if GDP growth of 4-5% is maintained, by 2020 the middle class population will rise from the current 20% to 40%.

Levada’s survey results show that only 16% of respondents believe that the middle class can become a social force that Putin relies on during his new presidential term. Notably, in terms of political views, the Russian middle class has many similarities to traditional oppositions — before the March 4 election, they called for“an honest election and democracy,”and took to the streets to participate in demonstrations, though they did not want to go with the Communists and nationalists to attend rallies.

III. The Symptoms of a Development Crisis in Russia

According to Levada’s poll data in March, when answering questions concerning the developing direction of Russia,34% of Russian respondents expressed that“this country is heading on the wrong path,”and 16% chose“difficult to answer.”This means that half of the respondents lacked confidence in the future development of their country. In the post-crisis era, there have been increasing signs that the Russian economic development is in crisis. The key signs are that the state-owned enterprises still maintain control of the nation’s economic lifelines; the growth potential of small- and medium-sized enterprises has failed to expand effectively;an excessive dependence on the energy industry; innovation economy has largely remained on paper; and new economic growth points are lacking.

Since the disintegration of the Soviet Union, Russia’s privatization process has taken place without interruption.Despite this process, Russia’s current state-owned enterprises are still in firm control of the national economic lifelines. In other words, the government controls the most important strategic enterprises. These enterprises may be federal unitary enterprises or joint-stock enterprises where the federal government is a shareholder. In most cases, the government has a stake of over 25% in strategic enterprises, meaning that it maintains veto power over their business activities. On the surface, Russian state-owned enterprises account for only about one-third of Russia’s GDP. But this does not reflect the super-monopoly of Russian state-owned enterprises in the national economy. Russia has conducted a selective privatization of its state-owned enterprises: the government has given up control of the small state-owned enterprises so as to strengthen its control of large state-owned enterprises.

Though it announced plans to launch new rounds of privatization, the Russian government is still seeking to control important enterprises. On May 21, Putin issued a decree that the Russian hydropower companies AG, Unified Energy Systems, Federal Grid Company, System Operator AG, and the Regional Electricity Distribution Network Company would be included in the list of national strategic enterprises. Russia’s state-owned companies account for 62% of the country’s stock market.

The oil and gas industry is the pillar of the Russian economy. As the world’s energy prices soared in the past few years, the oil and gas industries have presented a rare and historical opportunity to revive the Russian economy; at the same time, however, they have also impeded necessary structural adjustments in the Russian economy. After the outbreak of the international financial crisis, the world’s oil prices dropped significantly. As a result, Russia’s GDP plunged, its fiscal revenue declined substantially, and it had a huge budget deficit. In addition, because of a large influx of“petrodollars”in the past few years, the ruble has continued to appreciate, the import of manufactured goods has increased,and the export sector has been increasingly inhibited. More importantly, the extraordinary development and the high profits of the oil and gas industries have produced a“siphon effect”on capital, technology, and labor. Investment in natural resource exploitation industries constitute about 1/3 of total investment in fixed assets. As capital and labor flock to the oil and gas industries, the manufacturing sector has been forced to raise wages to prevent labor shortages. This has increased the cost of production in manufacturing industries, and it has depressed capital formation and technological innovation in the manufacturing sector. As a result, little positive progress can be made with structural economic adjustment, leading to the vulnerability and high risk of the Russian economy.

According to World Bank estimates, 22 large enterprise groups in Russia are responsible for 39% of total industrial sales and 20% of the total population employed in industrial enterprises. Large enterprise bank credits account for more than 30% of total credits in the real economy. Because of the prevalence and profitability of monopolies in contemporary Russia, especially regarding energy companies linked to oil and gas, enterprises have little incentive to improve production efficiency. Therefore, the Russian economy cannot shift its mode from extensive growth to intensive growth, and innovations been delayed or halted. While low-carbon industries are growing worldwide, the development of related industries in Russia is seriously falling behind. Moreover, the prevalence of economic monopolies has intensified political centralization,constrained political democratization, and helped encourage and sustain corruption.

IV.The Symptoms of the Authoritarian Crisis in Russia

Ever since Putin took office as Russian president in 2000, the Russian economy and politics have demonstrated the striking features of authoritarianism. The Putin regime is a centralized political system based on the authority of the leader that has Western democratic procedures, as well as strong controls in order to guarantee the observance of laws and regulations.Authoritarian politics are usually an expedient transitional form of government in which the centralized political power moves gradually toward democracy. In other words, President Putin’s authoritarian politics refers to a transitional form from former Soviet power centralization to democracy, which determines the duality of authoritarian politics—the combination of centralized tradition and democracy. Its operating logic should be to move toward a more democratic direction rather than to move backward more power centralization, which, if continued, could lead to further centralization and even authoritarian. Long-term centralization and authoritarianism eventually transitions into dictatorship and totalitarianism.

Throughout Russian history, the country has operated with a centralized government, and this form of governance has already penetrated into the country and minds of the people.Totalitarianism is a Russian tradition and is always in the minds of Russian people. Although it is clearly regulated in the Russian Constitution that all state ideologies must be given up,the sovereign democracy with authoritarianism at the core has been hailed as the official ideology of the ruling party - the United Russia Party. As a result, authoritarianism has become the typical political sign for Putin to administer the country. During his first eight years in power, Russia was forced to impose order on its people, and authoritarian politics in general adapted to Russia’s demand for social order and authority during these political changes. Those eight years can be regarded as the golden years of Putin’s authoritarianism. But there are also disadvantages to Russian authoritarianism. After all, it stands for the minority and denies the participation of the majority of citizens; secondly, it helps to cultivate a seeming civil society around central government, but it is hard to cultivate any real civil society; thirdly, its top-level political design is usually confined by moral standards, political preferences, peoplefirst consciousness, and the Machiavellian pursuits of a tiny minority of super elites. Due to the influence of interest groups and political misjudgments, Putin’s political ambitions have weakened slightly, causing Russia’s politics and economy to fluctuate, harming the legitimacy of the authoritarian regime.

For example, in September 2011 when Putin announced that he would run for the 2012 presidential election, he made errors in his judgment of social acceptance, putting the United Russia Party and himself in an extremely awkward situation for the subsequent Duma and presidential elections. Most importantly,once publicly recognized authority - the core of authoritarian political system - loses the trust of the majority and fails to produce new and outstanding leadership, the operation of the system becomes very difficult and may even collapse all of a sudden. The large-scale street politics emerging after the Duma election in December 2011 are a symptom of Putin’s authoritarian politics.

After observing Russian political developments in the recent period, one can find that behind Putin’s trust crises are the increasing political and economic appeals of the Russian middle class who are not satisfied with their current situation.This means behind the crisis of people’s trust in Putin is actually a middle class crisis, which is closely associated with the national development crisis. All in all, the middle class and national development crises underlie the larger people’s trust crisis, which is a symptom of Putin’s authoritarianism.The previous rigid authoritarian regime was applicable to the post-Soviet society and economy, or what Putin called the“post-Soviet development stage”, but could not meet the highminded appeals of Russian citizens and the elevation of national economy to a higher level.

V. Governance Choices Based on Stability

The world is now full of crises. Whether at national, regional or global level, crisis has become almost inevitable. And it should be noted that it is almost impossible to be without big crises.In accordance with many claims in Putin’s campaign program and the implementation of his policies since he took office, the New-Putin era will base itself on the premise that stability must be maintained and change will be effected in response to crises.

Politically, the Putin government seeks a less rigid authoritarianism.

As mentioned above, there is a duality to authoritarian politics—the centralized tradition and the democratic tradition.Rigid authoritarianism stresses the“centralized tradition,”while the flexible authoritarianism stresses democracy. Today,Russia is different from what it once was. Citizen awareness and middle class development grow well, both of which mean that governance with strong tints of authoritarianism has been confronted with unprecedented challenges. As a result, Putin has to make a political change to a more flexible authoritarianism.Putin has never been conservative. In terms of reform, he has not lived up to his words, and he has rarely uttered promises of reform.

Even though he was once strongly opposed to reform, he will choose to reform if necessary. Actually, Putin has already made some adjustments and reforms in Russian society. In 2011, President Dmitry Medvedev declared the“comprehensive political reform”in the State of the Union Message, which represented the direction of Putin’s political reform. What is more, the political measures taken by Putin soon after he took office indicate the traces of change to a more flexible authoritarianism.

In accordance with the newly effected Russian Party Legislation, as of June 25, 2012, 177 parties have applied to be recognized by the Department of Justice, 9 of which have already been approved. They are Russia’s Democratic Party,Citizens Alliance, and People’s Party for Russian Women, Green Alliance-People’s Party, Social Justice Communist Party, the Social Democratic Party, the Russian People’s Party (PPP), and Russian Social Network Party. Russian now has 16 legal parties,with seven original parties - the All Russia Party, Just Russia,RPC, Russian Liberal Democrats, Right-wing Party, Yabloko,and the Patriot party.

The United Russia Party, the ruling party, is facing a major reshuffle to make it closer to the Russian people and their political realities. Reform proposals put forward by Dmitry Medvedev at the 13th Congress of the United Russia Party launched on May 25 were adopted into the Party Constitution,which include: the Party should adhere to the principle of balance and confidentiality when recommending candidates to administrative and legislative positions at all levels; the Party should reinforce the role of grass-roots organizations; and the general committee should involve 20% of members from the lower-leveled party branch, keeping 10% members renewed annually.

On June 1st, a new act that allows the direction election of governors came into force. Any party that registered with the Department of Justice (even though it may not enter the local congress) can recommend its candidates who may be party members or people without party affiliation. In the new Russian government, Putin took the initiative to change and boldly appoint young officials, and even recruited elites born in the 1980s into his administration, realizing the reshuffle of the government ministers by three quarters.

Economically, it seeks a transition from traditional energy economy to a diversified economic system.

In recent years the world financial crisis has already brought down the price of gas and oil. So Russia is earnest in getting rid of its heavy dependence on the export of energy and developing its manufacturing industry and innovative economy. On June 17,Putin promulgated a law to establish a Consultation Committee of Economic Modernization and Innovative Development headed by himself, and meanwhile repealed the President Modernization Committee set up by former president Dmitry Medvedev in 2009. Putin pointed out in his election campaign that the state of international division of labor formed during the Soviet Union era continues, and Russia’s heavy dependence on raw materials determines its position in the international economic system. Russia relies heavily on external markets,well manifested by its reliance on the importing of consumer products, technological and high value-added products, and its reliance on the exporting prices of energy and raw materials,both of which are far beyond Russia’s control. In order to change its role as the raw material supplier, Russia needs to vigorously develop a new economy based on modern technology, establish a new competitive industrial system and infrastructure with international standards, develop modernized service industries and agricultural systems, and attract sufficient capital and human resources. Putin also stressed that economic diversification cannot be achieved through protective measures. On the contrary, excessive protectionism will result in stagnation, low quality and high prices.

Russia needs an open market, and it will participate more positively in the international economic system after it is admitted to the WTO. Putin believes that in future international markets, the share of raw materials and traditional services will shrink, while high-tech products will be the mainstream products of the markets. Therefore, Russia should develop itself into a technological power. It must set clear priorities -the pharmaceutical industry, chemical industry, composite materials, aerospace, information and communication technology, nanotechnology and the nuclear industry. In formulating privatization policies, the Russian government is considering how to lower the ratio of shareholding by the state in some raw material industries, and withdraw from the large-scale non-energy enterprises (the non-natural monopoly industries and national defense industry). Meanwhile, shares in media companies held by banks and state-owned enterprises will be reduced, and state-owned enterprises will be limited in buying new assets in Russia.

On June 21, in an economic forum held in St. Petersburg,President Putin declared that Russia would adopt new budgetary rules. According to these rules, the scale of budget expenditures will no longer be so closely linked to oil prices,and the excessive dependence on international oil prices will no longer be the“fatal weakness”of the Russian economy.In Putin’s view, the present Russian macro-economic index is good and the inflation rate has dropped from 13% to 6.1%over the past four years. But long-term challenges still remain,namely in their limited economic structure and in their lack of competitive industry.

If President Putin sets transforming the energy economy as the primary economic goal of his new term, the Russian economy will not maintain high growth, especially during the early stages of the economic transformation. As a result, Putin is faced with a difficult choice - to ensure economic growth or continue the transformation? If he chooses the former, the energy economy will continue to exist; if he chooses the latter,economic growth will slow down. Given the heavy pressures from the popular economic expectations and the political commitments he made during the election campaign, Putin will not be likely to take radical economic transformation and the economy is certain to move toward diversified economic modernizations with energy modernization included. The power of government departments will be cut down and some power of federal agencies will be returned to the federal main bodies.

Diplomatically, it seeks pragmatic diplomacy in the service of political and economic transformation.

Generally speaking, the election-year diplomacy tends to have nationalist qualities. The year 2012 happens to coincide with the Russian and American national elections.This indicates that the two countries, which are traditional strategic competitors, will likely be targeting each other more in their diplomacy. Some people in the United States have been trying to influence Russian election process in an attempt to make Putin leave away from Russia’s political stage. In 2012, the international situation has been turbulent and risky. Whether in Syria or Iraq, the deep-rooted reason for every critical conflict can never be too far from Russia and America. As its national strength gradually returns to precrisis levels, Russia’s diplomacy toward the United States has become powerful enough to counter some of the United States’global plans, hindering the U.S.’s ability to construct the global order according to their own will. As long as Russia impedes or opposes the U.S., any major international issues will be difficult to solve.

For the needs of domestic politics, the two countries will never make easy concessions when in direct confrontation,but after all they both share strategic needs and Putin has always adopted pragmatic diplomacy (especially the pragmatic economic diplomacy). Therefore, the U.S.-Russian relationship will not regress significantly. Russian deputy Prime Minister Rogergin, who has been taking a tough stance with the West, described U.S.-Russian gaming as“wave iron hand with gloves.”He remarked,“We shall restore our own powers, including the army power and the fleet power. Our policy must be giving an iron fist with soft feather gloves. And anyone should not doubt the strength inside the gloves.”In the future, as America supports Russia in entering the WTO,Russia and the United States may make breakthroughs in the Anti-Ballistic Missile issue, and America is likely to repeal the“Jackson-Watts Nick”Amendment which blocks their economic and trade development.

Putin holds that the lack of a foundation of economic cooperation is an important reason for the instability of the countries’bilateral relations.“The main problem of U.S.-Russian relations lies in the shortage of stable economic foundation in the bilateral political dialogue and cooperation.Bilateral trade volumes and mutual investment scales do not parallel their economic potentials, and the preventive net,which protects the bilateral relationship from the changes in political situation, has not yet been established.”While the Sino-Russian natural gas pipeline problem dragged on,the U.S.-Russian energy cooperation made a breakthrough.After Rosneft signed a strategic cooperative agreement with Exxon Mobil in August 2011, the two sides signed a specific agreement in April 2012 which includes the establishment of a joint venture to extract resources from the Kara Sea and oil and gas field in the Black Sea, agreeing to strengthen the exploitation of oil and gas cooperation in the United States and the third countries’territory. In June, both sides signed the agreement to jointly extract the petroleum in Russia’s western Siberian areas and establish an oil-gas development research center in the north-pole continental shelf. The two oil giants are now joining their hands to create cooperation projects worth trillions of dollars.

In the long run, the Russian-U.S. relationship is likely to be better than both the Sino-U.S. relationship and Sino-Russian relationship, but the Sino-Russian strategic partnership always develops following the logic of“dual-power”- internal power and external power. The former means the two neighboring countries must be friends and cannot be hostile to each other. Neighbors cannot easily choose each other, and the two economies are complementary to each other’s needs,therefore strategic cooperation between the two countries is an inevitable choice. The latter means the rise of both China and Russia is faced with the squeeze from external forces.From the perspectives of either ideology or national interest,some Western countries view the rise of China and Russia as a challenge to the Western world, so attempts to strategically suppress China and Russia will not fundamentally disappear.Only China and Russia rely on each other, and together they can cut down the cost of their rise. The future Sino-Russian relationship will stress internal power more, and President Putin has made the development of the eastern regions a priority in invigorating the Russian economy. On May 21,Putin promulgated the Presidential Decree of establishing Far East Development Department, in determination of exploring the Far East region. The full implementation of the strategy will provide new opportunities for the regional economic cooperation between China and Russia. The goals of the“innovative economy”and“re-industrialization”set forth by Putin will be favorable for the two countries to give full play to their respective comparative advantages - the scientific and technological potentials of Russia and the advantages of Chinese manufacturing industry. In the new Putin era, the Sino-Russian strategic partnership of cooperation will increasingly display the characteristics of a modern partnership.