Today one can hear more and more often that Russia in the coming decades is expected to live under “eternal Putin”. The political regime is stable, the economy shows stability. Will the country turn into the USSR 2.0 or into an “orthodox Iran”? Are there political or economic prerequisites for regime change in Russia? T-invariant talked about this in the stream “Everything is complicated” with Andrei Yakovlev, a renowned economist and associate researcher at the Davis Centre at Harvard University .
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Hospital average stability
T-invariant: When the invasion of Ukraine began, many people started discussing models of Russia’s development after the fall of Putin’s regime, after the end of the war. At the time, it seemed that the war was a very short story. Firstly, there were protests in Russian society. Secondly, economists were making predictions that Putin did not have the money for a long war. The West showed solidarity with Ukraine and promised support. But the third year of the war is ending, and it is obvious that Russia is not losing it. The sanctions have not worked, the Russian economy is showing sufficient flexibility. All those who tried to actively protest against the war have either left Russia, gone to jail, or have been silenced by repression inside the country. And now the idea is emerging in the public and media spaces that we should somehow adapt, learn to live with another, new Russia – a frozen one.
Andrei Yakovlev: On the surface it may look like that, but it seems to me that behind the apparent demonstration of the regime’s stability (both in the economic and political sense), there are strong tensions at the level of society, elites, and the economy.
The regime is now undergoing a transition to a new model, and when (if) this happens, it will not be USSR 2.0 at all, but a much more aggressive regime. Something resembling either the Soviet Union of the late 1940s or North Korea on the scale of Russia and with Russian military capabilities. However, there could be a social explosion in the transition to this model. Because most of the elites that the current regime has inherited (I am talking primarily about business and bureaucracy) and tens of millions of people who live in big cities are used to a different life. Not only in terms of income, but also in terms of personal freedom.
What has been happening over the last year is a systematic change in the boundaries of what is acceptable. Take the same interference in the space of personal life. On formal grounds, as you pointed out, everything seems super stable and cemented. There are high rates of economic growth, there is a growing level of income. There ‘s Levada Centre data that the vast majority support Putin and the war. There was Navalny’s assassination, there were the March “elections” with the percentage of votes the Kremlin wanted. But behind these “hospital temperatures” it is important to see the reality and realise that in reality everything is more complicated – even with the same economy.
T-i: Anew budget has now been adopted . Does it contain any signals that the economic model is being transformed?
AJ: There are certainly such signals in the new budget. Especially if we compare it with the budget that the same Ministry of Finance and the same minister submitted a year ago. I would like to remind you that in informal discussions between officials, that budget was called the “budget of victory”: in it, military expenditures were increased by 70%. With the idea that we are laying down a lot of money now, but in 2024 the war will be over, and then there will be a reduction in military spending. That is, the Ministry of Finance in September 2023 submitted a budget that stipulated that in 2024 there would be a 70% increase in military spending: there were 10.8 trillion rubles. But for 2025, military expenditures were already planned at the level of 8.5 trillion rubles. And an additional reduction was planned for 2026.
T-i: What are the differences between the new budget and last year’s budget?
AYA: The differenceis that last year military spending peaked in 2024, and then a noticeable reduction was envisaged. But now for 2025, instead of 8.5 trillion roubles, 13.5 trillion roubles have been budgeted. In other words, the increase in military spending is 5 trillion rubles (or an additional $50 billion). At the same time, for the first time in Putin’s entire reign, as far as I can remember, there has been a reduction in spending on social policy. This year they amounted to 7.7 trillion roubles, and next year they are planned for 6.9 trillion roubles.
Info
Andrei Yakovlev is a PhD in Economics and an associate researcher at the Davis Centre at Harvard University. He started his academic career at the Institute for Organised Market Research. Since 1993, he has worked at the Higher School of Economics, holding the position of Vice-Rector for more than 18 years. In 2005-2007, he led a project with the World Bank to assess the investment climate and competitiveness in Russia’s manufacturing industry. In 2011-2012, he led the Russian team in the World Bank’s Doing Business in Russia project. He has been a visiting researcher and professor in Finland, Germany and Italy. One of the leading experts on industrial policy, business and government relations. In March 2022 he left Russia, in August 2023 he announced his resignation from HSE.
Andrey Yakovlev. Photo: hse.ru
T-i: Doesn’t it actually turn out that the military budget is increasing due to the fact that it includes social expenditures for those directly involved in military operations?
AYA: Payments to mobilised and contract workers have become quite a strong demand factor. And in depressed regions where large-scale recruitment to the army has taken place, the incomes of the families of mobilised and contract soldiers have actually increased. And they grew substantially: four or five times. Yes, there really was a demand for housing construction and many other things. From this point of view, there is a certain impetus for the economy. But all of this is money that is spent on military needs. We should not confuse social policy with payments to people in uniform. In particular, as far as I know, starting payments when signing a contract with the Ministry of Defence are now made under the “social policy” item. And in this sense, the military budget is more than 13.5 trillion rubles. The same goes for the costs of treatment and care for the wounded. In the budget, this is the “health care” item. As far as I know, many boarding houses have now been refurbished for the seriously wounded. But not at the expense of the Ministry of Defence, but at the expense of the health budget items. Well, and one more specific point, which is probably immeasurable in money. These are quotas in the budgetary enrolment in higher education institutions for children of the participants of the NWO in the amount of 10 per cent of budgetary places.
According to Rosstat, Russians’ real incomes grew by 8% in 2023, and in 2024 the growth will be another 10% or so. But we should realise that this is from the same category of the average temperature in the hospital. In depressed regions, the families of contract workers and mobilised workers have seen their incomes grow 4-5 times. But their neighbours working in schools, in the public sector, and pensioners have no increase. At best, they have had their incomes indexed according to inflation, which is according to Rosstat. I hear comments from the field about the attitude towards the participants of the SWO – almost as if they were new oligarchs. And now let’s return to the question about the growing tension in society. Today the authorities are trying to shift attention to migrants, to quadrobers, to LGBT – anywhere. Because we can’t talk about war, it’s fraught.
T-i: Nevertheless, based on the new budget, it is clear that the Russia we have now is going to stay that way.
AYA: Russia is going to change – quite a lot and in a bad way.
Until the end of last year, the authorities tried to maintain a sense of normality: “This is not a war, it’s a special operation. Yes, not in Syria, but in Ukraine, but it’s none of your business. We will not yank you, we will form an army through contractors. It costs money, but we will give you money too. Live your life.” It was like that for almost two years. And since the end of 2023, signals have been coming. Take the same “naked party” – for all of Putin’s twenty years it was possible to behave this way, including a year and a half of war. But now you can’t. Because everything is different now, you have to be an ascetic patriot.
The same goes for other, seemingly minor stories. All these extremely archaic stories about how a woman should give birth and as many as possible. And a man should be a warrior first and foremost. That didn’t happen in 2022 or even in the spring of 2023. In my opinion, these are signs of a transition to a mobilisation model both in terms of the economy and in terms of social and political life.
T-i: Isn’t this call to give birth really a reaction to the current situation with demography in Russia?
AYA: Here again we see a reflection of social tensions. Because in times of a growing economy, Russia has seen an increase in the birth rate. If people have a guaranteed income, it is easier for them to have children. But during the current so-called economic boom, there is an absolute drop in the birth rate – to the level of the late 1990s. People do not understand what will happen tomorrow. Because of the war, there has been a significant outflow of the able-bodied population.
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We have already passed the stage of “USSR 2.0”
T-i: The transformation of society and regime is usually accompanied by the emergence of a new ideology. But the war never gave birth to a new ideology. Putin’s government still lives by the ideals of the past: the Pechenegs, Alexander Nevsky, the victory of 1945. Nothing new has been proposed. Why?
Andrei Yakovlev: In the 1990s, despite the fragility of the situation, there was still a certain ideology, it was close to liberalism and democracy. But since 2003-2004, depoliticisation has been imposed. They say that only marginalised people, some kind of demshiza, are involved in politics; you live your lives, buy cars, flats, go to restaurants, and we will decide everything for you. In 2011 it turned into protests. People (especially in big cities) thought about what would happen to them and their families and started asking questions. They were concerned not only about incomes, which had really grown over the 2000s, but also about the quality of the environment in the form of health care, education, road safety, and everything else. The direct reason for the protests was election fraud, but in fact the basic reasons were that people were not satisfied with the quality of public goods that the state was supposed to provide for the taxes collected. And the authorities were really scared, not of the protests themselves, but of their combination with the Arab Spring and the personal stories of Gaddafi, Mubarak and others. And since 2012, the screwing began. But at the same time, attempts to find a new ideology began. At the end of 2012, the Izborsk Club was established , which was formed of fairly marginal philosophers and writers of a conservative persuasion: Dugin, Kalashnikov, Prokhanov, and other characters. In two or three months, these comrades tried to write an alternative to the Strategy-2020, which the Higher School of Economics and the Russian Academy of National Economy and Public Administration (RANEPA) were collectively doing on the order of the Kremlin. The first report of the Izborsk Club was published in January 2013. It had two basic theses. The first: in five to seven years, World War III will begin, which the global financial oligarchy based in the United States will unleash against the leading developing countries, primarily Russia. Why the war will be unleashed has not been explained in any way. Simply because they are the devils of hell. And the second thesis: if there is going to be a war, it is necessary to prepare. And we need mobilisation in the spirit of Ivan the Terrible, Peter the Great and Stalin. The Izborsk Club, as far as I know, was created by direct order of people from the AP, who wanted an alternative ideology. This ideology was produced for them. But the customers themselves were not inspired by what the comrades from the Izborsk Club produced, to put it mildly. Because many of these customers had children studying in London and New York, had villas on the Cote d’Azur and Swiss bank accounts. And life in a besieged fortress at war with the whole world did not seem attractive to them. But by the end of the 2010s, the ideology of the Izborsk Club had turned from a marginal movement into something close to the mainstream.
T-i: Can Russia turn into the USSR 2.0 and hang on in this state for decades?
AYA: The Soviet Union 2.0 may have been what they call a second-best option. The problem is that we have already skipped that station, although it was possible to try to wrap up there. How did the Soviet Union after Stalin’s death differ from today’s Russia? Yes, it was an authoritarian or autocratic state. But nevertheless, through Stalin’s repressions, it came to the point where it needed some rules. For example, rules for changing the top elite. There were some collective decision-making mechanisms: there was the Politburo, there was the Central Committee of the CPSU. We all know how Beria was removed – by a very narrow group. But when there was a conflict in 1957, Khrushchev was able to defeat the anti-party group of Malenkov and everybody else by appealing to the members of the Central Committee of the Party. And the Central Committee actually played a significant role in this. Because people remembered what had happened very recently and didn’t want to go back there. Then, in 1964, Khrushchev was replaced, and again by certain procedures. The Soviet model was inert, inefficient, focused on the military-industrial complex, but nevertheless, it was a situation of a society that lived by rules, albeit largely class-based. And the power structures, including the army and the KGB, were under the control of the party. The situation when it was all in one hand, under Stalin, made an indelible impression on the elites, and they preferred to live differently.
Putin’s problem was that since 2004, after the Yukos affair, he has been dismantling step by step the political mechanisms that provided some balances, checks and balances. And this process ended in 2020 with the adoption of amendments to the Constitution, which took place with massive violations of all legal procedures. At the same time, strangely enough, this was not the case in the economy, where entrepreneurs still had a relatively large degree of freedom. Yes, there was forceful pressure on business, but there were also liberal technocrats who created opportunities for a rather noticeable liberal segment in the economy.
The problem is that from the point of view of the model, if we take collective decision-making mechanisms and control over power structures, we have long since passed the Soviet Union. And in fact, we no longer have much difference from North Korea. Moreover, even in Iran, with all its peculiarities, there are political mechanisms for changing power. They just had a very competitive presidential election. Yes, the president is not the first person there, but still the second. And it was not the candidate favoured by Khamenei who won.
Iran has mechanisms for making decisions, for changing the leader, and there are mechanisms for controlling the security forces. Russia hasn’t had anything like that for quite a long time. But so far, Russia has (and this is, let’s say, different from North Korea) an elite that the current regime inherited from the 1990s and 2000s, which is certainly very opportunistic and thinks first and foremost of itself, but which is not at all ready to die for the regime, for Putin, or for the country.
As studies on the transformation of authoritarian regimes show, there are three main risks for autocrats. The first is a popular uprising. But many regimes are quite capable of suppressing them, especially if they have a strong police apparatus. Russia has such a police apparatus. The second risk is military defeat and occupation (as was the case, for example, with Germany in 1945 or Iraq in 2003). In the case of Russia and, incidentally, North Korea, this is not relevant due to the presence of nuclear weapons. And the third risk is related to a split in the elites and the possibility of a palace coup. And in this regard, there was a very good article published before the war, in 2021, by Professor Lankov, a leading expert on North Korea. It described the reasons for the “North Korean miracle”. The miracle was not that there was any prosperity there – there was none. The miracle is that the regime was able to survive despite the catastrophic state of the economy. In the 1990s, the situation in North Korea was much worse than in Russia; several hundred thousand people died of starvation there. Nevertheless, the regime did not collapse, the elites did not revolt, although it was not easy for them either (since repression against the elites there is still carried out using quite Stalinist methods). Why? Lankov offers a rather convincing explanation: people in the elite realised that even with a slight weakening of the regime, unification with South Korea would happen in two or three steps. And in this scenario, the chances of the North Korean elite are zero. And so the elite, despite their attitude toward a particular leader, will try to preserve the regime.
Putin’s problem, in my opinion, is that with the current elite, he has a risk of splits and palace coups. And now he will try to change both the business elite and the bureaucratic elite.
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T-i: The protracted nature of the war is forcing Western think tanks to come to terms with the fact that it’s all going to last. And those who are concerned about preserving normality in the world seem ready to give up: “We’ll have to wait 20, 30 or 40 years for this to rot by itself”. Is it too soon to give up? Maybe we should not give in to such pessimism
AJ: I would interpret it differently. In fact, there was no strategy towards Russia in 2022 and 2023 on the part of the US and Europe. The war came as a shock to them. They thought it would not happen and threatened terrible sanctions if it started. And in the first months of the war it became necessary to implement these sanctions. But both the US and especially Europe were not ready for all these sanctions, it was quite clearly seen in the first months. Nevertheless, the general expectation at that time was that if we used all the guns, this corrupt, ineffective regime would collapse, and then we would deal with it. By the end of 2022, it became clear that the regime had not collapsed. There was quite significant damage to the economy, but already in the autumn of 2022 there were signs of stabilisation and even the beginning of economic growth. And the failure of the Ukrainian counter-offensive in 2023 led to the fact that Western analysts began to think: what will happen next? And then, I would say, a certain aberration began. In the reports of various think tanks in the United States, some of them say that they should have reached an agreement with Putin three years ago and there would have been no war, while others say that there would have been a war anyway, and now they need to build a big fence with barbed wire, arm everyone on the perimeter and economically strangle Mordor.
In both cases, the experts assume that a) the regime is stable and it will be stable for years and maybe decades to come; b) it will be like the late Soviet Union, with which indeed the US was thinly able to negotiate. But, as I said, today’s Russia has already passed the stage of the Soviet Union. I may be wrong in my assessment. But it seems to me that Europe and the US are completely unaware of the risks. They think that it will be something contractual like the late Soviet Union. But it will be a completely frozen pariah with a nuclear baton.
Venezuela or North Korea?
T-i: Nevertheless, one can’t help but see that Putin would gladly agree to a treaty with the West if the West made it clear that it was ready to somehow get used to it and learn to live with the new Russia.
AYA: How can you expect a stable situation if one side behaves like a gopnik: “I want this, this and this, and let Ukraine not be in NATO, but give up its four regions”? At the same time, there is no guarantee that in a year or two a new “special operation” will not start. Already now at the level of various Russian experts a proposal is being thrown in: “Let’s enter Narva and test whether NATO will go there or not, or maybe they are all weak and will not do anything”. The regime can exist for a long time just by threatening, blackmailing and extorting. North Korea has a few dozen nuclear bombs right now, but it is threatening its immediate neighbours: Japan, South Korea, China. China is a donor to this regime, but it doesn’t control it completely – that’s important to understand. That is, the North Korean regime has a certain degree of detachment, although they are economically heavily dependent on China.
I was recently asked about the prospects for relations between China and Russia. From China’s point of view, their current strategy is perfectly rational. China is trying to get the most by buying cheap resources from Russia and by selling their goods, the same cars. But the Kremlin is now an unpredictable partner for them. China is interested in some changes in the global world order, but is not interested in destroying it at all. And the problem for the Kremlin elite is that under any world order (led by the US, China, the G20 – whoever), Russia will lose in the current model. Global chaos is the only way for these people to stay in power. But balancing on the edge is possible only for a while, and there is no guarantee that in the end there will be no crossing of this line. There is the same story about the use of nuclear weapons, which is constantly going on from the Russian side.
But it’s important to understand another thing. North Korea has had this type of regime for 80 years, and people have no information about what’s going on outside. There was no other experience there. The difference in Russia is that there were these 25-odd years of a different life with a different degree of freedom – and this benefited not only the elites, but also tens of millions of people in big cities. In this regard, there is an objective risk that against the background of a forced transition to a model a la North Korea, there will be a social explosion. It is impossible to say now how it will happen. But in 2010, no one predicted the Arab Spring and a series of collapses of regimes that had existed in the Arab world for 25, 30, 35 years. In 1916 there was a heavy world war, and Lenin wrote then that his generation would not live to see the revolution. And the following year, amidst rather minor events, the Romanov dynasty collapsed, having celebrated 300 years of existence shortly before. And then there was the October Revolution, which led to the total collapse of the entire regime and the Civil War, in which millions of people died. We have a different demography now, but the degree of brutality that the authorities deliberately impose through propaganda can lead to an explosion. The consequences could be different, not necessarily in the format of the Arab Spring. There is another scenario, moderately cheerful: Venezuela. There too, there was President Chavez, who promised a lot of things, gave out various subsidies and benefits, and nationalised oil companies. Mr Maduro has been ruling there for 12 years now. The country is in semi-ruins, but nevertheless he retains power.
Andrei Yakovlev. Photo: Forbes.ru
T-i: Still, there is a huge difference between Venezuela and North Korea. You can leave Venezuela, it is not a closed country. And if we look at life through the eyes of the average Russian, we will see a huge difference between life in Russia and in North Korea.
AYA: Yes, I am occasionally told that I exaggerate, that there are some problems (inflation, labour shortages, migrants), but they are being solved, albeit with a delay. On the one hand, I understand arguments of this kind. But there is a certain difference in optics. There are things that can be seen up close, and there are things that are better seen at a distance. Maybe an objective factor is helping me now: the fact that I am not in Russia. I follow information, I communicate with different people, not only those with an anti-war stance. And being a specialist in elites, I am trying to understand the possible logic of decision-making. From the point of view of common sense, for people in business and in the bureaucracy, the war was madness, it should not have been started. Nevertheless, it was started. Even the annexation of Crimea was a heavy blow from the economic point of view, but, again, it was done without asking either business, bureaucracy or ordinary people. There is a logic to the survival of authoritarian regimes. In my opinion, what Putin is doing now is fully consistent with this logic.
Russia now has a semi-open economy, which is certainly far from North Korea. And this economy has adapted to the sanctions. Both business and the bureaucracy have adapted. But the problem is that the people making the decisions are thinking about how to keep themselves in power. At the same time, they clearly see that the resource is becoming less. And when the resource becomes even less, people who will have their salaries or pensions cut will ask why it was necessary. And it is no coincidence that YouTube is being blockedin Russia , even though tens of millions of people are watching educational or entertainment content, not opposition content. But it is being blocked quite deliberately – to pre-empt the time.
Because when the X hour comes and the situation reaches, let’s say, a situation of real crisis, in the case of an open country (open borders, access to information), the Venezuelan scenario will happen. And they don’t want to be in Maduro’s situation. They want to be in the situation of Kim Jong-un. And in this sense, restricting access to information and possibly closing borders is a rational strategy.
Veterans of the SWO like Jogi, who has now been appointed ambassador to the Urals Federal District, are well aware that with the end of this regime they will also face collapse. So they will defend the regime to the end.
The problem is that in the absence of any clear signals from the Kremlin about the future, and against the background of current reports from American think tanks, people in the current Russian elite think that there will be a Soviet Union 2.0 with some normalisation of relations with the West. In general, it will be possible to live not as well as before, but tolerable. But in both the Venezuela and North Korea scenarios, there is no room for these people. Ordinary people will feel bad. But the elite will lose many times more. And if we talk about the possibility of preventing these scenarios, the Russian opposition must have some clear models of a positive image of the future, in which there will be room for sensible people from the elite. There needs to be some kind of construct that would show some kind of positive alternative to different social groups in Russia: both ordinary people and the elite that does not support the war. And at the same time it is necessary from the West, because so far all sanctions have been only about pressure, without any clear signals about the possibility of an “exit strategy”.
T-i: In the picture you have painted, there is a very small loophole related to the interactions between business elites and managerial elites inside Russia. It’s like a small hole in the wall that is getting smaller and smaller. Nevertheless, it is still possible to break through the wall in this place. But sometimes one gets the feeling that Western think tanks do not see this and, moreover, actually help the Russian regime to cement the wall in this place.
AYA: I don’t think they are doing it on purpose, but unfortunately, it actually turns out that way. This is a consequence of the fact that right now there is no strategy with a clear understanding of what kind of Russia they want to see afterwards. You can understand Ukrainians who would like Russia to disappear altogether. Unfortunately, they have reasons for that. But objectively, there is a country with a large territory, where 140 million people live, which is not going anywhere. And Europe will have to co-exist with this country. And after two and a half years of war, it would be good to formulate what kind of Russia they want to live with and what they are ready to offer to the people inside Russia for that. When there was a transition from the Soviet Union to Russia, with a much worse economy, there was a positive image of the future in the form of a market economy and in the form of democracy. People assumed that it is bad now, but it will be better in a while, and so we should tighten our belts and somehow try to survive. Even though the understanding of both the market and democracy was very naive, the Western side was consciously broadcasting certain signals and images that this model was successful and that it was possible. That after all the current difficulties everything will get better. Now there is no such thing from the West at all. In my opinion, this is a rather big mistake, and it is no longer the Russian opposition, but analysts and policy makers in the United States and Europe.
T-i: How much time do you think the West has to realise that there is still a vulnerable spot in this wall and that it can be broken through?
AYA: If this process lasts for another three or four years, this hole will be finally cemented. And then in the best case it will be Venezuela, and in the worst case it will be North Korea with the risks of nuclear war.
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Text: T-invariant Editorial Board
Editors 9.12.2024