Russia Fails Once Again: Putin Must Punch Above His Weight


Although there have been a handful of major attempts to lift Russia out of the rut and modernize into progress, it never managed to truly "westernize."

There is a well-known and highly stylised little story from Russian history that is of great help in understanding the conduct of that ill-fated country:

Stalin, Khrushchev and Brezhnev are travelling together. Their train stops at the station and does not start again. Stalin, impatient, rushes out to set it going again. He comes back and announces: “I had the station master shot. Now we will get going again.”

The train stays put. Khrushchev rushes out. In a little while, he comes back and announces: “I had the station master rehabilitated. Now we will get going again”.

Nothing happens. Brezhnev goes to the window draws the curtain and suggests placatingly: “Comrades let us pretend.”

Pretending is one of the dominant features of Russian public attitudes, practised by both governors and governed with deep conviction. It saves face, it comforts self-respect and self-admiration, and corrects reality when it is not going quite the way one would wish. Not for nothing has Potemkin’s false-front village become the symbol of how pretending can hide the bleak truth to everyone’s relief.

The complement of pretending is the almost unique Russian capacity to handle lies. Only in Russia could it be said with a straight face that Potemkin’s false-fronts have real houses behind them where the speaker himself has lived a while ago; that a passenger plane flying over Russian occupied territory on its way from Amsterdam to the Far East was shot down by Ukrainian “fascists,” and that the Crimea was restored to Russia not by army units, but by “humanitarian” volunteers. In every civilised country, lying is kept within bounds by the risk of embarrassment if the liar is caught out. Russia seems to be the only country with the unique capacity to feel no embarrassment when confronted by the truth, and where lying by both officialdom and ordinary people seems to be unrestricted. The consequences for relations between Russia and the West are mostly unfortunate.

It is seldom realised that Russia is a young country and did not really exist much before the 17th century. Prior to that the only link that bound Russian-speakers together was the Orthodox Church with its traditional hostility to Western Christianity. From 1223 to 1480 Russia, except for the Novgorod region, was a Tatar (Mongol) colony where the Tatars practiced indirect rule through princely tax farmers chosen by the Tatars according to how hard they promised to squeeze the people for the benefit of the khans. Such was hardly the soil from which healthy political and social organisms would grow.

Russia as a single sovereign state began only with the Romanov Czars in 1613 and much of the appearance of a centrally governed unitary Empire was a false pretence. Though poorly governed within and wasteful of its vast potential resources, the Czarist Empire was always preoccupied with the “without”, expanding across Asia to the Pacific and Southwards across the Caucasus. More interest in what was happening inside all of Russia could have no doubt been more fruitful for gathering real strength and riches instead of the pretence of it.

An over ambitious foreign policy has always drained too much force and energy out of Russian society. The army, always very large, was becoming backward by European standards and the civil administration was heavy and inefficient. Industrial development was minimal. Despite the importance it was gaining among the nations of the continent, the country was stuck in an inglorious rut.

There have been a handful of major attempts to lift it out of the rut and set it going on a more promising route. An early and spectacular attempt, coming from the very top of the Empire, was the effort of Peter the Great (1672-1725) to inject Western methods into the army and the administration and western know-how into the country’s embryonic industries. He relied on importing large numbers of military and civil experts, mostly from the Baltic states, many of them descendants of the Teutonic Knights who were to bring rigour, fidelity and a down-to-earth approach. Though some progress was achieved, the attempt to Westernise was not well received by the country. It is sufficient to read Tolstoy’s War and Peace, where every senior officer with a German name can only blunder while every Russian named general fights the war as one should.

The next big step out of the rut of near stagnation was the liberation of the serfs in 1861, laying the foundation of a normal civil society which would be based upon an independent peasantry. Czar Alexander II (1818-1881) was at any rate not opposed to this prospect. It took 20 years for it to fail: in 1881 the Czar was assassinated by radicals who feared that his liberal tolerance would take the wind out of the sails of the revolution they were expecting. They succeeded in provoking a violent conservative reaction that brought among other things the flourishing of the Ochrana, the first of a serious of political police forces that have continued ever since with only their names changing. Much of the progressive and Westernising elements in Russian society went underground to re-emerge in a destructive fashion in 1917 as the Bolshevik elite.

Before our own day, there was one more Russian attempt that could have led to the development of a bourgeois society, but was strangled in a mere 3 or 4 years. In 1921 the Bolshevik leadership, pressured from various sides and running desperately short of food, reversed its socialist absurdities and introduced the NEP (New Economic Policy), allowing a certain amount of liberty to productive forces. By 1924, when the pressure was off and Lenin was dead, the party realised that bourgeois development threatened its own power, reversed the NEP, and positioned itself for the catastrophic collectivisation of agriculture.

Nothing very hopeful happened while the communist party was building socialism and winning a war between 1924 and 1991. Its collapse brought in the highly experimental Yeltsin presidency with the passing of state-owned industry into private hands and often very dodgy hands at that. In a curious sense, central power was almost absent, but resided widely spread over the network of the siloviki, the military, secret police, and judicial survivors of the communist regime who remained on or near the top in a tight alliance of mutual help, and who in complicated ways took control of much of the countries industrial and financial wealth. The siloviki (or some of them) also concluded ad hoc alliances with the mafia, and entered into alliances with the former “red directors” who had obtained control of the privatised state enterprises they used to manage.

The last of the attempts to lift Russia out of the rut and point it in a more Western direction has occurred very recently and is proving a failure before it has ended. It is closely linked to the person of Putin. Vladimir Putin had been a very average major in the KGB who had moved from the secret service to the city administration of Petrograd. He was, for reasons of their own, picked out by the top siloviki first to be second in command under Yeltsin and then to succeed him. Starting in 2000, he is now serving his fourth 4-year presidency, though in the 2005-2008 term he lent the title of president to a friend who had kept the seat warm for him. In 2000, Russians could buy 1 dollar for 6 roubles. In 2015, they would have to pay 60 roubles. In 2000 a barrel of crude oil sold for 10 dollars, in 2013, 110 dollars and since June 2014 it has nosedived to below 50 dollars. Before its price collapsed, Russia was practically living off its oil and gas that represented two-thirds of its exports and took care of the state’s budget. At the new lower price Russia is rapidly burning up its reserves and should be a pauper by 2016-17. Its official forecast of a 4.5% fall in GDP in 2015 looks wildly optimistic.

Putin has been riding out these wild fluctuations as the master of the hunt, very much in control of events. Most of this is pretence, for he is far less powerful than he would have the masses believe.

There is good evidence that at Petrograd City and also in his early years as President, Putin believed in the market economy and in modest controls. Guided by some good advisers, he cautiously started out in this direction. He was however, soon pulled up by the real holders of police and economic power who were running the show in the background. He has ever since been governing an economy which is a mixture of capitalism and statism with wide open possibilities for colossal corruption, much of it by his own best friends. Free markets and the rule of law would suit them about as well as holly water suits the devil.

During the years when oil was worth over $100 a barrel there was money for Putin to pursue three objectives. He needed to cheer up the army, which had been long neglected, by buying it fresh equipment. He needed to do something for the health services and for poverty relief in order to reduce the scandalous contrasts between Moscow and the misery of the countryside and the small towns, as well as to give himself the image of the caring father of the people. More fundamental than any of this he had to take seriously the dangerous imbalance of the Russian economy. Producing a vast output of hydrocarbons, steel, timber, and aluminium but little else worth mentioning, Russia had become the archetype of the backward economy badly in need of manufactures and services to protect itself against wild swings in primary product prices. Putin has made a few efforts at diversification, with negligible results. The high price of oil and hence the favourable terms of trade made Russian competition with imported products an uphill task. Moreover the very erratic rule of law made starting a business a reckless venture except perhaps in partnership with the mafia or with state officials.

After a 60% fall in the price of oil, Russia’s terms of trade have made a complete turn around and producing at home instead of importing is now making some sense. However, the turn around comes after a massive flight of capital from Russia to the West, a flight that is probably not yet finished. There is simply too little left for any up-swing in industrial and service investment at home. The fundamental shift in economic structure that Russia so badly needs is clearly condemned to fail.

Putin may be riding for a fall, but he must at almost any cost keep up the pretence of the combative strong man keeping order at home and standing up against the hostile West. He has no plans to annex the Donbas and the rest of the ethnic Russian Ukraine, nor in letting the Kiev government have it. It is best for him to have it as an open, festering sore. The uncertainty is ideal for keeping up tensions with the West and for creating the image of Vladimir Putin standing up to the timid Europeans and Americans all by himself.

This is a splendid diversion of popular attention from the financial earthquake that has hit the economy and threatens very painful times in 2015 and perhaps beyond. To believe the polls, the average Russian is delighted by Putin holding the West in check and raising Russian prestige back to levels not seen since the reign of Brezhnev or Andropov. It is just as well that the average Russian ignores that Putin is at the head of a poor and backward country and must punch above his suddenly diminishing real weight.

Source: Econlib.org


  • Anthony de Jasay is an Anglo-Hungarian economist living in France. He is the author of The State (1985), Social Contract, Free Ride (1989), Against Politics (1997), and Justice and Its Surroundings (2002).

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The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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