How Vladimir Putin Uses Economics to Maintain Control Over Russia

By Taylor McNeil with Chris Miller, Assistant Professor of International History at The Fletcher School of Law and Diplomacy at Tufts University

Vladimir Putin’s March election to a fourth term as president means he will remain in power until at least 2024, two and a half decades after he first took Russia’s helm. Under his leadership, the country has often been viewed from the outside as a kleptocracy, run for the sake of billionaires and former KGB henchmen, with an increasingly fragile economy dependent solely on natural resources, and a poorly educated and aging population.

Yet, somehow, Russia has not just survived the global economic meltdown of 2008 and the collapse in the price of oil—the country’s main export—but thrived enough to be clawing its way back on the international stage as a global power. How that economic and political transformation happened, and where it might be headed, is the subject of Putinomics: Power and Money in Resurgent Russia (University of North Carolina Press), a new book by Chris Miller, an assistant professor of international history at the Fletcher School.

For much of the 1990s, before Putin came to power, the Russian economy was a shambles. The collapse of the Soviet Union had led to major economic disarray, with massive budget deficits and hyperinflation. The average Russian saw living standards dive, while crooked oligarchs took billions of rubles in profits. Political instability matched the economic woes.

“For most Russians, the 1990s was a period of chaos, and there was a real desire for stability,” said Miller. “That meant stability in economic terms—that wages were paid on time, that the value of money was relatively stable—and stability in political terms.”

Within a few years of taking power, Putin had delivered on those demands, thanks to economic policies and, in no small part, the rise in oil prices, which gave Putin a financial cushion. He set his economic priorities quickly: raise government revenue—mostly by making oligarchs and their businesses pay taxes—and slash budgets. It was, in fact, a standard Western economic prescription, one straight out of the International Monetary Fund’s playbook for righting a crumbling economy.

Putin’s economic team did just that—backed by a heavy hand. Take the case of one Russian billionaire, Mikhail Khodorkovsky, who tried to buck the new program. He created the oil giant Yukos in the 1990s and had worked the tax system to minimize his payments—that’s what oligarchs did. But by 2003 he was clashing with Putin—and lost. Khodorkovsky ended up stripped of his fortune and spent eight years in prison. He now lives in exile. The message to other oligarchs was clear: play ball—and pay some taxes—or else.

There was more to it than that, of course. All of Putin’s economic policies, Miller said, track to three main goals, in order of their priority: political control, social stability, and economic efficiency. “The most urgent threats to Putin’s political control in the early days, from roughly 2005 to 2010, were not from social movements per se, but from other centers of power,” such as powerful businessmen, he said.

Khodorkovsky was seen as a threat, not just because of the taxation issue, but more because he was building a political base. “The pillar of political control was focused on neutralizing political opponents,” Miller said.

Social stability flowed in part from political control—aided by a steady rise in the price of oil, bringing much needed money into the Kremlin’s coffers. Just a few years after taking office, Putin was able to pay down debt and create a stable currency—and make sure paychecks came on time for government workers and pensioners.

Once those initial reforms were in place, though, other problems surfaced. Oil prices dropped, and soon “the first principle of Putinomics—preserving state power and authority—began to obstruct the pursuit of economic growth,” Miller writes. Corruption was rampant, but trying to combat it was rarely a priority for the Kremlin. Labor force quality was not meeting industry needs, and Putin’s desire to project a strong global presence, most recently through the annexation of Crimea and military intervention in Ukraine and Syria, led to international economic sanctions.

“By the end of the 2000s and into the current decade, Putin was still applying the same set of tools he had used before, but Russia had a different set of problems,” Miller said. The result has been economic stagnation.

At the same time, Putin lost the support of the urban middle class because he was not addressing their problems: health and education, regulation, anticorruption, antitrust policy, the rule of law. So “he turned instead to a strategy of driving a wedge between the relatively more liberal, so to speak, urban middle classes and the workers in industrial towns and rural areas,” Miller said.

One wedge was economic: Putin gave big salary increases to state employees and help for industries in small towns and industrialized areas. Another wedge was “a strategy of emphasizing the cultural divide between the more liberal cites and relatively more conservative heartlands,” Miller said, as a whole range of cultural issues such as gay rights came to the fore. That and ongoing crackdowns on political dissent seems to have worked. Putin claimed 77 percent of the vote in this spring’s election.

Still, Russia can’t move forward economically without major reform, Miller said. That’s not likely, though. So where does that leave the country? “Putinomics will continue to accomplish the Kremlin’s main aims of retaining power at home and deploying it abroad,” Miller writes. But, he added, with the inability of the government to provide a better business environment—and a demographic crisis with declining population growth—“it’s certainly hard to be optimistic about any sort of return to the rapid growth rates of the early and mid-2000s.”

This piece was republished from Tufts Now.