Saturday, November 22, 2014

The Power Vertical

Is Russia's Social Contract Breaking Down?

Just how nervous is Russia's elite about the ongoing financial crisis?

Just a couple of weeks ago, Deputy Economic Development Minister Andrei Klepach received a stern Kremlin smack down for suggesting Russian was entering a recession.

But now, in an interview published in the magazine "Novoye Vremya" on December 22, Anatoly Chubais, the head of the Russian Nanotechnology Corporation and the architect of the country's economic reforms in the 1990s, says it is basically anybody's guess whether Russia's current political and economic system will survive the current downturn:

"If we talk particularly about Russia and try to analyze the risks, I would say it's fifty-fifty. It's 50 percent that the current political and economic system, which has formed in the past eight years, will endure and 50 percent that we are facing serious  economic, social, and perhaps even political turmoil."

Chubais predicted that the economic crisis would begin to have serious social repercussions by springtime.  "Whether the social crisis turns into a political one is a question of the stability of the system that has been built in the past eight years," he added.

Since Vladimir Putin ascended to power in March 2000, Russia's social contract -- or more correctly, its social bribe -- has been simple: the authorities will assure that living standards rise and in exchange, ordinary people will keep their noses out of politics.

Now there are clear signs that the deal is breaking down.

On December 21, OMON riot police broke up street demonstrations in the far eastern city of Vladivostok where residents were protesting higher import tariffs on imported used cars. You can watch video of the demonstrators being hauled into police vans here. It was the second consecutive weekend that such protests took place and the authorities clearly felt it was time to nip them in the bud.

Deputy Prime Minister Igor Sechin referred to the protestors as "swindlers." But as Alan Gutnov, a blogger from Vladivostok points out in a very informative post on Live Journal, the imported used car business is one of the key sectors of the local economy -- along with fishing and wood exports -- and the increased import duties could have a devastating effect.

The authorities are presenting the tariff increase as a necessary measure to protect the domestic auto industry. But, as political analyst Yulia Latynina points out in a December 24 article in "The Moscow Times," cronyism appears to have played a large role in the decision:

"Most likely, the decision on import duties was made in order to help Kremlin favorites like Sergei Chemezov and Oleg Deripaska whose holding companies own the AvtoVAZ and GAZ carmakers. But it is highly questionable whether this tactic will save the domestic car industry."

And for Latynina, the dust up in the Far East over imported Japanese cars is a microcosm of the Kremlin's dangerous dilemma as oil prices tank:

"In reality, Russia is not going through an economic crisis. The real crisis is that its government model is fundamentally flawed. Under Putinomics, when petrodollars are flooding state coffers, the government can afford to make bad decisions without worrying about the consequences... But starting in the fall, it became clear that the country's national wealth was acquired thanks to high world oil prices and not as a result of any individual's personal wisdom. But now the party is over, and any decision the authorities make...will come at a very high price indeed."

Easy petrodollars allowed Putin and his cronies to purchase the loyalty of Russia's sprawling bureaucracy and to buy at least the passive consent of a critical mass of the population. Now something clearly has to give.

December 21 in Vladivostok may turn out to be an omen of things to come, and Russia's rulers are most likely getting very very nervous indeed.

-- Brian Whitmore

Tags: vladivostok,anatoly,chubais,economic,demonstrations,crisis,Russia

This forum has been closed.
Comment Sorting
by: Peter Lavelle from: Moscow, Russia
December 29, 2008 17:12
Brian, as usual, you do not disappoint. I agree with you on many points, but for very different reasons. <br /><br />I will dispense with commenting on your hyperbole and over-stated and over-opinionated case. But there is something we agree on. Russia's authorities are feeling the heat - which I am very pleased to witness. I will be proven right and you wrong. <br /><br />The easy years are over and they won't be back for a while (if ever). Now comes the hard work - the hard work of governance. You and everyone else at RFE/RL peddle the mantra that Russia's governing elite is nothing more than a house of cards. This is not true. The Russian state prepared itself well for the eventuality of a huge external shock. And now it has happened. To date there is no panic in Russia – just hard policy making decisions. Yes, there are social protests and there will be plenty more. Russia’s political elite has already realized that you just can’t throw money at a problem. Now it knows it must manage social expectations. Said differently, it must manage the expectation that itself created. <br /><br />Don’t get too excited about the demise of Russia. No one is chanting Kasparov’s name in the streets. But the people do expect the Medvedev-Putin elite to perform. <br /><br />It is good when the people put pressure on their leaders. <br /><br />I am big fan and always read your blog,<br /><br />Best, <br /><br />Peter Lavelle<br />&quot;Russia Today&quot; (RT)<br />Moscow, Russia<br />

by: Anton from: Auckland
December 30, 2008 12:46
Peter, I can see you are &quot;on site&quot; there... Is my impression correct or not - that the present day &quot;social contract&quot; in Russia is pretty much very loose? I mean the elite and population exist to some degree by themselves and lack 2-way communications, and the number of areas, where the population can rely on government support, is minimized? I can not figure this out statistically from the media, I follow.<br /><br />What is a percentage of people, whose income does not immediately depend on the state? Because those, receiving the incomes from the state sources, would surely be taken care of, one way or another, so the crisis would be most noticeable in private sector - the case with Far East and Japanese imports seem to support this, they say 150,000 people would lose the incomes...<br /><br />It seems to me now, that there is low chances for any wide protest movement, precisely because the population is not expecting too much assistance anyway.

by: La Russophobe from: USA
December 30, 2008 20:07
So let me see if I understand: Peter LaVelle, an employee of the Kremlin, thinks the Kremlin is doing a really good job managing its troubles, for which it was well prepared. And he believes that his views are reasonable and unbiased, while those who critize the Kremlin are carried away with prejudice.<br /><br />Uh, OK. We've heard that silly song and dance before, all through the collapse of the USSR. We heard how well the USSR was doing right up until the moment it was slam-dunked into the ashcan of history. And now, the likes of Mr. LaVelle wants to do it all over again. What mind-bogglingly inane drivel!<br /><br />Meanwhile, Putin is alreading laying the table to scapegoat and depose Mr. Medvedev, likely the precurser to a Stalinesque purge.<br /><br />

by: David Edick Jr from: San Diego, CA
January 03, 2009 07:03
I agree with Mr. LaVelle that Russian authorities prepared themselves well for a potential external shock (ie, a decline in oil prices). However, they were not prepared for a global credit crisis that has shut the credit markets and which has hamstrung the Russian banking sector - which somehow was allowed to finance its' growth by gorging on foreign currency borrowing (huh?). <br /><br />What suprised me is the degree which Russian oligarchs hocked their shares/corporate empires as collateral for foreign currency loans in a casino-like game of Monopoly. Greed (what's new) and arrogance clearly infected the highest levels of Russia's economic and political elite. <br /><br />It turns out that the vast pile of reserves Russia stashed away to bridge a period of tough economic times will substantially evaporate via oligarch bailouts, a banking sector rescue, various stimulus packages, and a defense of the ruble - all to little effect for most Russians.<br /><br />For the idea that Putin could successfully blame Medvedev for the crisis: no chance. Most Russians would see this as a cheap, cynical - even unmanly - manuever. Russia's 'power vertical' is dangerously brittle and now faces an epic test as another economic storm pounds a vulnerable populace. Mr. Putin's seat is the hottest of all.<br />

The Power Vertical Feed

In this space, I will regularly comment on events in Russia, repost content and tweets I find interesting and informative, and shamelessly promote myself (and others, whose work I like). The traditional Power Vertical Blog remains for larger and more developed items. The Podcast, of course, will continue to appear every Friday. I hope you find the new Power Vertical Feed to be a useful resource and welcome your feedback. More

19:16 November 21, 2014


On this week's Power Vertical Podcast, we use the one-year anniversary of the Euromaidan uprising to look at how it changed both Ukraine and Russia. My guests are Sean Guillory and Alexander Motyl.

09:14 November 21, 2014
09:11 November 21, 2014


09:09 November 21, 2014


From RFE/RL's News Desk:

Ukrainians are marking a new national holiday on November 21 -- the anniversary of the start of Kyiv’s Euromaidan protests that led to the ouster of the country’s former pro-Kremlin regime.
Ukrainian President Petro Poroshenko signed decree on November 13 that declared the holiday for annual “Day of Dignity and Freedom” celebrations.
The protests began with a few hundred people who met spontaneously on a vast square in central Kyiv of November 21, 2013 – disappointed by then-President Viktor Yanukovych’s rejection of a landmark deal with the European Union in favor of closer ties with Russia.
After that first night, as the protests quickly swelled to tens of thousands of demonstrators, brutal police efforts to disperse the crowds with batons and teargas backfired.
As the crowds got bigger, the protesters began to call for Yanukovych’s ouster – which came in February 2014 after more than 100 people were killed in clashes with police that failed to end the demonstrations.

U.S. Vice President Joe Biden was expected to announce an increase in nonlethal U.S. military assistance to Ukraine on November 21 as he meets in Kyiv with Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk.
The talks come on the first anniversary of the start of the Euromaidan protests in Kyiv that toppled Ukraine's former pro-Kremlin regime.
As Biden arrived in Kyiv on the evening of November 20, U.S. officials told reporters that he will announce the delivery of Humvee transport vehicles that are now in the Pentagon’s inventory of excess supplies.
They said Biden also would announce the delivery of previously promised radar units that can detect the location of enemy mortars.
The U.S. officials, who spoke on condition of anonymity, did not specify a dollar value for the assistance. 
Russia on November 20 warned the United States not to supply weapons to Ukrainian forces.
Russian Foreign Ministry spokesman Aleksandr Lukashevich cautioned against "a major change in policy of the (U.S.) administration in regard to the conflict" in Ukraine. 
He was commenting on remarks by U.S. President Barack Obama's choice to fill the number two spot at the State Department, Anthony Blinken, who told a congressional hearing on November 19 that lethal assistance "remains on the table. It's something that we're looking at."
The U.S. State Department's Director of Press Relations Jeffrey Rathke on November 20 told reporters that "our position on lethal aid hasn't changed. Nothing is off the table and we continue to believe there's no military solution."
He added, "But, in light of Russia's actions as the nominee mentioned [on November 19] in his testimony, as he indicated, this is something that we should be looking at."
The aid expected to be announced by Biden on November 20 falls short of what the Ukrainian president requested during a visit to Washington in September when he appealed for lethal aid - a request echoed by some U.S. lawmakers in response to what NATO allies say is Russia's movement of tanks and troops into eastern Ukraine.
In September, Washington promised Ukraine $53 million in aid for military gear that includes the mortar detection units, body armor, binoculars, small boats, and other nonlethal equipment for Ukrainian security forces and border guards in the east.
The United States and its European allies have imposed several rounds of economic sanctions on Russia for its seizure of Crimea and incursion into eastern Ukraine.
(With reporting by Reuters, AP, AFP, dpa, and TASS)

Russian Olympian hockey player Slava Voynov – who plays with the Los Angeles Kings NHL hockey team – has been charged with felony domestic violence against his wife.
Voynov faces one felony count of spouse abuse with a maximum penalty of nine years in prison. If convicted, he also could be deported.
Prosecutors say Voynov “caused his wife to suffer injuries to her eyebrow, check, and neck” during an argument at their home in October.
Voynov has been suspended from the NHL since his arrest early on October 20 at a California hospital where he took his wife for treatment.
Voynov’s attorney, Craig Renetzky, says his client didn’t hit his wife.
Renetzky blames the charges on a misunderstanding between police and Voynov’s wife, who speaks very little English.
Voynov – who played on Russia’s team at the 2014 Sochi Winter Olympics -- faces arraignment on December 1.
(Based on reporting by AP and Reuters)

NATO says Russia's growing military presence in the skies above the Baltic region is unjustified and poses a risk to civil aviation.
NATO Secretary General Jens Stoltenberg said in Tallinn on November 20 that the aircraft regularly fail to file flight plans or communicate with air controllers and also fly with their transponders off.
Speaking at the Amari air base, he said alliance fighters have intercepted planes more than 100 times in the Baltic region alone so far this year, a threefold increase over 2013. 
He did not say how many of the intercepted aircraft were Russian.
Stoltenberg also said that, overall, NATO aircraft have conducted 400 intercepts to protect the airspace of its European alliance members in 2014 -- an increase of 50 percent over last year.
(Based on reporting by AP and AFP)


16:55 November 19, 2014


Konstantin Eggert has a commentary in "Kommersant" on Russia's anti-Americanism. He opens like this:

"Sometimes I have this feeling that there are only two countries in the world - Russia and the United States. Of course, there is Ukraine, but it either to join us or the Americas. Russian politicians and state television are constantly in search of the 'American hand' in all spheres of our life. In Soviet times, the United States was formally considered to be our number one military and ideological enemy. But even then it didn't occupy such a large space in the minds of the political leadership and citizens. And the paradox is that, on one hand, officials and the media regularly talk about the decline of America as a great power, and on the other declare it to be the source of all evil in the world. This contradiction does not seem to disturb anybody."

And closes like this:

We still have not been able to use the opportunity that we were given with the collapse of the communist regime - to arrange our lives based on liberty and civic virtue. And today, we, as a people, want to go back to the starting point, to beat everyone. And the Soviet Union, with its absence of sausage and freedom, again suddenly seems sweet and dear. But it won't happen. I will put it banally: you can't go into the same river twice.

Read the whole thing here (in Russian, with audio)

15:53 November 19, 2014


MIchael Weiss, editor-in-chief of The Interpreter magazine, appearing on Hromadske TV to talk about Russia's information war.

Michael and Peter Pomarantsev recently co-authored an excellent report "The Menace of Unreality: How the Kremlin Weaponizes Information, Culture, and Money." Both also appeared recently on The Power Vertical Podcast to discuss the report.

15:42 November 19, 2014


Oleg Kosyrev has a snarky and clever blog post on the subject up on the Ekho Moskvy website. 

1) The United States is the ideal opponent. "It is big and strong and your self-esteem increases when you fight somebody really influential."

2) The United States is not fighting with Russia. "They aren't really interested. They have enough of their own problems and dreams. It's nice to fight somebody who is not fighting you."

3) It is a substitute for the authorities' inability to benefit Russians. "How convenient. Who is to blame for rising food and gas prices? The U.S.A.. Who is to blame for the fact that Russian has political prisoners? The U.S.A. Who is to blame for people demonstrating on the streets? The U.S.A. Who is to blame for the fact that independent international courts denounce the Russian court system? The U.S.A. You can even blame the U.S. for the fact that the light doesn't work in the entrance to your apartment building."

Read it all (in Russian) here.

15:23 November 19, 2014


14:47 November 19, 2014


From RFE/RL's News Desk:


Ukraine says it will not tolerate pressure from any other country over whether or not it seeks to join NATO.

Foreign Ministry spokesman Yevhen Perebyynis spoke made the remark to reporters in Kyiv on November 19, after the BBC quoted Kremlin spokesman Dmitry Peskov as saying in an interview that Moscow wants "a 100 percent guarantee that no-one would think about Ukraine joining NATO."

Hitting back with a reference to Russia's annexation of Crimea and support for pro-Russian separatists in eastern Ukraine, Perebyynis said Kyiv would like guarantees that Moscow will not interfere in Ukraine's internal affairs, send in troops, or annex Ukrainian territories. 

The U.S. Ambassador to Ukraine, Geoffrey Pyatt, told journalists on November 19 that any decision on seeking to join NATO could be made only by the Ukrainian people, not by Russia, Europe, ar the United States.

The Canadian Ambassador to Ukraine, Roman Waschuk, made a similar statement on November 19.

(Based on reporting by UNIAN and Interfax)


President Vladimir Putin says that Russia is ready for cooperation with the United States as long as Washington treats Moscow as an equal, respect its interests, and refrains from interfering in its affairs.

Putin spoke November 19 at a Kremlin ceremony during which he received the credentials of foreign envoys including John Tefft, the new U.S. Ambassador to Moscow.

Putin said, "We are ready for practical cooperation with our American partners in various fields, based on the principles of respect for each other's interests, equal rights and non-interference in internal matters." 

The remark echoed a formula Putin set out in a foreign policy decree at the start of his third term in 2012.

Tefft, 64, is a career diplomat who previously served as U.S. ambassador to Ukraine, Georgia and Lithuania. 

His posting starts at a time when ties are badly strained over the Ukraine crisis. 

Tefft replaces Michael McFaul, who was ambassador from January 2012 until February 2014. 

(Based on reporting by Reuters and TASS)



Russian Foreign Minister Sergei Lavrov has signaled that a landmark nuclear arms treaty with the United States is not in jeopardy despite severe tension over Ukraine.

Speaking to Russian lawmakers on November 19, Lavrov said the 2010 New START treaty "meets our basic strategic interests and, on condition of its observance by the United States, we are interested in its full implementation."

The treaty, one of the main products of President Barack Obama's first-term "reset" of ties with Russia, requires Russia and the United States to have their long-range nuclear arsenals under specific ceilings by 2018.

But Lavrov said the Conventional Armed Forces in Europe (CFE) treaty, which President Vladimir Putin suspended in 2007, is "dead" for Moscow. 

NATO has refused to ratify a revised version of the CFE treaty without a full withdrawal of Russian troops from Moldova and Georgia.

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The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or