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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

About This Blog

The Power Vertical
The Power Vertical

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It offers Brian's personal take on 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


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