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The Battle Of The Igors

First Deputy Prime Minister Igor Shuvalov
First Deputy Prime Minister Igor Shuvalov
While many in Russia's political elite see an emerging catastrophe in the economic crisis, Deputy Prime Minister Igor Shuvalov sees an opportunity.

In an widely-circulated interview with "The Financial Times" last month, Shuvalov said the cash crunch resulting from falling oil prices gives Russia an opportunity to diversify its economy and escape its historically dangerous dependency on energy and commodities prices:

The longer we have low commodity prices, the sooner we will have a new model of our economy. Even now people say, 'Don't worry, in a year all the prices will come up again and you'll have your annual budget completely full of money and you will carry on.' But that's not good. It’s better if we have two, three, five years as a difficult period... Russians, it’s proven by our history, can invent new technologies, we can implement them and we can even sell them. But once you have this money coming from the oil rain, it completely spoils everybody.

Shuvalov is backed by Finance Minister Aleksei Kudrin and Economics Minister Elvira Nabiullina.

But he also has a very powerful -- and predictable -- opponent: Deputy Prime Minister Igor Sechin, who is also chairman of the state oil giant Rosneft. Sechin argues against diversification, saying Russia's over-dependence on energy is a fiction dreamed up in the West.

Writing in "Novaya gazeta," Andrei Ryabov, a political analyst with the Moscow Carnegie Center, summarized the polemic as follows:

The vice premiers' statements are based on two different approaches and two different visions of the crisis and the way out of it. It follows logically from [Shuvalov's] approach that the crisis is an opportunity to cleanse the economy of obsolete, uncompetitive, and out-of-date enterprises and structures. It opens up the prospect of getting away from existing on rentals and creating modern industries and social structures. It follows from [Sechin's] approach that it is only necessary to sit out the bad years, and then everything will return of its own accord to the tried and tested system -- oil and gas goes abroad, and vast quantities of currency come back. It is only necessary to learn to use it rationally (which is highly reminiscent of Brezhnev's "the economy must be economical").

This debate is bound to heat up in the coming weeks as the economy continues to tank and in the aftermath of the austere budget that Kudrin has just presented.

But at the end of the day, this debate is as much about politics as it is about economics. As I have noted here and elsewhere, diversifying the economy implies a decentralization of economic power. This would inevitably lead to a devolution of political power, something Sechin and much of the current elite finds intolerable.

In a commentary in, political analysts Vladimir Milov succinctly explains why:

In practice, the expansion of socio-political freedoms still represents an insurmountable problem for the authorities. The reason is simple - they do not see the mechanism for their own survival in a competitive political environment.

This is why the polemic over the economy is closely related to the ongoing dispute about the political system, in which a growing chorus is saying the crisis makes it necessary to liberalize the authoritarian system of "sovereign democracy" instituted by Vladimir Putin.

In the bureaucratic game, which security service veterans like Sechin know how to play better than anyone, Shuvalov doesn't stand a chance.

But the wild card in the deck of course is Russian society, which is getting fed up with the government's ineptitude in addressing the crisis and -- in some quarters -- seems to be showing signs of waking up from its long slumber.

-- 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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