The system of “managed democracy,” in which the patina of electoral choice provides a veneer of legitimacy to authoritarians, has proven remarkably durable in Vladimir Putin’s Russia. And underpinning the system has been a social contract in which the population agrees to cede largely unchecked authority to the Kremlin in exchange for guarantees of economic and social stability.
Up until very recently, Putin has upheld the contract, thanks in large measure to high global energy prices. Accordingly, the Russian public has been largely quiescent as he has assiduously morphed into an elected czar. But now, amid a global pandemic that’s caused a crash in energy demand, Putin seems to be losing his ability to deliver on his end of the bargain.
If the social contract were a commodity that had a futures market, the price would be rock bottom right now. In perhaps the clearest sign of fast-waning public faith in the current arrangement, Russians withdrew over $13.6 billion in savings from financial institutions during the initial weeks of the pandemic, according to news reports.
Hoarding cash is a traditional, reflexive response to a crisis of faith, indicating that despite two decades of bumpy prosperity, Russians’ historical distrust of the banking system hasn’t changed.
The COVID-19 pandemic may have hastened the fraying of the social contract, but the origins of its unraveling stretch back years. The problems, to some extent, were fueled by factors beyond the Kremlin’s control. But mismanagement also has played a role.
The strength of the system has always been directly proportional to the height of energy export prices. For most of Putin’s tenure in power, high prices meant that the Kremlin could paper over cracks in the welfare system and improve living standards for a critical mass of citizens. But the reliance on energy exports always had a vulnerability: the Kremlin couldn’t directly control the value of its chief commodity.
In many respects, the foreign policy provisions of the social contract proved easier for Putin to fulfill than domestic obligations. Always a shrewd exploiter of opportunities, Putin has managed to revive Russia’s global stature and establish himself as the great protector of Russian national interests.
Russia’s state propaganda apparatus played a crucial role. Troll factories helped advance foreign policy priorities. State broadcasters, meanwhile, invariably exaggerated domestic economic achievements, covered up shortcomings and drowned out dissenters.
Putin’s first major mistake – or more accurately, unfulfilled promise – was not diversifying the Russian economy when he had a chance. In the early 2000s, amid an energy-export-driven windfall, the president routinely vowed to turn Russia into a manufacturing powerhouse and an IT hub. In 2006, he told the Federation Council that his administration was already taking “concrete steps to change the structure of our economy and turn it into an economy of [technological] innovation.” Two years later, he announced that his government’s “number one priority” was economic diversification through the “development of innovative industries.”
This talk did not translate into action.
So the hard reality now is that after Putin’s two decades in charge, Russia still doesn’t produce durable goods that people around the world are eager to buy. Outside of raw materials, Russia’s main exports are arms and nuclear reactors, not exactly items within the price ranges of most folks. With a more diverse economy, Putin would have been better positioned to meet his social obligations.
In recent years, several management blunders helped weaken public faith in the social contract. A misstep was to raise the retirement age by five years in 2018. The decision, which provoked a fierce public backlash, was a byproduct of two developments in the United States: the shale oil boom that drove global energy prices down, and Washington’s imposition of sanctions. Those moves put the squeeze on the Russian budget.
Putin’s decision to have old people take the budgetary bullet in 2018 was perhaps the first bell to toll for the social contract. He tried to pin the blame for raising the retirement age on Russia’s demographic woes – namely its graying population. His popularity ratings sunk because people didn’t buy his argument.
Two additional mistakes in recent months have put Putin in danger of defaulting on the social contract.
First, he minimized the risks posed by COVID-19, thus leaving society more exposed to the viral dangers than it needed to be. For weeks he reassured Russians that coronavirus posed no threat. As late as April 19, in his Easter address to the nation, the president insisted that "the situation is under full control.” Less than two weeks later, however, he conceded on national television that a “hard and difficult path lies ahead” for the country.
In addition to being slow to react to COVID-19, Putin further weakened the safety net’s bounce-back ability with a decision to wage an energy price war with Saudi Arabia at a time when the pandemic was starting to put the global economy in a chokehold. The move succeeded only in damming a major revenue stream, depriving the treasury of much-needed resources.
Thanks in part to state-controlled media’s ability to shape narratives, Russians have generally given Putin a pass on previous occasions when he has fallen short of fulfilling the bargain. Not this time.
Many Russians, it turns out, viewed the social contract as an insurance policy: In giving the government unchecked power, many believed officials would protect the population economically in the event of the unexpected. With COVID-19 now causing untold damage to the domestic economy, as elsewhere around the world, many Russians now want to file a claim. But they are discovering that their insurer, namely the Kremlin, made some poor investment choices and now is hard-pressed to deliver on its guarantees.
Russians are being left to ask: Why isn’t the government providing stimulus checks and other financial support to its citizens and businesses, like other governments are doing?
Entering the crisis, Russia had a reserve fund totaling an estimated $550 billion, accumulated during the boom years. But the Russian government seems reluctant to deploy that fund to assist individuals and small-scale entrepreneurs. Instead, what money the government has drawn from the fund has tended to go to large corporations, many of them state-connected. In all, only about $10 billion has been earmarked so far for social support.
As the COVID-19 challenges mount, Putin has increasingly left underlings – including Moscow Mayor Sergei Sobyanin and German Gref, head of the state-controlled Sberbank – to handle the messy job of explaining the government response and facing popular fury. Such interactions have turned ugly.
During a nationwide question-and-answer session broadcast on April 21, Gref, the leader of the largest savings bank in Russia, fell far short in his efforts to reassure jittery viewers. Instead, the appearance seemed to generate vitriol and derision. A popular comment on Yandex News – “I no longer understand if we still have a president, and if the Constitution is still in force…” – goes on to wonder why low-level officials seem to be in charge.
The comments section on Lenta.ru, one of Russia’s most-read online news outlets, heaped so much abuse on Gref and the government during the April 21 Q&A that management felt compelled to turn it off.
When Putin claimed in late April that the tempo of COVID-19 infections was falling in Russia, the report posted by Yandex News generated thousands of negative reactions. There is likewise anger that the government is ostensibly leaving the most vulnerable segments of society to fend for themselves.
Most ominously for the viability of the existing social contract, people are starting to take matters into their own hands, organizing on the grassroots level to compensate for the lack of a vigorous government response.
In many communities, for example, citizens are banding together to coordinate local assistance efforts, including initiatives in which younger and healthier citizens go grocery shopping for the elderly and the sick in their communities.
A recent nationwide poll indicated a strong rise in the number of people willing to become more socially active in their community. The poll, conducted April 23 by VTsIOM, or the Russian Public Opinion Research Center, suggested that 74 percent of Russians believe that volunteers have made a difference during the coronavirus crisis, and 64 percent of Russians are willing to get more involved to help those in need. As recently as December 2019, only 13 percent showed interest in personally participating during a time of social need.
COVID-19 is teaching Russians that individual actions and choices can make a difference. Once that notion takes root, its stands to become more difficult for authorities to tell them what to do and what to believe. The pandemic is also fostering an impression that the current operating model – a paternalistic state in which people have little say over public policy – needs revising.
Justin Burke is Eurasianet's publisher.