Looking back on the past couple of weeks in Russian politics, I am trying to explain why the Kremlin is eager to merge municipalities, a policy executed in several regions, which may become a federal law later this year. I am also sharing some thoughts on why Orban and Putin agree on many things and why I think those looking for a hidden motivation behind their relationship are missing the point. Apart from this, I am briefly discussing personnel changes, industrial development in the Sakha Republic and the ongoing nationalization of food industry companies.
City blues
On May 20 the legislative assembly of the Yaroslavl Region started discussing a draft law, which would oblige the region’s municipal officials to coordinate all official international contacts with the regional government, including to report all official trips abroad. The region was not the first to establish a firmer control over the trips of municipal officials: the Rostov Region limited travel for all officials with access to state secrets in February this year. The deputy mayor of Yaroslavl explained that he did not expect much to change in practice; adding however that “the directions [of cities’ foreign policy overtures] have changed: today they are China, Belarus, Kyrgyzstan and Central Asia as a whole”, as opposed to Western cities.
It is debatable whether anyone could realistically expect municipal officials to divulge state secrets on a working trip abroad, nevertheless the proposal seems to fit into a broader trend of suspicion towards cities, especially mid-sized ones, at higher levels of government, and attempts to establish firmer control over their activities.
The core of the problem is that the past years have seen some second-tier cities emerge as bastions of local pluralism (by Russian standards, at least), all while the residents of these cities are also the most likely to experience the domestic problems triggered by the war, including the diversion of public funds for war aims and other projects considered politically more important or more immediately important by the federal government. Perhaps the best-known example of how this problem preceded the war is the still-unbuilt bridge over the River Lena in Yakutsk, the funds for which were reallocated to build the Kerch Bridge to the occupied Crimea. However, chronic underinvestment in repairing utility networks and fix dilapidated housing also precedes the war and affects more people.
Russian municipalities spend most of their budget on issues such as repairing roads and housing, and education, as well as paying the wages of municipal workers. Part of this is financed by a part of personal income taxes collected by the region, as well as taxes collected from small enterprises and on property; but most municipalities, including major cities, rely on transfers from their region or the federal government for well over half of this budget. Without these transfers most cities could not even pay salaries in municipal institutions, let alone engage in any costly capital investment project. A substantial part of this comes out of federal and regional allocations for the so-called National Projects.
However, these have taken a fiscal back seat as the federal government, for the second year in a row, has been prioritizing war-related spending. The sorry state of municipal finances has been so visible that even Putin personally had raised the issue at a forum in April 2023, and several governors did so later that year as the federal budget was discussed. Most recently the Speaker of the Duma, Vyacheslav Volodin raised that municipalities should be able to keep more of the personal income tax receipts collected in their territory.
This would of course hardly help poorer cities, but Volodin’s suggestion reflected that the Kremlin has no good options here. True, the first quarterly results of regional budgets suggest a significant (more than 40 percent) growth in personal income tax receipts over Q1 2023, a result of wage growth, inflation and increased social transfers. However, this still does not offset dwindling revenues from corporate income taxes and a drop in federal transfers, which the Kremlin has reoriented towards the occupied territories, which will remain a priority for the foreseeable future. Infrastructure credits, another instrument invented, in a large part, to benefit cities, are limited and are not going to be part of a grand debt write-off announced by the government earlier this year.
In the absence of any prospect of beefing up municipal budgets substantially, the Kremlin’s other option is establishing a firmer control over municipalities. Some of this takes the form of clamping down on the remainders of municipal pluralism and political autonomy – a process that I outlined for Riddle in an article earlier this year, and in which it looks likely that, if United Russia retakes control of the legislative organs of the Khabarovsk Territory and Khabarovsk itself under its recently appointed new governor, that city will be the next in line to lose the right to elect its mayor directly.
Other steps are motivated by fiscal optimization, or, as some would call it, hiding the lack of money. The second part of a public administration reform started in 2021 prescribed scrapping thousands of currently free-standing municipalities and rolling them into municipal and city districts, all while integrating them into a “unified system of public power” prescribed by Russia’s 2020 municipal reform (and put in practice by the Moscow Region over the past two decades). The second part of the reform was frozen, but it may be adopted in the fall session of the Duma this year. In any case, several regions have started to quietly scrap municipalities in their own territory as pilot projects. The Pskov Region restructured 13 districts and will continue merging others. The Yaroslavl Region will scrap all but 19 of its current 96 municipalities. The Chelyabinsk, Novosibirsk, Omsk, Ryazan and Vladimir Regions all adopted their own version of the reform earlier this year, usually with the express purpose of “reducing operational costs”.
It is questionable how much money will be actually saved by these reforms. Andrei Vorobyov, the governor of the Moscow Region claims that the region saved 3.5 billion rubles, which is less than half a percent of the region’s planned expenditures for 2024. However, for less wealthy regions these operational costs carry more weight, and it may also be easier to spread a deficit across several settlements if their budgets are pooled on the level of a newly created district.
Attempts to cut down on operational costs and rationalize units of public administration are not harmful per se. However, it appears that in Russia’s case these serve the sole purpose of reducing political risks for regional governments and the federal government at a time when the government is unable or unwilling to increase budgetary allocations in favor of domestic policy goals, but is increasingly aware of the risks triggered by its prior policy failures.
It’s going to be interesting to watch this space as the war remains the Kremlin’s unquestionable spending priority and the very tangible problems of cities are not going away.
What makes Orban and Putin tick?
Lately I have been asked by several Russian journalists to share my opinion about Hungary. Some of these were actual interviews: Meduza interviewed me about Viktor Orban’s rise before the 2022 parliamentary election, and did so again last month; and Dozhd interviewed me for a 2023 documentary about the country. I am not really a Hungary specialist (as much as I am of the broader Central and Eastern European region), albeit of course I do know it quite intimately as the country where I was born and raised, and throughout my professional life, in several different positions I have found myself in the role of the “Hungary explainer”.
This being said, I often have to disappoint my interlocutors when the question is about what I think is the real cause of Orban’s increasingly strong and open pro-Kremlin positions. Is it money? Is it some kind of kompromat from Orban’s almost 40-year-long career in politics? Is it something completely different? The truth is that I don’t know and, I suspect, nor do other people whom you’ll see pronouncing opinions on this. The most I can usually say is that the cheapness of the Russian gas that Hungary’s economy runs on, is certainly at most one part of the puzzle – and not a very convincing one, given that over the past two years Hungary actually lost money due to its long-term contract with Gazprom, relative to spot prices.
Of course, understanding the cause of Orban’s chumminess with the Kremlin (nowadays most often exhibited by his minister of foreign affairs, Peter Szijjarto) now has a degree of urgency because of the ongoing war and Orban’s position as an eager cheerleader of the so-called “peace party” within the EU and NATO, whose aim is to withhold Western aid from Ukraine. Or take candals such as a recently leaked secret service document proving that the Hungarian Ministry of Foreign Affairs knew about and tried to deny a successful Russian state-sponsored cyber-attack into its systems shortly prior to the 2022 invasion. This comes with Orban’s general foreign policy brinkmanship, sometimes clearly following the line of the Kremlin’s foreign policy (e.g. a recent rejection, in the UNGA, of a resolution recognizing the Srebrenica genocide) and sometimes with a different flavor (e.g. in the case of the War in Gaza where Orban, unlike the Hamas-friendly Russia, is a staunch supporter of Benjamin Netanyahu’s government, albeit, in my view, this is a mere tactical difference).
As much as it must be fascinating for some to theorize about Orban’s alleged secret motivation to support the Kremlin and its line of communication, I’d argue that one doesn’t need these often-baroque theories, or to call Orban a “Kremlin agent”, to explain why their interests align. In fact, speculation of this sort risks making even serious analysis look like merely one potentially ridiculous theory of many.
One recurring theme of my conversations with Russian journalists and analysts is discussing the similarities between the late-stage evolution of Putin’s regime and Orban’s, often accompanied with a lot of sighing and nodding, which set these talks apart from the average encounter with a Western journalist: how Orban’s government copied the gist and often actual passages of Russian legislation, e.g. to label civil organizations foreign actors or to blur the lines between sexual minorities and pedophilia; how well-connected oligarchs gradually took over most news-focused media outlets, which then started receiving central directives on what and how to report; how the electoral system was first revamped to benefit the ruling party, then gerrymandered and constantly tinkered with, in reaction to rising political challenges; how local self-governance was hollowed out financially and politically; or how the influx of EU funds to Hungary fulfils a role not unlike that of the influx of oil and gas rent to Russia. The list could go on.
Of course, there are major and important differences, both between the two men and the two countries, which limit the scope of such comparisons. Orban is a politician through and through, not a security man. Hungary is not a major economy or a postcolonial empire, but a mid-sized EU member state without nuclear weapons. Nevertheless, the similarities are there, and I think the debate should focus on, instead of Orban’s real or alleged motivations, are the purposes and the allure of these illiberal systems, which then would tell us more about why they stick together.
Importantly, both Orban and Putin are interested in a return to the pre-invasion order (with their gains sealed, of course), where Western governments and markets that Hungary and to a considerable extent Russia depend on, largely pardoned transgressions such as the annexation of Crimea or the embezzlement of EU funds, in the name of business and overall stability.
Beyond this, however, there is another important similarity. Many assume that due to their sophisticated and powerful media machinery and their control over key institutions, Putin and Orban are virtually invincible. This, in my view overestimates how many voters make decisions based on the propaganda that they are exposed to, and underestimates the role of the economy in determining the public mood. This is understandable, as both Putin’s and Orban’s government are very well equipped to react to forecastable problems: constant polling and social media monitoring allows the government to find a convenient spin on emerging issues, and change policy, throw money at the problem or, as it often happens, allocate blame. (They also, it needs to be said, offer the emotional compensation of explaining to citizens why they, in spite of their low standards of living, are better than an outside group that looks down on and – actually – talks down to them, be they Brussels bureaucrats or the liberal opposition.)
In Hungary, in spite of sky-high food inflation, falling real wages and increasingly obvious underinvestment in public services in 2022-23, the popularity of Orban’s party, Fidesz, did not suffer considerably. But frustration accumulated and an unforeseeable problem – news that the figurehead president had pardoned a pedophile accomplice – did lead to a serious drop in Fidesz’s popularity in early 2024 and seemingly broke the spell of several usual elements of the government’s propaganda.
Russia, where state spending on the war, financed from previously accumulated and still-inflowing petrodollars, has created an economic upswing, is not here yet, even though this growth has only benefited a large but ultimately limited number of people working in or adjacent to war-related industries. The point however is that this growth model is not sustainable under the economy’s existing structural constraints, many of which are the consequence of prior underinvestment due to political short-termism or corruption, and remains vulnerable to sanctions enforcement. And these constraints are there to stay, as will Orban’s growth model, based on cheap labor, the degradation of labor rights and vanity investment projects, cast a long shadow.
Also-happeneds
- Governors: in spite of the resignation of two governors – Khanty-Mansi Autonomous District (KhMAO) head Natalya Komarova and Samara head Dmitry Azarov – I still believe that we can talk about the continuation of an overall conservative personnel policy vis-à-vis the regions. Before the two resignations Putin held talks with, and thus virtually endorsed, almost all governors facing elections this year, including ones such as Orenburg governor Denis Pasler who had been rumored to be on his way out due to his region’s mismanagement of recent floods, and Ingushetia’s head Mahmud-Ali Kalimatov, a perennial candidate for dismissal whose older brother had just been arrested on embezzlement charges. The dismissals of Komarova and especially of Azarov look like individual power moves, allowing the appointment of the former mayor of Tyumen to the helm of the KhMAO, and a former subordinate of the recently promoted Alexei Dyumin to Samara. The series of appointments following the presidential election however also suggest that the Kremlin’s former policy of appointing technocratic outsiders to governorships may be partly over or at least changing, allowing a greater degree of flexibility towards regions considered unproblematic.
- United Russia primaries: this conservative personnel policy is also evident in the “primaries” held by the ruling party before this September’s regional and local elections. For the second year in a row, in spite of repeated vows to recruit war participants into public positions, in spite of Putin himself referring to them as Russia’s “new elite” and United Russia granting them a 25% bonus on their actual votes, the actual number of war participants who get through this first hoop remains low. Vyorstka counted only 19 (out of 103) such candidates who managed to guarantee themselves a place in one of the eleven regional parliaments up for reelection. In many cases, candidates reportedly found the so-called “administrative resource” – that is, public institutions and money controlled by incumbent party cadres – geared against them (the Chelyabinsk Region seems to be a notable exception). While Russia’s “new elite” is getting a range of freebies from leniency at courts to free airline tickets, the old elite, it would seem, is not ready to leave yet.
- City crackdowns: Following the appointment of the new (not directly elected) mayors of Tomsk and Novosibirsk the regional governments have continued asserting their power in the cities. In Tomsk a court ruled to deprive Yevgeny Kaverzin, an opposition deputy of the liberal Yabloko party, of his mandate, after the city assembly had refused to do so. Kaverzin had earlier supported the appointment of Dmitry Makhinya, the city’s new mayor and an ally of governor Vladimir Mazur, but reportedly asked for the head of local waste management operator to be removed in return; this, in turn, resulted in the director denouncing Kaverzin for an alleged irregularity in his income declaration. In Novosibirsk the new mayor, Maxim Kudryavtsev, also an ally of the local governor, has just started firing and hiring, but, as Sibirsky Ekspress pointed out, one of the main questions is whether the region will take over policies such as transportation and urban renewal – both related to sizeable budgetary allocations – from the city. One has to wonder if Novosibirsk deputies are following developments in Tomsk and if they are starting to have any second thoughts about striking deals with the regional government.
- Evenks against Mordashov: Residents of Tyanya, a community in the Far Eastern Sakha Republic wrote an open letter to Putin to protest against Alexei Mordashov’s gold mining company “Norgold”, which is planning a development on their land. The signatories belong to the Evenk indigenous minority, a Tungusic people living in Russia’s Far North and in China; they are complaining that while the development destroys their traditional way of life, the company’s promises to develop social infrastructure are not materializing either. It is unlikely that the Evenks will have the upper hand in this conflict. In Bashkortostan a conservationist movement did manage to trigger prosecutorial action against (less significant) gold mining companies in 2023, but only after several years. However, it is worth keeping an eye on similar activism in the Far East, as Russia’s forced pivot to Asia means that both extractive and infrastructural developments are prioritized in the region.
- Nationalization in the Far East: On May 20 Russia nationalized two large fishing companies in the country’s Far East: Apella and Ribny Ostrov, after the Prosecution demanded more than 17 billion rubles in damages from the companies due to what it described as illegal fishing. Earlier this year eight enterprises belonging to the “crab king” of the Far East, Oleg Kan, were nationalized in a similar way; there the owner was accused of illegally selling seafood to foreign countries. In the nationalization campaign that started last year Russian authorities have increasingly targeted companies in the food industry, apart from firms more directly connected to the military industrial complex.