A fake new world

In past weeks, it has become increasingly certain that Vladimir Putin is going to run for a fourth term in 2018. He has replaced most of his core team. He ordered his parliament to define Russian identity in a law – a question central to the president’s new political vision. The ever-expanding borders of Russia, Putin’s newest “quip” made in front of a schoolboy, may be part of the definition. Even foreign policy seems to be going his way with the election of Donald Trump in the United States and the candidacy of Francois Fillon on the French right. But while Putin’s fourth term seems certain, there is a growing sense of uncertainty in Russia. The elite has experienced tectonic changes – including the surprise arrest of Alexei Ulyukayev, the minister of economy, in November on corruption charges. Russia’s regions face growing fiscal uncertainties and for an increasing number of protesting workers, uncertainties have become existential. Is Vladimir Putin, just as his potential new ally, Donald Trump, using uncertainty as a tool? Perhaps. But the coming years in Russia are more likely to be allabout the construction of a virtual reality. And Putin might even pull this one off.

For the Russian elite, the clearest indication of the new order was the surprise arrest of the minister of economy, Alexei Ulyukayev last month. Ulyukayev, one of the technocrats of the government was accused of demanding and taking a bribe from Rosneft in exchange of authorising the state-owned oil firm to participate in the sale of Bashneft, a lucrative oil company nationalised last year. Two weeks later, the only new puzzle piece that has surfaced is a report claiming that Ulyukayev had wanted to pressure the state into reducing its stake in Rosneft to less than 50 percent, thus also reducing Sechin’s political clout. This now seems unlikely to happen: Rosneft can go ahead with buying its own shares from the state – with a promise that it will resell them early next year.

The case was an instant political hit: after all, a sitting minister was arrested, a move unprecedented in Russia’s post-soviet history. And yet, since the moment that security officers put handcuffs on Ulyukayev, the case has been surrounded by nothing but an ever growing number of question marks. The arrest did not seem to make sense. Ulyukayev did not decide whether Rosneft would participate in the sale – the decision lay with Vladimir Putin to whom Igor Sechin, the CEO of Rosneft has a direct line. Even if by some miracle the minister had been able to demand a bribe from Rosneft, the sum quoted – 2 million dollars – is ridiculously low by Russian standards, given the dimensions of the deal (Bashneft was sold for 5 billion). Besides, Ulyukayev seemed genuinely shocked. Was this a set-up? And if yes, by whom? And why now? And why in such a clumsy way?

You’re fired

Ulyukayev’s arrest is a case study of how uncertainty has become one of the core principles of Russian politics today. Usually, Russia would use fake news sites and internet trolls to sow confusions. In this case, the arrest of the minister was confusing enough to create a wide range of divergent narratives. In the week following the arrest I read at least five conflicting versions of the story. Boris Grozovsky in the Moscow Times attributed the case to the shrinking pie that is the Russian economy and reminded that Ulyukayev had refused Rosneft’s requests for a financial aid from the state in 2015. Alexei Navalny interpreted the arrest as a signal coming from Putin, the purpose of which is to keep the Russian political elite on their toes. Stanislav Belkovsky hinted that Lukoil might be behind the arrest, in connivance with Alexander Bastrikyn, the head of the Investigative Committee, since both have a bone to pick with Igor Sechin, the head of Rosneft. Leonid Bershidsky also came to the conclusion that Sechin might have been the ultimate target, but from a completely different angle: for him, this was a warning from Vladimir Putin who was not exactly pleased with the unscrupulous greed of the Rosneft CEO. Novaya Gazeta interpreted it as an attack on Dmitry Medvedev and his government’s market liberals.

But Ulyukayev was not a particularly influential minister. In 2015, it was not he who decided that Rosneft would not get 40 billion dollars from the state coffers, either. It was Vladimir Putin who rebuffed the demand personally. To be fair, the Russian state hardly had this money to spend on Rosneft. Even in a year of plenty, this would have been a sizeable sum, let alone in 2015 with the Russian economy in recession, hit by sanctions and counter-sanctions and the Russian military fighting two costly wars. Besides, most of the ever scarcer budgetary resources have been already allocated: the ambitious revamp of Russia’s military, costing hundreds of billions of dollars, has so far been untouchable. It is easy to see why: just like oil and gas, were the foundations of Putinism when the market was booming, now, with the collapse of oil prices the military and the arms industry, fuelling Russia’s posturing as a global power, have replaced them and became sacrosanct.

There is a good chance that it was exactly this shift that gave Sechin the unpleasant choice between mounting an offence and facing a loss of power. After all, the two processes – the plight of the Russian energy industry and the rise of the military industry were not entirely independent from each other. It was the petrodollars earned by the energy industry that enabled the government to develop the army. Yet, later on, it was Vladimir Putin’s military adventures that prompted the EU and the US to introduce sanctions against the Russian economy, including the oil industry, forcing Rosneft to scale back investment and to make important – and in some cases, almost humiliating – concessions to China.

Rosneft’s acquisition of Bashneft and a promise that the company will indeed remain in state ownership are most likely a compensation for the loss of access to “conventional” budgetary resources and Sechin’s massive loss of influence in the security sector, which included the recent reshuffles in the Federal Security Service and the Investigative Committee, the liquidation of the Federal Drug Control Service and the ascension of a new generation of leaders to institutions, on which Sechin and his allies had previously held leverage (i.e. the Presidential Administration and regional administrations).

Sechin’s main opponents in the Russian political elite are not liberals and technocrats who have been pushing for a genuine privatisation. This group, pushed gradually and aggressively into the background since Putin’s return to the presidency, is easily circumvented. Rosneft did not need to bribe Ulyukayev to force the government to sell Bashneft to the company and it does not need to get Ulyukayev arrested to ensure that Rosneft remains a state-owned company. But it might have felt that it needed to make a point.

It is obvious that Vladimir Putin has been systematically building a new team to carry over to his fourth presidential term in 2018. This new team consists of people whose careers have entirely depended on the president and are therefore loyal to him: young political technologists like Anton Vaino, his chief of staff and members of his security detail, like Alexei Dyumin, the governor of the Tula oblast. For this new team to come in, Putin must get rid of the old team. Sergey Ivanov, the former head of the Presidential Administration; Vladimir Yakunin, the former head of Russian Railways; Andrei Belyaninov, the former head of the Federal Customs Service have all been recently dismissed. Their backgrounds, their ascension bear an uncanny resemblance to Igor Sechin’s.

Perhaps Vladimir Putin had approved the arrest of his minister of economy – perhaps this was the seal on a new agreement between him and Sechin, his energy czar who is much more difficult to replace than Yakunin or Ivanov. Perhaps it was meant to be a warning to Sechin to observe the new rules of the game. Perhaps Putin did not about the arrest but chose to tolerate it when it happened. Even in this case, Sechin’s goal is hardly to weaken or to remove Putin. If he had wanted it and had felt himself able to do it, he would have made a step already. Rather, it is to reserve a place in the president’s new team and warn him that without the oil industry, he will not get anywhere. And also, quite possibly, to send a message to his real enemies.

Forsaken, but not forgotten

Igor Sechin is not the only person in Russia who feels that he’s in need of, and would deserve a financial boost. On this blog, I have mentioned the dire economic situation of Russia’s regions several times. Facing a growing list of duties and a shrinking share of budgetary incomes, dozens of regions have been teetering on the verge of bankruptcy for years. Workers’ protests against wage arrears and layoffs, which have become an increasingly frequent phenomenon in the past year (including in Russia’s new Vostochny Space Station), primarily also affect regional elites. This is a direct consequence of Putin’s communication strategy, the myth of a good czar and the bad boyars. As Steve Crowley pointed out in last week’s excellent podcast by Sean Guillory, workers throughout Russia are running out of patience – but unlike in the 1990s, they are calling on the president to help them instead of calling for his ouster.

But Putin will not help the regions – not with hard cash, at least. Unless the Federal Council manages freeze it, budgetary credit support for Russia’s regions will decline by 100 billion roubles in the next two years and by another 50 billion in 2019. Overall, the total budgetary support will also drop by 2019. At the same time, the share of tax revenues that regions are able to keep will further decrease. Instead of rationalising the distribution of revenues and costs, disgruntled regional elites will face competition from new Duma deputies elected in single-mandate districts.

This will not, of course, solve the problem of social tensions and appease protesting workers.

Besides the unpredictability of both men, Steve Crowley and Sean Guillory pointed out another similarity between Putin and Trump, namely that they have both become the unlikely champions of disgruntled working-class voters, despite being billionaires and parts of the establishment, which in Putin’s case is particularly obvious.

It is important to remember that Putin was not originally a dialectical answer to the chaotic liberalism of the 1990s. In the early 2000s he was seen as a free-market liberal with a more conservative view on law and especially order. His first two terms raised a new Russian middle class to material well-being. The global economic crisis exposed the flaws of the Russian economic model, but it was not until 2011 – when this new middle class turned against Putin – that he decidedly became the sworn protector of Russia’s rust belt. Lampposts of this transformation included a televised intervention, in 2009, in the crisis-ridden industrial town of Pikalyovo where Putin publicly humiliated Oleg Deripaska, an oligarch, and ordered him to reopen the town’s cement factory; an offer, in 2011, by Igor Kholmanskih, the head engineer of the tank factory Uralvagonzavod to come to Moscow “with the guys” and teach protesters a lesson (he was later appointed presidential envoy); Putin’s “May decrees” in 2012 that offered generous social handouts to citizens, as well as Putin’s yearly call-ins that become increasingly focused on the working class, on ordering officials to pay wages in Chelyabinsk, on ordering local authorities to repair roads in Omsk.

Meanwhile, a government scheme to help former industrial towns that rely on one employer, the so-called monotowns – towns like Pikalyovo – quietly waned. The situation of regional budgets became more, not less, desperate. Poverty is growing at its fastest rate since 1999 – 20 percent in 2015 alone – with an estimated 19 million Russians living on less than 139 dollars a month.

Leaving Panem

Donald Trump’s credibility lies in his being an outsider, at least to politics, however flawed this argument is. Vladimir Putin’s credibility lies in his track record: in his first two presidential terms he showed Russians that he can get things done. He has accumulated enough political capital to keep going even when a serious crisis hit. In this sense, he resembles Angela Merkel more than he does Donald Trump. Only, unlike Merkel who has used this political capital to hammer out actual solutions to the problems she is facing, Putin has used this credibility to build a postmodern politics. He is still able to solve some problems, for some people, somewhere: in Pikalyovo, in Syria, in Chelyabinsk, in Omsk. And he is able to magnify these solutions through the looking glass of television and, increasingly, the internet – so that everyone feels as if the president had solved their problem too.

Sechin may not go down without a fight – or at all – but it is becoming clearer what kind of people Russia’s new politics will feature. The All-Russia Popular Front (ONF) the pro-Putin umbrella organisation, which now has around 80 deputies in the State Duma and which should fan the flames in the president’s popularity balloon is undergoing serious changes. Putin will participate in the events of the ONF significantly more often than so far. Officials, including Vyacheslav Volodin, the speaker of the State Duma who was instrumental in creating the organisation, are moving into the background. In come people like Natalya Poklonskaya, Crimea’s star prosecutor who in September won a seat in the Duma. The chinovniks are gradually replaced by the celebrities who speak and act like the president and thus Putin becomes a centrally administered franchise.

For the political elite, rent has become a scarce resource and thus the military industry which delivers a product that can be turned into a vision of greatness, took precedence over the energy industry. The rest of the country will have to survive on a carefully portioned and targeted virtual reality, delivered by little Putins – or, occasionally, the president himself. Military parades. Call-ins. Pikalyovo moments. Ulyukayevs – if nothing else helps.

Unpredictability is one thing that Putin and Trump share. Having become the unlikely champions of a disgruntled working class is another. Building a virtual reality, in which facts – even an empty refrigerator or a missing paycheck – do not count any more is the third. Both men aim to replace material wealth and social development, at least temporarily, with an abstract feeling of greatness, an invitation to be the audience of a reality show, to watch, to call in, to cheer, to yearn, with the promise that you have as much chance as anyone else to play, if you are patient enough. 

Four years ago I wrote of the disgruntled working class of “Russia B”: “They love the Putin of Pikalevo. But if another economic downturn comes – which Russia B will be first to be exposed to – he won’t be able pull a Pikalyovo every week.” Maybe I was wrong. Maybe no one is better placed than Vladimir Putin to pull the ultimate trick; to replace the centuries-old dichotomy of panem et circenses with just circenses.

He will definitely try.


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