Problem solvers

The FIFA World Cup has ended, and with it, so did a month-long distraction of the Russian public from public affairs. At the same time, the summer political recess or “cucumber time” began. The hope in the Kremlin was that Russians would enjoy their time off rather than showing their indignation with the government’s pension reform – and yet, on Saturday, tens of thousands of people rallied against plans to raise the retirement age. The rest of the summer may still turn out to be eventless; but the pension reform will definitely be one of the issues shaping the Russian political agenda in the autumn. If one forgets the speculations about power dynamics that the debate around the reform unleashed, for a moment, the way that the reform has been handled tells two important stories about politics in Russia.

Who could have predicted at the beginning of this year that 2018 in Russian politics would be neither about Vladimir Putin’s reelection for a fourth term, nor about the country’s self-promotion during the 2018 FIFA World Cup. It increasingly seems that 2018 will be defined by one of the most divisive proposals of the Russian government in the past decade: raising the retirement age. At this point, the proposal falls short of a full-scale pension reform. Although a further revamp of the Russian pension system is planned (and indeed has been going on for a while), at this point the government’s proposal amounts to a simple act of budgetary consolidation, expected to bring more than 200 billion rubles ($3.2 billion) to the federal budget in its first year of implementation. The money will probably be used to finance investments in infrastructure, education and health care announced by Vladimir Putin at the beginning of his fourth presidential term, although it will only make up a part of the total funds required for these investments.

Besides the above, it is known that an overwhelming majority of Russians reject the proposal, seen as the abolishment of a Soviet-era symbol. Russia’s relatively low pension age has certainly had symbolic importance in the Soviet Union when “idling” was a crime and pensioners often shared a household with their younger relatives, performing important social functions as well as finally being able to afford spending time on leisurely activities. And beyond the emotional attachment to a Soviet fossil, Russians have practical reasons to protest against the pension age hike. The low life expectancy in Russia also plays a role – the Liberal Democratic Party, one of the sham opposition parties in the Duma actually has a point in that a large number of Russian men would not live to see their day of retirement. Although this now differs widely between regions, according to a study by the Higher School of Economics, if the reform is implemented, 17.4 percent of men and 6.5 percent of women in Russia will not live to collect their first pension checks.

Accordingly, poll data that is worrisome for the Kremlin keep pouring in. Despite the president’s long silence on the reform, followed by his – by all accounts, genuine – announcement that he does not like the proposal, the Kremlin’s attempts to isolate Putin from the announced changes did not work. Russians remember very well that in 2005 Putin promised them not to raise the retirement age. There is, apparently, rank-breaking in the political elite as well: a prominent deputy of the United Russia party, Natalya Poklonskaya publicly refused to support the reform; she even voted against it in the State Duma. Eight Duma deputies – including leading politicians such as Sergey Zheleznyak – did not participate in the vote. Despite official statements about Russia’s regions overwhelmingly supporting the reform, the RBC news agency found twelve regions – Dagestan, Chechnya, Yakutia, Kamchatka, Vladimir, Irkutsk, Kemerovo, Omsk, Orlov, Yaroslavl, Moscow and the Jewish Autonomous Region – clearly opposing it.

There is widespread confusion about the strategy that the authorities will follow. As the reform was announced, it seemed set that Dmitry Medvedev’s government would take responsibility for it: the cabinet, after all, was already highly unpopular and weightless. However, as Putin’s approval ratings entered a free fall, the Presidential Administration seemed to take over the task of “selling” the reform. The Administration assembled an expert body under the stewardship of its deputy head, Sergei Kiriyenko, newly empowered due to his successful handling of Putin’s presidential campaign. The Presidential Administration sent out feelers to Russia’s regions with the hope of popularizing the reform – and possibly even organizing a referendum about it – through regional administrations. But then several regional leaders expressed their dismay. Now the State Duma, with the leadership of Vyacheslav Volodin has, by all appearances, taken over the handling of the reform and the admittedly bold idea of a referendum seems to be buried.

All along, the possibility of withdrawing the proposal does not seem to have been seriously entertained. No senior political leader raised their voice against the reform at the federal level. There seems to be a broad consensus in the Russian political and business elite that the reform is indeed needed. One of the very few things that seem certain about the proposal is that it is going ahead – in one form or another.

Scores of articles have been written about the Kremlinology of the pension reform. Are we seeing a power game between the Presidential Administration and the Duma, as well as Sergei Kiriyenko and Vyacheslav Volodin, two of the most ambitious politicians of the past years, with an eye on the post-Putin years? Are the dissidents of United Russia, headed by Natalya Poklonskaya, the core of a new “systemic opposition” that will replace, or be based on the merger of the grotesquely obsolete Liberal Democratic Party and A Just Russia? Is the pension reform a deliberate break with “marketing authoritarianism”, a peculiar way of ruling in Putin’s third presidential term, which put engineering popularity ratings above all, with the aim of preparing a smooth transition of power to Putin’s hand-picked successor?

With Putin’s fourth presidential term Russia has indeed entered an era many think will be an era of transition. This sets the scene for intra-elite brawls, appointments, dismissals and a great many arrests and judicial cases. Old reflexes developed in 1999-2000 during the closest thing that Russia has had to something that was more than a handover of power and less than a regime change, will resurface.

Not everything, however, is about Putin’s succession. Once one chooses to put speculations on Putin’s succession aside for a while, supposing that he is a politician – with the flaws and fallibility of any other political leader – who has to solve a specific political issue, one sees the whole pension reform in a different light.

The behemoth

Russia’s pension system looks after 46 million pensioners, almost a third of the country’s population. Their average monthly pension is $209, putting a yearly price tag of $115 billion on the system, which is actually in dire need of reforming – beyond the simple raise of the retirement age that the government is proposing. Successive Russian governments have taken some shots at reforming, or at least, temporarily fixing the system in the past two decades. A thorough reform did not seem to make much sense in the early 2000s, during the first years of the oil-fueled conjuncture when life was expectancy was also lower than it is now. In 2002, private pension accounts were set up to complement the state-funded pay-as-you-go system, although when recession hit in the early 2010s, the government blocked payments to private accounts. In 2015, the government has raised the minimum number of years that employees have to pay into the system. These changes did not cause major upheavals in the population, since they did not touch taboos such as the retirement age. In fact, the majority of Russians supported the 2015 reforms. These were only tweaks, however, which did not address problems like the “missing” generation created by the demographic slump of the 1990s, which is expected to lead to the Russian working-age population shrinking by 10 million by 2030.

The reform, however, did not need to happen like this. The fact that is proposed in such a shambolic manner – and that at this point, it is nothing more than a budgetary manoeuvre – is mostly the consequence of the inertia of Russia’s political system, as a concise and punchy article in Novaya Gazeta pointed out. Since 2005, Russian oil exports have brought $3.25 trillion to the country, out of which $1.2 trillion could have been accumulated in the National Welfare Fund – Russia’s rainy-day fund created to shield the national welfare system with energy income – yielding, in 2018, $72 billion – two thirds of the money needed to sustain the pension system. But this did not happen. The fund contains a mere $75 billion, a considerable part of which is tied up in illiquid assets. After 2009, the value of exports was much higher than before, yet, the fund was depleted. At the same time, its depletion did not result in higher economic growth: in fact, the average growth rate in 2000-08 was ten times higher (at 7%) than in 2009-17 (at 0.7%).

The oil boom did not add anything to the long-term sustainability of the system. Petrodollars were used to fuel the reform of the Russian army, to fund gigantic construction projects or simply embezzled. Yet, when a collapse of the oil price, Western sanctions and the lack of structural reforms sent the Russian economy into a potentially long-term period of stagnation and rendered Russia’s federal and regional budgets unsustainable, the budgetary rebalance suggested by the government targeted the pension system and despite the fall in presidential ratings and protests across the country, commitment to the reform seems unwavering.  Moreover, save for the occasional outliers like Poklonskaya or Zheleznyak – who may or may not play a role in a choreographed political drama – the political elite in Moscow, including a rather sour Vladimir Putin, really do seem to agree on the necessity of the reform.


Balancing the books through raising the retirement age, politically costly as it may seem, actually looks less costly for the leaders who took the decision than cutting the budget of large construction projects or the modernization of the army. Those involved in these projects actually have a say on the government’s strategy, more so than the electorate. In recent years, the Security Council, an unelected body, which officially only plays an advisory role, has become the place where strategic decisions are approved. With the Presidential Administration overseeing political engineering and with trusted technocrats in various positions designing or rather, suggesting actual policies, the government’s role has been reduced to prepare approved decisions for official adoption. Governors are supposed to implement these policies and keep local opposition to them at bay.

It is very likely that whoever took the decision about raising the retirement age counted on this distorted system of decision-making and responsibility to keep Vladimir Putin far from the waves of disappointment. It didn’t work: a political system where responsibility and actual power are so extremely decoupled will have a hard time preserving the semblance of authority and credibility at certain levels. Regional governors have lost most of their political weight and credibility in past years, mostly as a result of Putin’s centralising political power and resources. The Russian government, despite its nominal weight, did not only lose its decision-making role, but as a consequence, it was also reduced to an institution with no political authority. It was therefore inconceivable that the president could stay out of the reform and leave its execution of the Russian government or the regions.

Unpopular reforms are difficult enough to carry out in weakening authoritarian systems: while the effect of public opinion might not be as direct as in a well-functioning democracy, it still matters as the members of the political elite are jockeying for positions in a changing political landscape. Losing an important political battle for whatever reason, however, can have much more serious consequences in an authoritarian system where it can mean the definitive end of one’s career or worse. But above this, the pension reform is difficult to reconcile with the working mechanisms of the Russian political system. When in the 1960s Alexei Kosygin initiated reforming the Soviet Union’s planned economy by encouraging the decentralisation of decision-making, the reforms failed mostly since they were initiated in the midst of a conservative consolidation of power in the centre. In the Russia of the 2010s, decision-making is highly centralised while responsibilities are increasingly decentralised. Traditionally, this contradiction was eased by providing access, money, outwards mobility or sinecure positions to lower levels. However, this toolbox has been visibly narrowing in past years as officials and oligarchs are forced to repatriate their assets, being a governor is a scourge rather than a reward and the pie of redistributable rent is shrinking. All that remains is protection. That the Kremlin can still reliably offer.

Whether or not protection is enough is for the future to tell, but there is clearly a crisis of political responsibility in Russia. Just a couple of months ago, we have seen the same crisis playing out in a very different setting and with a major backlash. When the State Duma started discussing a bill that would make it illegal and punishable to observe Western sanctions on Russia the country’s businesses pushed back. Even as several businesspeople are relocating their foreign assets to Russia either as a forced decision or as a show of loyalty, the idea of taking over the burden of the government’s poor foreign policy decision was too much to stomach.

Expect similar conflicts in the near future between those taking strategic decisions expect the system to shield them from unpleasant circumstances and those supposed to act like the shield. Especially if they play a long game, as Duma speaker Vyacheslav Volodin or Moscow mayor Sergei Sobyanin.

Looking westward

But there is another peculiarity that the debate about the retirement age has shown: this is the Kremlin’s dependence on the foreign policy agenda. As foreign policy has become central to Putin’s new contract with Russian voters and his supposed ability of figuring out Russia’s adversaries has become an important argument in the elite, domestic policies were pushed to the background. It may very well be that Putin’s spokesman, Dmitry Peskov told the truth when he said that the president “isn’t participating” in the pension reform. Putin’s persona in his annual call-in show this year – a leader in lofty heights with Russia’s greatness on his mind who will scold his less talented underlings entrusted with running the country only when he becomes aware of their mistakes – may have been closer to the truth than many realized.

The turmoil that the pension reform caused may draw the president back into the realm of domestic policies. At the same time, there is clear hope in the Kremlin that further foreign policy successes – culminating in the withdrawal of American sanctions this year and EU sanctions following next year’s European election – will greatly mitigate public dissatisfaction or even make the reform unnecessary. As the Trump-Putin summit in Helsinki brought mostly symbolical victories for the president who saw the core principles of his politics confirmed by Trump’s disastrous performance, but no practical gains, it is understandable that Putin is eager to have a second summit. And this around the time when the Duma takes a final vote on the pension reform.

No: in this story, Putin is not a mastermind or a leader orchestrating his succession; rather, he is a politician who makes mistakes, is bound by rules and interests – informal as they might be – and who nonetheless has to solve a problem. He may be able to do so, using his regular tools. The really interesting question is what happens if he is not.

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