Whatever the real objective of mercenary Yevgeny Prigozhin’s attempt to confront Vladimir Putin about Moscow’s mired conflict in Ukraine, Prigozhin’s escapade—and even more importantly Putin’s mercurial response and the subsequent revelations that some of Moscow’s top military brass had been aware of Prigozhin’s plans and that oligarchs have fled the country—it’s hard to escape the conclusion this signals Putin’s days as Russia’s leader are coming to an end, perhaps very rapidly.
Naturally, the national security and foreign policy implications for both Russia and the global community are grabbing the headlines. Indeed, it would be naïve to rule out a re-shuffling of the leadership in Moscow that results in a military official at the Kremlin’s helm. But it also would be a mistake to separate from the path of succession the prospects for the emergence of a civilian leader endowed with the capability and empowered to rectify the decrepit state of Russia’s economy.
Over his two decades of rule, Putin has continually hollowed out the huge economic promise of a country that has one of the world’s largest geographic markets, spanning seven time zones, and blessed by abundant natural resources, home to some of the globe’s smartest scientists, an increasingly educated and inquisitive public, and ingenious entrepreneurs.
But unless and until the Russian population has the temerity to effectively demand fundamental, far-reaching economic reform and their country led by an internationally credible government capable of meeting those demands and supported by the world community, financially and otherwise, we must be prepared to deal with a nation that could pose serious multi-dimensional systemic risks to us all. The globe’s leaders simply cannot afford to be passive on this question.
The Seeds of Putin’s Unravelling
In one my earliest columns in this space (in September 2015), I hypothesized why Putin’s immediate predecessor, Boris Yeltsin, selected Putin as his successor. I reasoned that Yeltsin must have known that Putin, a political neophyte, would work unsparingly to centralize control and amass tremendous power, and then as a result of his inability to effectively govern, he would begin to self-destruct on the world stage and pave the way for his downfall. The expected result? That Putin would unleashing chaos and popular clamoring for a Russian leader that would in fact instill the kinds of economic reforms Yeltsin had started but unable to complete fundamental economic restructuring and permit realization of the type of growth that has eluded Russia for decades.
Sure enough, under the rule of Putin, Russia was booted out of the G8; he put the lid on a nascent democracy at home; and he instilled even greater brittleness to an already hobbling economy. While Putin succeeded in accomplishing these outcomes, obviously I didn’t foresee his tenure lasting two decades. Dare I say it’s the first time an economist made an erroneous forecast!
To be sure, I was overly optimistic, a consequence of having spent a substantial number of years, beginning in the 1990s, as a senior economic advisor to (literally) numerous, successive governments in Moscow—almost all in the pre-Putin era—during my tenure at the World Bank. No doubt have I had developed a soft spot for Russia and what it could become.
Still, throughout the course of Putin’s tenure, a growing share of the Motherland’s citizenry have questioned what has happened to their once great country, especially as Russians see firsthand other emerging markets making great strides in economic development over the long haul, most notably China. It’s thus not surprising that today many Russians will admit in private they have no respect for Putin and consider him a man without principles, lack faith in his ability to govern, and deeply resent his close ties with the profoundly wealthy oligarchs he helped create through the system of kleptocracy he championed through his corrupt brand of “privatizing” the nation’s key businesses.
The most recent events, however, have begun to take off the lid on such silence. No less than Putin’s earliest Prime Minister, Mikhail Kasyanov, who served in that role from 2000 to 2004 (during Putin’s first of four terms as President), has spoken publicly about the fact that even Russia’s elites now see Putin “not as a moderator and not a protector of their interests, but as a weak leader who is not leader anymore.” These are striking remarks from someone in such a position within the Russian establishment.
What Does Arc of Putin’s Economic Performance Reveal?
In a “normal” course of events, if a country’s economy and system of governance are brough to their knees, one might expect regime change and the ultimate emergence of an heir apparent from the civilian sector. However, in this case there is no such person with a strong, broad base of support in the political sphere—a deliberate Machiavellian strategy executed by Putin. He ruled over the past two decades with an iron fist, monopolizing all key decisions and succeeding in amending Russia’s constitution to effectively eliminate Presidential term limits. Russia’s leadership is now ripe for jockeying among the military.
Sadly, if that is the next phase of governance in Russia, it begs the question where the wherewithal for designing and executing a robust economic reform agenda for the nation will come from. Over his more than two decades in power, Putin gave only lip service to such policies.
The result? Russia’s economy remains highly concentrated in the natural resources sector and possesses little global prowess in manufacturing, advanced technology, and services. In fact, while in 2015 Russia’s high-tech products accounted for 16 percent of the nation’s manufacturing exports, in 2018 that percentage fell to 11.3 percent, and in 2021 it was only 9.8 percent. In terms of the country’s overall prowess in international trade of merchandise, as a percentage of GDP, while goods trade accounted for 58 percent in 2000, by 2021 that share declined to 45 percent. This reflects the undue bias of Russian trade in the natural resources sector, and to a lesser extent in the services industries.
The picture that emerges with respect to Russia’s inability to attract substantial inflows of foreign direct investment (FDI) is even more sobering. At the beginning of Putin’s first term in 2000, the ratio FDI inflows to GDP was 1 percent, and by 2008—the end of his second term—it had risen to 4.5 percent. Yet in 2012, FDI inflows as a share of GDP had decreased to 2.3 percent and by 2022, it had fallen to negative 1.9 percent.
The record of the overall growth of the Russian economy over Putin’s tenure reveals a similar pattern. While the average annual growth rate of GDP in real terms during Putin’s first two Presidential terms from 2000 to 2008 was an impressive 6.9 percent, during his second period at the helm—from 2012 to 2022—real GDP growth averaged only 1.1 percent.
The data on Russia’s GDP per capita in constant dollars reveals a corresponding record for Putin. GDP per capita rose from $5324 in 2000 to $9094 in 2008—a 71 percent rise over the four years. Yet whereas GDP per capita in 2012 stood at $9476, by 2022 it had increased to only $10,079—just a 6 percent increase for that 4-year period.
Not surprisingly, both Russia’s population growth and change in life expectancy over the period were stagnant. The nation’s population comprised 147 million people in 2000; decreased to 144 million in 2018; and by 2022 it had fallen to 143 million. Life expectancy for both sexes rose from 69 years in 2010 to 73 years in 2019, but reverted to 69 years in 2021.
How Can The International Community Help?
The track record of the international community collaborating with the Russian authorities to bring about fundamental economic and governance reform unquestionably has been mixed. I say this as one who was intimately involved in previous efforts.
While this is not the place to dissect what went wrong and what went right—I, as well as many others, have done so in other fora—if there is a central lesson, it is a straightforward—and obvious—one: the Russian population and its leadership must demonstrate ex ante they have the will and the stamina to tackle both the complex challenges and opportunities and equally important those on the outside and the Russian side must be on the same wavelength. Frankly, it would be naïve to believe this will be easy or dare I say even possible.
Of course, many alternative paths on this score exist. But one some Russians seem to fancy is fraught with sizeable risks, not only for the world writ large but even more so for the Russian themselves. Namely that a Sino-Russo axis can be fashioned that would provide symmetrical benefits to both sides.
Such a scheme reflects fundamental naivete about Xi Jinping’s enormous ambitions and trenchant cunning to further the advance of China itself in multiple realms across the globe, including in Russia. It is not far-fetched to believe that Xi would actually relish the demise of Mr. Putin, potentially paving the way for Beijing to infiltrate Russia and the other CIS countries just south of China. Xi is well-known as someone who is masterful at playing both sides of the table.
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