Stability Or Stagnation? The Putin Purgatory Is A Reality

Includes: ERUS, RBL, RSX
by: Craig Pirrong

Russia's economy has been stagnating, and may in fact be in recession. The Putin Purgatory is reality.

Putin, like most authoritarians, craves stability over everything. That measures intended to achieve stability usually result in stagnation, "leaders" like Putin consider a price worth paying.

Economic dynamism is inherently dangerous to authoritarians. It creates new sources of wealth that can be the foundation for alternative sources of power. It undermines the wealth and power of regime loyalists. It is harder to orchestrate and control a changing, dynamic economy than a plodding, predictable and sclerotic one.

Add to that the fact that an important part of the Russian economic system, and a main source of income to "law enforcement" and security forces, is shaking down small businesses and entrepreneurs, and it would be a miracle if the economy was anything but sclerotic. The burst of growth in the mid-00s was the result of a rebound from the catastrophe of the late-90s, the spike in oil prices, and the exploitation of the capital accumulated during the Soviet years. It was not the harbinger of a transition to sustained, dynamic growth.

I continue to chuckle at the memory of those who, in the aftermath of Putin's election, opined that he would have to reform the economy in order to ensure growth. What were these people thinking?

This Pavel Baev article in Eurasia Daily Monitor sums it up fairly well:

This economic weakness shapes the deepest context of the Russian-US counter-reset as Putin suspects that the outflow of investment capital, which determines the onset of stagnation, is orchestrated by his Western enemies.

As these destabilizing developments and misguided responses keep piling up, the space for engaging Putin in meaningful international initiatives that promise no instant gratification is fast contracting. He assumes that every project aimed at advancing Russia's modernization or increasing its openness to global flows of innovations and information is undermining his grasp on power in the political system where normal evolution is blocked and change might happen only through a coup.

Yes. The more open Russia is, the less control Putin can exercise. The more likely it is that dangerous ideas will enter Russia. Add to this paranoia the fact that aging men invariably favor stability over dynamism, and all the ingredients for purgatory are there.