Streetwise Professor

November 19, 2014

Vladimir Putin, Anti-Corruption Crusader?

Filed under: Economics,Energy,Politics — The Professor @ 7:30 pm

Bloomberg reports that Putin “stunned advisors” by backing an anti-corruption campaign:

Vladimir Putin sat motionless as the minister, seizing on the Russian leader’s first major meeting with his economic team in months, itemized the challenges.

A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting at the presidential mansion near Moscow in mid-October. Clearly, Ulyukayev concluded, sanctions need to be lifted.

At that, Putin recoiled. Do you, Alexei Valentinovich, he asked, using a patronymic, know how to do that? No, Vladimir Vladimirovich, Ulyukayev was said to reply, we were hoping you did. Putin said he didn’t know either and demanded options for surviving a decade of even more onerous sanctions, leaving the group deflated, the people said.

Days later, they presented Putin with two variants. To their surprise, he chose an initiative dubbed “economic liberalization,” aimed at easing the financial burden of corruption on all enterprises in the country, the people said. It was something they had championed for several years without gaining traction.

The policy, which Putin plans to announce during his annual address to parliament next month, calls for a crackdown on inspections and other forms of bureaucratic bullying that cost businesses tens of billions of dollars a year in bribes and kickbacks, the people said. It entails an order from the president to end predatory behavior, with prosecution being the incentive for compliance, they said.

A few comments.

First, Putin’s resignation to the persistence of sanctions means that he has no intention of backing down in Ukraine or elsewhere. No surprise there.

Second, the motives behind the anti-corruption campaign are much more equivocal than the article suggests. Although the ostensible reason for it is to ease burdens on the Russian economy, there is obviously a political dimension too. Such campaigns can be a way of asserting power over the bureaucracy, maintaining political discipline, and strengthening the vertical of power. Putin is obviously paranoid about asserting control throughout Russian society, especially now, and especially in times of economic difficulty, and maintaining a tight rein on the bureaucracy can advance that objective. “Maintaining party discipline” through draconian measures has a long history in Russia and the USSR. Does the word “purge” come to mind? And Putin has a contemporary example as well: China’s Xi is using an anti-corruption campaign to achieve dominance over the Chinese political and economic elites.

Third, this will no doubt be popular, because it is directed at the kinds of corruption that plagues Russians in their everyday lives and business. This very fact could mean that Putin’s move betrays a certain uneasiness about the durability of his popularity, currently at stratospheric levels (if polls are to be believed). This is a way of shoring up his popular flank.

Fourth, these things said, the prospects for success are rather dim. Corrupt bureaucrats and police are like cockroaches. Yes, you can squash or poison quite a few, but the species will survive and even thrive. Indeed, these campaigns paradoxically create new corruption opportunities: the enforcers can extort from the targets in exchange for turning a blind eye. Thus, any initial burst of popular enthusiasm is likely to lapse into cynicism and resignation.

Fifth, even if retail corruption is targeted, I seriously doubt that wholesale corruption at the elite level will be touched, at all, except as a weapon to destroy political enemies, or those who Putin believes have ideas about grabbing for political power, or who hold assets that more favored individuals covet.

Sixth, Putin apparently rejected a “mega-projects” alternative advanced by Timchenko. This only shows that Putin is not completely delusional. For given that he realizes that as a result of sanctions and low oil prices the Russian economy is in a precarious state, he knows that mega-projects are unaffordable. As a great illustration of that, after canceling five previous auctions, today Russia tried to auction $100 million in government debt. It ended up selling $10 million.

In other Putin news, he whined about American attempts to subdue Russia. Yeah, as if Obama is obsessed with exerting American hegemony, and as if Obama gives a damn about Russia (being in this way, any was, at one with the vast majority of Americans). Putin (and Russians) are so convinced of their importance, that they imagine that others must be too. Putin also demanded that relations be based on “respect.” Mobsters and gangstas are obsessed with respect, so Putin is only acting according to type.

Lastly, Putin’s mouthpiece Peskov demanded that  Nato give Russia a “100 percent guarantee” that the organization would not admit Ukraine. Apparently Nato’s approach to the Russian border makes the poor dears “nervous,” notwithstanding that Nato’s capability to and interest in projecting force into Russia is zero. Truth be told, other than the US, Nato’s military capability is zilch: with the exception of the (shrinking) British army and parts of the French, European Nato troops couldn’t fight their way out of a “piss-soaked paper bag” (in Patton’s graphic but timeless phrase). And perhaps someone should remind Peskov and his boss that Ukrainians had shown zero interest in joining Nato until Russia invaded. Go figure.

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  1. SWP- a good title for your post would be “Gangster Austerity”

    Anti-corruption purges of the elites are nothing like “economic liberalization”. Putin is further limiting access in the economy- [following the ideas of North, Weingast and Cox], and limiting the economic order to a smaller cadre of cronies. There is less oil money to go around, and so Putin has to constrain the number of rent-seeking opportunities. It is the Krugman/Trichet debate all over againg between Timchenko’s mega-project and Trichet’s belief in austerity to force structural reforms. Putin is showing his rationality, if not his morality.

    Comment by scott — November 20, 2014 @ 5:37 am

  2. wonder how BBG could get such inner circle info ?, think its overblown. And I higly doubt that Putin would embark on such liberalization , would be very unusual

    Comment by erik — November 20, 2014 @ 7:14 am

  3. Not only is Putin strongly anti-corruption, his ministry of foreign affairs is strongly pro- international law (in their own interpretation), as far the hypothetical US supplies of lethal weapons to Ukraine go:

    Comment by Ivan — November 20, 2014 @ 7:59 am

  4. @scott. Exactly. Drawing on North, Wallis, and Weingast I have long pointed out that Putin’s Russia is a “natural state” that is all about redistributing rents among the elite, and that it is most vulnerable to collapse when the rent stream peters out. Search for “natural state” using the search bar, and you’ll see the relevant posts.

    The ProfessorComment by The Professor — November 20, 2014 @ 8:59 am

  5. @erik. Interesting question re BBG sources. But I would disagree that it’s liberalization: my point in the post is that it’s authoritarianism (the power vertical) by different means.

    The ProfessorComment by The Professor — November 20, 2014 @ 9:00 am

  6. Its not even different means, the tragic comedy of the whole thing is that Russians who were too young or too ignorant of the 70s and 80s get to relive it. First, the ‘muscular’ foreign policy of Brezhnev fueled by oil boon intertwined with increased sclerosis and corruption and then Andropov’s (much beloved by all KGBers as the ‘perfect King’) ineffectual attempts at creating ‘effective governance’ through pursuit of corruption. Xi’s purge have began in a wholly different environment — 30 years of success by the CPC in subverting Western corporate greed and Washington’s shortermism to build up a great power. Russia’s purge is going to come off as exactly what it is, a desperate battle among the elite for the last scraps. Russians might enjoy some blood sport purely out of the savage nature of their culture but it will not engender the kind of public support that Khodarkovsky’s arrest did because (a) all the really big fish, comparable to early 2000s Khodarkovsky are inside Putin’s closest circle (b) terror is an all time high among the Russians, 40% expect Stalinis purge and even a thing like a crap buckwheat harvest engendering panicked rush to the stores.

    Comment by d — November 20, 2014 @ 1:42 pm

  7. Curious how the rejection of Big Projects squares with the spending for the 2018 World Cup.

    Comment by Blackshoe — November 20, 2014 @ 2:59 pm

  8. @Blackshoe. World Cup is pretty much locked in, I’d guess, though I imagine they will cut corners given the financial constraints. Given that commitment, and the begging of Rosneft, and Russian Railways, and the banks for money, no way there’s anything left over for Timchenko’s big plans. My guess is that Timchenko was attempting to get his piece, and figured based on past performance, that Putin loves these mega-projects so he would find Timchenko’s proposal appealing. But Putin can add and subtract. The math isn’t that challenging.

    The ProfessorComment by The Professor — November 20, 2014 @ 3:37 pm

  9. couldn’t agree more. It should be noted, however, that this use of power to “fight” corruption is nothing more than the old SOVOK con.
    Rule 1, make rules some complicated that everyone must break them to live or prosper.
    Rule 2 create a nomenclatura that is especially egregious (and well rewarded).
    Rule 3. sacrifice a number of these bringing joy to the Narod
    Rule 4. the worse the situation, the harsher the “crackdown” – scare everyone into paralysis.
    Outcome: a suppliant nomenclatura, and a pacified Narod, BUT a narod that knows that there but for the love of VLAD ANYONE can go – the system is designed to force all to be crooks, then all are vulnerable.

    Comment by Sotos — November 20, 2014 @ 4:14 pm

  10. Yes, @sotos. A very familiar game. “For my friends: anything. For my enemies: the law!”

    I spit out my coffee this morning when someone tweeted in response to this post that this strategy was risky because it would undermine the loyalty of the appartchiks at the bottom of the food chain (my characterization of whose loyalty would be challenged). As if there was ever any loyalty. And as if Putin et al give a damn about loyalty. They want obedience, and will use the knout to get it, as Russian rulers have always done.

    I continue to be amazed that people take this anti-corruption kabuki as a legitimate effort to reform the Russian legal system so as to unburden the economy. When analyzing anything Putin does, one should always start from the premise that it has a purely political/power purpose, and work back from there.

    I also have to say, regretfully, that your Rule 1 is becoming increasingly relevant in the US.

    The ProfessorComment by The Professor — November 20, 2014 @ 6:16 pm

  11. So the natural state of ruSSia is soon to be “most vulnerable to collapse”,
    the 3 scenarios I see right now are,
    1 major increase in military adventures, an event that is wide open in results.
    2 economic and political collapse followed by reform
    3 economic and political collapse followed by russian civil war and nukes being “lost”.

    Any other thoughts of likely outcome on any of the 3 listed scenarios,
    Scenario 1 and 3 will affect the west considerably.

    Comment by traveler — November 20, 2014 @ 8:58 pm

  12. @ sotos

    The way I have heard it put is:

    “in Rasha, everyone is either an accomplice or a victim”

    Russia’s government has always been a government by force and intimidation, of force and intimidation, and for force and intimidation

    It all depends on finding enough thugs who are willing to kill and beat people for the sake of some stupid chief thug

    Comment by elmer — November 20, 2014 @ 9:36 pm

  13. And as if Putin et al give a damn about loyalty. They want obedience…

    This applies to many business “managers” as well: they equate the two without realising that loyalty is a two-way street. My Dad told me years ago never to show any loyalty towards a particular company, because they would get rid of me within a heartbeat if it suited them.

    Comment by Tim Newman — November 21, 2014 @ 4:49 am

  14. Tim, it did not always used to be that way.

    In relatively recent times, American corporations, going through their latest fads, hired “consultants” to “right-size” and “downsize”, etc., and people found out that loyalty was no longer a 2-way street in American corporations.

    Historically, well stalin demanded absolute loyalty and obedience – he promoted various thugs to carry out things such as the Great Terror. Then he got rid of those thugs, by executing them, and used them as convenient scapegoats.

    Hitler, of course, demanded and got personal oaths of loyalty to himself from the military and everyone else in the frenzy of the Nazi era.

    During Krushchev’s visit to the US, someone made the remark at a luncheon speech, with Krushchev present, that the sovok union was a vast corporation and a monopoly.

    PJ O’Rourke had his own take on it – “think of the sovok union as a badly run Post Office”

    The sovoks finally had to relent and let people have their own personal businesses on the side because the sovok system was not working. Everybody stole at the workplace, and recall that barter became prevalent.

    Even stalin let people keep little garden plots on the side for sustenance – after he had implemented the Artificial Famine and Genocide against Ukraine known as Holodomor.

    Those little garden plots are still extremely prevalent today in post-sovok countries – even city dwellers have little plots of land somewhere outside the city.

    Putler is shocked – shocked – that the corruption that he instituted is still prevalent.

    Comment by elmer — November 21, 2014 @ 8:56 am

  15. One minor correction to an otherwise excellent article:

    Turkey and increasingly Poland have formidable militaries. It isn’t just the US, Brits and French within NATO who do.

    Comment by AP — November 21, 2014 @ 10:08 am

  16. but is Turkey REALLY a NATO country? they haven’t shown up to the latest reunion, yet. even the arch Gulf freeriders r participating

    The language of this post seems too symmetrical to ZH’s tone. some of ur commenters make troubling comparisons between present-day Russia and Hitler’s Germany. serious people like this blogger – whose expose about ZH is one of the more interesting things I’ve read about political-economic blogs on the web – should b more fastidious

    Putin’s domestic policy is clearly frightening, but violent action by a great power to control events on its immediate perimeter is hardly abnormal – ask Cuba, Chile, Tibet, etc. A few thousand innocents seems like a bargain price for the relative peace of mind of a massive nuclear-armed state.

    Putin is popular in Russia, and oil is popular everywhere.

    Comment by Dawson — November 21, 2014 @ 9:42 pm

  17. @Dawson, it’s a few thousand if one only counts those already murdered. It’s a few million on Russian-occupied territories, and thousands more that will be murdered by Russian occupying forces there. I take it, your mother does not live in Donetsk? For the relative peace of mind of the Kremlin lunatics, the US will have to give up Alaska at the very least. But hey, your mother probably does not live in Alaska, either, so it must seem like a bargain price to you.

    Comment by Ivan — November 23, 2014 @ 2:06 am

  18. Russian is a cautionary tale about what the terminal end of 80 years of a brain deadening totalitarian socialist state looks like. The Russian best and brightest were systematically decimated over time in large numbers. The predators survived without punishment. Most of the population with no map on how to forge a civil society have been like zoo animals afraid to leave their cages on liberation. Sad.

    If lustration had been applied German style at the end of WWII with their Nazis with the Russians in the 90’s they could have started with transparency, insight and an a clean slate. David Satter’s book “It Was a Long Time Ago, and It Never Happened Anyway: Russia and the Communist Past” is a good read on this issue.

    I have zero expectations of the Russians ever leaving their miserable thugs vs brain dead sheeple condition.

    It’s why we Americans should never yield an inch to our own pre-fascist liberals. Vote them out and mock them every chance you get.

    Comment by penny — November 23, 2014 @ 11:37 am

  19. “a few million on Russian-occupied territories”

    which territories r these? under Putin, u mean, or under USSR?

    “thousands more that will be murdered by Russian occupying forces there.”

    by ‘there’, do u mean Ukraine? if so, this sad price still seems like a decent bargain from a great power war.

    if the US had to give up Alaska I am sure that it would not improve the peace of mind of the US, which is the greatest of the great powers. if the US has to kill 10s of thousands of Alaskans to retain Alaska, I will consider that a bargain price for the territorial integrity of a nuclear power.

    if u want something to happen less, u tax it.

    btw, Ivan, u’ve hurt my feelings. I don’t mind people making fun, but please reconsider accusations of gross apathy and their like. All of our targets have trollfaces, but we don’t know which r potential suicides or ISIS recruits. People with similar interests and sympathies, at least (we read the same blogs, anyway), should try to be nice to each other, I think

    Comment by Dawson — November 24, 2014 @ 3:34 pm

  20. On april 21st this year a big campaign named “Is it really Putin?” will take place in the biggest Russian cities. We don’t trust Putin anymore, because his clan got richer than the richest man in the world, but the population of the country is rapidly decreasing as like as it was while the World War

    95 per cent of industrial enterprises and banks are in foreigner’s hands. Our country is almost sold without fight. NATO has the right to be a host on our land!

    Now they want to allow landing of super heavyweight cargo airplanes from Afganistan. We are assured that it’s going to be just a logistical base, but we think it’s a lie – we are sure it’s going to be NATO base and we are not able to control what they will transport on those planes.
    Putin gave our Amur islands to China and now Chinese army in no time can trespass Russian border. Razor wire is taken away and our border guards are moved to centre of the country.

    Our raw products are being transferred abroad, the country is being pulled in World Trade Organization( WTO) which means our products will cost as much as imoprterd ones for us. We will be eating GMO products as it’s one of the WTO terms.

    We don’t trust Putin, because he won the elections by breaking the law (he made up a filter for those who wanted to take part in elections and be a president). Only for that he had to be removed from the elections

    We don’t trust Putin because we are not even sure that the person who has been on TV, has taken all decisions, has appeared at conferences for the last 12 years is real Putin. His appearance differs from one he had years ago. It makes us think they fob us off Putin doubles. It means our country is ruled by strangers.

    Comment by Wandal — December 19, 2014 @ 6:20 am

  21. Maybe, out of desperation, the Kremlin had to do something drastic before Nemtsov and other opposition parties would expose and embarrass Putin on Sunday.

    Comment by Mia — March 28, 2015 @ 6:26 am

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