Streetwise Professor

October 20, 2008

The Natural State Under Strain

Filed under: Economics,Energy,Politics,Russia — The Professor @ 4:54 pm

Two articles suggest that the Putinist “natural state” cartel is under strain, and that the informal agreement among competing interests among the elite held together by the glue of rents is fraying. First, Pavel Baev from Eurasia Daily Monitor:

Putin’s major political achievement was securing firm support from many different groups of the elite: from successful entrepreneurs to empowered bureaucrats, from pompous top brass to ambitious artists. This elite consensus was sustained through the uncertain period of power transfer and the establishment of the Putin-Medvedev duumvirate, but now it is being tested by the crisis, which for the most part was completely unexpected. The abrupt end of a petro-prosperity that had been taken for granted has revealed and exacerbated divergences and clashes of interests among various groups of loyalists, who suspect that their “social contracts” have been revised without their consent.

Baev also notes the opacity of the process for doling out money and support. Basic cartel theory (which is applicable in this context, because the model I have in mind for the Russian state is a repeated prisoner’s dilemma) states that lack of information about defections from agreements can induce a breakdown of tacit cooperation. The lack of transparency that characterizes the bailout process is conducive to suspicions of double dealing and violations of previous understandings; these mere suspicions can produce conflict, and an unraveling of the cooperative structure.

Paul Goble reports on an article by the Indem Foundation’s Gyorgy Saratov that argues that the popular quiescence with the government is also not assured. Saratov argues, as I did in a previous post, that the high expectations that Putin has inculcated in the populace is a double edged sword. The population will remain loyal and supportive (or apathetic, which is just fine with the government) as long as those expectations are met. Disappointment of these expectations, however, could engender a backlash.

The prospect of a merging of elite and popular discontent is a nightmare to Putin et al. It is now only a possibility, and Saratov’s argument seems a little hyperbolic and premature. But these articles make it clear that it is becoming more widely recognized that the stability of the Putinist system is vulnerable to an economic slowdown. Given that Russia’s economic prospects and the flow of rents that glues the system together are highly dependent on the price of oil and the support of external capital flows, this stability is largely out of control of the government, as the course of the world financial crisis, and its consequent effects on the demand for energy and the availability of capital, are clearly well beyond its control.

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1 Comment »

  1. Paul has a very interesting piece. However, it sounds very familiar if I say so myself. Paul writes citing Gyorgy Satarov: “Then people felt that things were going from bad to worse, but for the last few years, Russians have been encouraged to have ‘positive expectations’ about the future. … Satarov continues, ‘people revolt not when things are bad but when the gap between their expectations and the reality they experience grows,'” I believe I wrote more or less the same thing here last week LOL.

    You see the signs already. The lay-offs have begun, yet the Russian government refuses to even admit there is a crisis in Russia. has an article that appeared today that examines the case of one pulp and paper mill in the Russian Far East. They write:

    “Ð’ понедельник в городе Байкальске Иркутской области митинговали сотрудники Байкальского целлюлозно-бумажного комбината (БЦБК). ‘Около тысячи человек собрались на площади рядом с проходной комбината, – рассказал ‘Газете.Ru’ заместитель председателя Иркутского областного объединения организаций профсоюзов Валерий Лукин, участвовавший в митинге. – Выступали рабочие, представители профсоюза, депутаты. Митинг состоялся, несмотря на плотный мокрый снег’.

    Люди протестовали против массовых увольнений, о которых было объявлено на прошлой неделе. ‘Мы требуем отмены приказа по сокращению персонала, выплаты заработной платы за сентябрь и решения других вопросов’, – рассказал ‘Газете.Ru’ работник комбината Николай Иванов. Еще 6 октября около 2 тыс. работников были отправлены в вынужденный отпуск, а комбинат был остановлен на месяц. Сейчас руководство БЦБК сократило 215 рабочих мест, уволив более 150 человек. Рабочие опасаются, что комбинат больше не откроется никогда,”

    So far, then, 150 lay-offs with the possibility of thousands losing their jobs. One thousand people gathering for a demonstration and the crisis has only begun. The question is what will the workers and their families do if they mill closes down and lays off all its employees. There are simply not enough jobs to go around:

    “Дело в том, что люди просто не смогут найти работу в городе, если их уволят. ‘БЦБК – градообразующее предприятие Байкальска, – рассказала ‘Газете.Ru’ местная жительница Виктория Михайлова. – У нас каждая семья так или иначе связана с комбинатом. Как теперь будет жить город?’ Работы в Байкальске практически нет. ‘Сейчас в городе есть всего 17 вакансий, а на бирже труда уже состоят 136 человек’, – отметил Валерий Лукин.”

    The article then reviews other layoffs. In Kaliningrad, half of the dock workers have been laid off: because of the decreased volume in imports and exports there simply is not enough work.

    Workers and their unions are up in arms. People are losing jobs, to a crisis that the government won’t acknowledge. Also, unlike 1998, the cost of living has gone up considerably. You need a lot more money to survive in Russia now. I expect that it will be a long and difficult winter for the Russian people and its government.


    Comment by Michel — October 20, 2008 @ 5:31 pm

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