Vladimir Putin swept to power on 7 May 2000, promising a new regime defined by modernisation and economic reform. He also promised to implement anti-corruption measures that would curtail the systemic problems that plagued Boris Yeltsin’s tenure as President. As well as a return to order and stability, Putin’s first two terms as President saw Russia’s nominal GDP double, climbing from 22nd to 11th largest in the world. Real incomes more than doubled and Russia’s middle class exploded from 8 million to 55 million people. This made him a very popular man.
Fast forward to 2013 and the future of the Russian economy is uncertain. Russia recovered well from its Great Recession of 2008-2009 and the Russian economy has continued to grow. The Kremlin however, gripped by economic complacency, has made no effort to diversify out of its commodities-based economy. Russian economic growth has seen oil and gas exports rise from less than 50% of exports in the mid-1990’s to close to 70% in 2012. Such overreliance on the energy sector could have consequences for the Russian economy in an unfavourable market.
The changing fortunes of Gazprom, the ailing state-owned energy behemoth, serves as a good example of how such problems may arise. In June 2010, Gazprom CEO Alexey Miller dismissed speculation of a shale-gas boom as a “myth”. Myth it was not and America’s fracking endeavours have seen a huge surge in the liquefied natural gas (LNG) market. Although Gazprom pumps 16.7% of the world’s gas, its market share of the LNG trade is a meagre 5%. Gazprom’s state-granted monopoly over Russian gas exports means it supplies 25% of Western Europe’s gas, contributing 40% of the company’s revenues. However customers are returning to the global energy market, now a relative cornucopia thanks to significant increases in America’s domestic gas production. America’s demand for imported gas has fallen and it has flooded the global market with its unwanted coal. A fall in prices, an increase in coal power, and the availability of pipeline-free gas have all relaxed Gazprom’s stranglehold over the European energy market. The result has been Russia’s limited ability to wield political influence in the region. An example of this was seen during the Cypriot banking crisis of 2012-2013, in which Russian investors lost out heavily in bailout deals negotiated between Cyprus and the IMF-EU.
Putin has not been forgiving of Russia’s arch-nemeses America and “the West”; 2013 has been marked by a return to anti-Western rhetoric and Russian isolationism. Alexei Pushkov, chairman of the Russian parliament’s foreign relations committee, has been particularly vocal in this regard. On the 70th anniversary of the victory at Stalingrad, he tweeted “Stalingrad was not only a breaking point in the war, but also in the centuries-long battle between the West and Russia. Hitler was the last conqueror who came from the West”. Such views being expressed in the mainstream, only four years after the supposed “reset” of Russian-American relations, has not gone unnoticed by Russia’s ever-growing middle class. This is a group for whom the rapid rise in living standards and appreciation of a globalised economy means that the West is no longer seen as an enemy. As a result, capital flight from Russia has Putin deeply concerned. In 2001 the UK Census recorded 15,160 Russian born residents in the UK. In 2009 the figure had doubled to around 32,000 (according to figures published by the Office of National Statistics). The subsequent passage of time has only seen this number increase. London in particular has benefitted greatly from a large and affluent influx of Russian nationals; perhaps unsurprisingly given the pains the UK government has gone to in recent years to cultivate a welcoming environment for foreign investors.
The introduction of state capitalism has increased the overall standard of living for Russians, making some very wealthy indeed. Russia’s educated and affluent classes know that Western economic principles, at least in part, are to thank for this post-Soviet era transformation. Putin must soon realise that his lazy politics of nationalism and anti-Westernism is unlikely to have the desired effect on those groups in Russian society who feel a far closer affinity to the West than previous generations and who now have the financial means to resettle there.
Contributed by James Jalili