Despite economic woes, propaganda and patriotism have protected Russia's President—so farby / November 13, 2014 / Leave a comment
Published in December 2014 issue of Prospect Magazine
The Russian economy has been in a downward spiral for several months, with inflation now at 8.3 per cent, food products disappearing from shop shelves, capital flight from the country accelerating, its Gross Domestic Product declining and the value of the rouble at a four-year low. Yet Russians, for the moment at least, are more satisfied with their President than ever before. Putin’s approval ratings are over 80 per cent and surveys conducted by the independent Levada Centre over the past two months show that more than 60 per cent of Russians are content with the direction in which the country is going.
In the past, oil revenues have bolstered public support for Putin; during the 2008 financial crisis when the oil price declined, soaring prices, wage cuts and job losses led to public discontent. But the government weathered the storm by spending $200bn of its reserves, and oil prices bounced back, providing the Putin regime with a steady stream of capital to support state-funded welfare programmes, pensions and subsidies to unprofitable sectors of the economy.
Now the Kremlin is confronted with another drop in the price of oil, to around $83 a barrel. Since oil revenues account for more than 50 per cent of Russia’s federal budget, the government will again have to rely on its reserve fund to maintain a balanced budget. The consequent decline in the rouble’s value has forced the central bank to raise interest rates to counter the impact. Western sanctions against Russia because of its involvement in the Ukraine crisis have accelerated economic difficulties, especially because the sanctions have limited access of Russian banks and companies to financing abroad.
With the Russian economy foundering, how do we account for Putin’s continued popularity? As pollster Lev Gudov explained, Russians are experiencing “negative mobilisation,” attributable to the state’s massive propaganda effort via television, which is the public’s principal source of information and is tightly controlled by the Kremlin. With the crisis in Ukraine as its rallying cry, the Kremlin has appealed to the viewers’ deep-seeded patriotism and nostalgia for the Soviet empire by dishing out its own narrative of the conflict. In this narrative, the west, particularly the United States, has for years been fomenting revolution in Ukraine, whereas Russia is merely protecting the rights of Ukraine’s Russian-speaking population. Potential popular discontent with Putin has for the time being been transformed into hostility toward the west. Russians eagerly lap up the most outlandish theories, including that the rise in oil prices is the result of a conspiracy, agreed on between the US and Saudi Arabia, to maintain high oil production in order to undermine Russia’s economy.
Even if the Kremlin maintains its social welfare commitments and subsidies to regional governments, a continuation of low oil prices could erode support for Putin, despite the patriotic fervour that has infected the people. If their pockets are hit hard enough, Russians will tire of the constant barrage of state-inspired propaganda.
The Kremlin’s failure to initiate structural reforms that would lead to a diversification of the economy and make it more competitive is another part of the problem. The state’s continued reliance on oil and gas exports has long stifled technological innovation and efficiency in all areas of industry, including petroleum, where production costs are rising.
When asked recently about the slump in oil prices, Putin made light of the problem, responding that the decline was “no tragedy” for Russia and would have little impact on government finances. He insisted that Russia has plenty of funds in reserve to offset any deficits in the budget caused by lower oil revenues.
But Putin’s optimism about the economy is not shared by others. Speaking in London in October, former Finance Minister Aleksei Kudrin predicted that oil prices would stay low—at $80-85 a barrel—for the next five years, mainly because of the rising production of oil shale. He also said Russia’s GDP would hover around 1 per cent for the next three years, and he stressed that the sanctions introduced by the west, which are unlikely to be lifted any time soon, would cost Russia $200bn over the next three years.
Although the slump in oil prices does not pose an immediate threat to Russia’s political stability, there is danger in the longer term, as Russians experience a decline in purchasing power because of the weak rouble and a decline in real incomes. A Levada survey conducted in August revealed that Russians’ top concern at the moment is price rises. Putin and his strategists would do well to take heed of this, and to remember that economic stagnation was a key factor in the collapse of the Soviet Union.