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STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY PARADIGM IN PUTIN'S RUSSIA

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This article traces the evolution of the neoliberal policy paradigm in Putin's Russia. It deals with an apparent paradox: while Putin's rule has always been based on a sharp rhetorical break with the disastrous first decade of Russia's post-Soviet history, he nevertheless continued many of the neoliberal policies of his predecessor, in some areas carrying them out far more consistently than Yeltsin ever could. Despite his crticism of the oligarchs, Putin allowed them to expand their wealth on an unprecedented scale. Since the mid-2000s, the government has increasingly experimented with dirigiste policies, yet this divergence from neoliberalism did not fundamentally threaten the position of the oligarchs. Eventually, the government settled on a combination of neoliberalism and dirigisme that enhances the political stability of the regime at the expense of economic growth. However, lack of growth itself undermines stability, as the unpopular reforms, such as the increase of the retirement age, erode the regime's legitimacy. At the same time, Kremlin's standoff with the West since 2014 puts a serious strain on its relationship with big capital, which is highly integrated into the global economy. These multiple tensions make the future of Russian politics highly uncertain.
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STATE, CAPITAL, AND THE
TRANSFORMATION OF THE NEOLIBERAL
POLICY PARADIGM IN PUTIN’S RUSSIA
Ilya Matveev
NORTH-WEST INSTITUTE OF MANAGEMENT, RUSSIAN PRESIDENTIAL ACADEMY OF NATIONAL
ECONOMY AND PUBLIC ADMINISTRATION, ST. PETERSBURG
This article traces the evolution of the neoliberal policy paradigm in Putin’s
Russia. It deals with an apparent paradox: while Putin’s rule has always been
based on a sharp rhetorical break with the disastrous first decade of Russia’s post-
Soviet history, he nevertheless continued many of the neoliberal policies of his
predecessor, in some areas carrying them out far more consistently than Yeltsin
ever could. Despite his crticism of the oligarchs, Putin allowed them to expand
their wealth on an unprecedented scale. Since the mid-2000s, the government
has increasingly experimented with dirigiste policies, yet this divergence from
neoliberalism did not fundamentally threaten the position of the oligarchs.
Eventually, the government settled on a combination of neoliberalism and dirigisme
that enhances the political stability of the regime at the expense of economic
growth. However, lack of growth itself undermines stability, as the unpopular
reforms, such as the increase of the retirement age, erode the regime’s legitimacy.
At the same time, Kremlin’s standoff with the West since 2014 puts a serious
strain on its relationship with big capital, which is highly integrated into the
global economy. These multiple tensions make the future of Russian politics
highly uncertain.
Introduction
Though Russia is well-known to have served as a testing ground
for the neoliberal ‘shock therapy’ reforms in the early 1990s, by
2018, when Vladimir Putin’s continuous reign neared its 20-year
mark, Russia’s policy regime appears to be a far cry from the
neoliberal orthodoxy. The state is the dominant, though not the
sole, actor in the oil and gas sector, which is at the heart of the
Russian economy. Whole industries, such as mechanica l
en g ineering, nuclear energy, shipbuilding and aerospace
production, are managed by state-owned monopolies. Finance is
28 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
dominated by public banks. State companies aggressively expand
into new sectors, such as the pharmaceutical industry and even
consumer retail, with the publicly owned VTB bank acquiring a
30 per cent stake in Magnit, the second-largest network of retail
stores, in 2017. Furthermore, social policy is also a field of neo-
statist experimentation. Th e maternity capital, a new,
universalistic social benefit, was introduced in 2007, ostensibly to
improve the demographic situation. Paid to mothers of the second,
third, and subsequent children, the benefit amounted to a substantial
sum of 453,000 rubles (USD 7,200) in 2018 and could be spent on
housing or children’s education. Crucially, there is no means test –
the benefit is paid to mothers regardless of their income, defying
the core principles of the neoliberal welfare regime. Finally, the
standoff with the West that begun in 2014 led to the increasing
securitization of the Russian economy with a new emphasis being
placed on import-substitution policies– a clear departure from the
neoliberal paradigm. As early as 2010, Philip Cerny identified Putin–
along with Hugo Chavez, Kim Jong-Il and Mahmoud Ahmedinejad–
as one of the few non-neoliberal world leaders (Cerny 2010: 152).
A closer look at the Russian case, however, reveals a more
complicated picture. Russia has, in fact, maintained a set of core
neoliberal institutions and policies, such as the independent central
bank focused on inflation-targeting, financial openness, and
conservative fiscal policy. The latest IMF report blames the ‘large
footprint of the state’ for poor growth prospects, yet congratulates
the authorities with putting in place a ‘strong macroeconomic policy
framework’ based on inflation-targeting and ‘ambitious’ fiscal
consolidation (International Monetary Fund 2018). Characteristically,
the report also commends the government’s recent decision to raise
the retirement age from 60 to 65 years for men and from 55 to 60
years for women, a measure that was met with near-universal
disapproval in Russian society. Furthermore, the authorities
systematically refuse to reconsider certain ‘avant-garde’ neoliberal
policies introduced earlier, such as the flat income tax (adopted in
2001). In the welfare sph ere, statist initiatives coexist with
continuing marketization and New Public Management-inspired
reforms of the social services. Consequently, ‘While becoming more
interventionist in certain fields, the Russian state still attempts to
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 29
withdraw from many of its previous social obligations’ (Kulmala
et al. 2014: 540).
In effect, far from manifesting a clear break with neoliberalism,
the current policy regime in Russia represents a mix of different
paradigms. There is a ce rtain t ension, but also a certain
complementarity between them in producing a distinct mode of
political-economic governance. The purpose of this article is to trace
the historically contingent evolution of this policy mix, exploring
the interplay of ideas, interests and institutions (Blyth 2009). The
article is organized chronologically, interrogating the causes and
consequences of the ‘shock therapy’ in the 1990s, the new round of
neoliberal reforms in 2000-2003, the turn to dirigiste1policies in 2003-
2008, the failure of the neoliberal resurgence in 2008-2012 and the
nationalist turn of 2012-2018. I argue that the neoliberal and the
dirigiste elements of the Russian policy regime in its current form
contribute to political stability, but not to economic growth. Yet poor
growth prospects themselves undermine stability, making the
political effects of the various parts of the policy mix more
unpredictable and uncertain.
‘Shock Therapy’: Path-dependent or Path-shaping?
The literature on ‘shock therapy’ in Russia is voluminous,2 yet much
of this literature falls into one of two extremes: either that ‘shock
therapy’ was the decisive (path-shaping) event in Russia’s post-
Soviet history or that it did not play a significant independent role,
as it was constrained by the previous events of the late 1980s and
early 1990s in a path-dependent manner.
Peter Reddaway and Dmitri Glinski’s book The Tragedy of Russia’s
Reforms: Market Bolshevism Against Democracy is an example of the
former position. According to Reddaway and Glinski, the Russian
elite used the ideology of ‘market Bolshevism’ to ‘remold society in
its own image’, a process akin to the Bolshevik revolution or even
the Chinese cultural revolution (Reddaway and Glinski 2001: 632).
The top-down imposition of the neoliberal ideology appears to be
the key variable in their analysis.
Later contributions, however, pushed against this
interpretation. For example, Venelin Ganev claimed that the
underlying logic of postcommunist transformation was not that of
the imposition of the neoliberal ideology, but rather that of elite
30 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
predation in the conditions of the collapse of the Communist state
structures (Ganev2005). In the similar manner, Allen Lynch argued
that the debates on neoliberalism in Russia are beside the point, as
the choices of the Russian government were highly constrained
and Russia’s post-Soviet path of development was in any case
largely shaped by late-Soviet patter ns of institutio nal
decomposition and resource reallocation’ (Lynch 2005: 93-94). For
Kathryn Stoner-Weiss,
To indict only the small clique of Russian ‘reformers’ surrounding Boris Yeltsin,
who were in office for only a year or so, as well as international financial
institutions for what ails Russia is really to overlook the genesis of Russia’s
state-building and later state-capacity troubles (Stoner-Weiss2006:23).
Indeed, historical evidence supports Stoner-Weiss’s claim that
the Russian state’s weakness did not begin with the neoliberal ‘shock
therapy’ of the early 1990s. Gorbachev’s reforms and the political
struggles of Perestroika led to the disintegration of the Soviet state
structures. Economic reforms such as the 1987 Law on the State
Enterprise and the 1988 Law on Cooperatives allowed state managers
to ‘remobilize many assets of state enterprises into organizational
units less clearly owned by state ministries’ (Solnick 1996: 223). In
the process, newly created structures ‘collaborated with state
bureaucrats eager to privatize the functions of the ministries
themselves’ (Solnick 1996: 223), shaping the pattern of what came to
be known as ‘spontaneous privatization’. At the same time, Yeltsin’s
claim for Russia’s independence from the Soviet Union led to the
similar claims by Russian provincial leaders, entrenching their
political and economic power in the conditions of the rapid
disintegration of the Soviet party and state hierarchies.
This was the terrain that the post-Soviet reformers inherited.
According to many scholarly accounts, the structural constraints
essentially shaped the process of market reforms in the early 1990s
(Lynch 2005; McFaul 1995; Stoner-Weiss 2006). Coincidentally, this
was also the post hoc explanation given by the reformers themselves.
For example, Anatoly Chubais, key member of the reform team, went
as far as saying that mass privatization’s chief result was ‘to get
away from the main danger of those years – spontaneous
privatization – without bloodshed’ (Chubais 1999: 34). For Chubais,
achieving this result justified the concessions to the ‘Red Directors’
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 31
and other changes to the original plan.3
However, a closer look at Chubais’s arguments reveals a different
line of thought. Launching mass privatization clearly was not just a
matter of necessity for him it was also a matter of belief. ‘We
understood perfectly,’ he wrote, that
…in the current political and economic situation the state would be a bad
owner. Investment, technical progress, rapid reorganization of production
following consumer demand would all be beyond its powers. Only the private
interest can begin to tackle these long-standing problems. However, in order
for such private interest to appear, we needed privatization (Chubais1999:27).
In his contribution to Chubais’s volume on privatization, Maxim
Boyko, another key participant in the events, argued that ‘the world
experience has shown the ineffectiveness of state ownership in the
absolute majority of industries, and yet many countries have reached
this conclusion only recently – in the 1980s’ (Boycko 1999: 63). He
proudly announced that ‘our program envisioned privatization that
was ba sed on a bro ad list of industries from the st art.
Telecommunications, energy, air transportation would all have been
privatized, albeit on special terms a result that many European
countries still could not achieve’ (Boycko 1999: 63).
The arguments of Chubais and Boycko indicate that the course
of action chosen by the reformers was defined by a set of ideas about
the state, private property and the market – ideas known as
neoliberalism – not just by necessity. Emphasis on the extensive and
rapid privatization was a deliberate choice. Bernard Black et al. (2000)
insist that other choices were available. They claim that the political
energy that went into mass privatization could instead be devoted
to ‘prosecuting raw theft and developing the enforcement institutions
needed to attack spontaneous privatization less crude than simply
walking off with the assets’ (Black et al. 2000: 1778-79). According to
Black et al., a combination of institution-building and gradual,
controlled privatization was politically as well as organizationally
feasible and could indeed produce better results. Michael McFaul
similarly argued that Russia’s emergent political economy was the
product not just of the previous developments, but also of the
reformers’ ideas:
The state’s failure to create [market-supporting] institutions has in part been
the consequence of its neoliberal philosophy. Because of their militant belief
in the power of the invisible hand, Gaidar’s team did not envision a role for
32 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
the state in creating market-supporting institutions. Rather, these institutions
were to form spontaneously. In Russia, however, this ideological perspective
proved to be fundamentally flawed (McFaul 1995: 236).
Two conclusions stem from this discussion. The first is that,
contrary to their later pronouncements, the neoliberal reformers were
guided by a very specific set of ideas about the state and the market,
not just by the necessities of the moment. The second is that the
‘opportunity costs’ of neoliberalism were very high (and indeed
underestimated by many scholars): a different set of ideas and
policies could produce vastly different results. The reforms of the
early 1990s were to a large extent constrained by the previous
developments, but they did have a lasting, path-shaping impact.
In the second half of the 1990s the reforms stalled. On the one
hand, dismayed with the results of ‘shock therapy’, Russian citizens
elected a parliament in 1995 dominated by the Communist Party
that was able to block many neoliberal proposals, particularly in the
area of social policy, during the next four years. On the other hand,
the ‘oligarchs’, the emergent business elite, preferred to establish
individual ties with state officials instead of lobbying collectively
for all-encompassing reforms. This changed in the new political cycle
that began in 2000.
2000-2004: The New Class Settlement
Putins first term in office (2000-2004) saw some thing of a
breakthrough in neoliberal restructuring, comparable only to the
initial period of ‘shock therapy’ in 1992-1993. The ‘Gref Program’,
na m ed after Germ a n Gref, Putins minister for economic
development, envisioned broad reforms in taxation, social assistance,
housing, education, healthcare, pensions and labor relations. While
the Gaidar reforms corresponded to the ‘roll-back’ phase of
neoliberalism (Peck2010:22), that is, the hasty retreat of the state
from many of its previous areas of operation, the Gref reforms
amounted to a ‘roll-out’ phase: new, market-based institutions were
created in the spheres where they had previously been lacking, such
as pension and public welfare systems.
Two factors enabled the new wave of reforms. First, the 1999
parliament was much more manageable for the Kremlin after the
successful performance of the new pro-executive party Unity, which
benefited from Putin’s rising popularity (Cook 2013). Second, the
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 33
business elite became a powerful lobbying force for the neoliberal
restructuring as part of the new settlement between the oligarchs
and the state.
In its narrow form, this new settlement consisted in Putin’s rather
straightforward proposal to the oligarchs: the business elite could
maintain and expand its wealth if it stayed out of politics (Tompson
2004). However, in its broader form it also included the reforms that
benefited big business as a whole. Egor Gaidar, who by the early
2000s reinvented himself as a key figure in the parliamentary party
Union of Right Forces, admitted that ‘one of the reasons for the fact
that the liberal reforms are now going so well is that this course
corresponds to the interests of big capital’ (Gaidar 2001). Specifically,
both corporate and personal taxes were capped as a result of the tax
reform; Russia became the first large country in the world to
introduce flat income tax (Appel, Orenstein 2013). The new Labor
Code increased the ‘flexibility’ of the labor market, making it easier
to dismiss workers and allowing broad use of temporary contracts.
The pension reform introduced compulsory savings accounts
managed by non-state pension funds, a measure strongly supported
by the Russian Union of Industrialists and Entrepreneurs (RUIE).
The new Land Code created new oportunities for big agricultural
companies (Visser et al. 2012). In effect, ‘[B]usiness and financial
interests that had earlier been oriented either toward getting
subsidies from the state or toward escaping taxation now became
integrated into a pro-market coalition that cooperated with the
executive to influence policy outcomes’ (Cook 2013: 158).
Organized labor was much weaker than organized business: the
Federation of Independent Trade Unions of Russia (Federatsiya
nezavisimykh profsoyuzov Rossii, FNPR) that united Soviet-era unions
lacked strong connection to its membership, while the independent
unions, created after 1991, were too small to successfully resist
neoliberal restructuring. The strongest opposition mounted by both
the FNPR and the independent unions was to the new Labor Code.
However, the government was able to split their alliance by granting
an important concession to the FNPR at the expense of the
independent unions: a 50 per cent membership requirement was
introduced for collective bargaining. At the plants where the FNPR
unions ‘inherited’ their local organizations from the Soviet period,
they automatically became eligible for collective bargaining. Yet the
34 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
independent unions had to earn membership from scratch, and
the requirement was highly detrimental to them. The new Labor
Code also made it extremely difficult to organize a lawful strike,
and strikes were the weapon used more often by the independent
unions than the FNPR. Consequently, the labor reform solidified
the FNPR’s position as an organization close to the Kremlin and
hampered the development of independent unions. The
parliamentary conflict surrounding the adoption of the new Labor
Code also pushed the Kremlin to merge Unity with its former rival,
Fatherland-All Russia party, and thus create the United Russia, a
‘party of power’ which became the backbone of the emergent
authoritarian regime (Grigoriev, Dekalchuk 2017). Thus the
connection between neoliberalism and authoritarian tendencies
characterized not just the period of ‘shock therapy’, but the period
of Putin’s early reforms as well.
Importantly, the reform course in 2000-2003 reflected not only
the business interests, but also the global hegemony of the neoliberal
policy paradigm. John Williamson et al. point out that the
government chose the World Bank-supported semi-privatized
pension model over other proposals because of the desire to gain
international legitimacy and to bolster Russia’s image as ‘a nation
amenable to foreign investment and an active participant in world
trade’ (Williamson et al. 2006: 169). In this sense, the neoliberal course
of Putin’s first term dovetailed with his accommodative policies
towards the West in this period.
2004-2008: The Turn to Dirigisme3
Several events marked a watershed in government policies during
Putin’s second term in office (2004-2008). The attack on Yukos, the
largest private oil company, in 2003 set the stage for the expansion
of state ownership in the economy. Mass protests against the welfare
benefits reform in the winter of 2004-2005 demonstrated the limits
of neoliberal welfare restructuring (Cook 2013: 182). And Russia’s
opposition to the war in Iraq started a period of much less
accommodative policies towards the West, with certain implications
for domestic reforms.
The dirigiste turn primarily expressed itself in industrial policy.
The state consolidated its role in the resource sector, in particular
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 35
by making state-owned Rosneft the largest oil company in Russia
and expanding its role in the natural gas producer Gazprom. It
also created ‘state corporations’ for defense and high-tech sectors,
such as nanotechnologies and the nuclear industry. Aerospace and
ship-building assets were consolidated in the newly-created state
companies as well. The state’s share in the oil sector rose from 19
percent in 2004 to 40 per cent in 2008, while its share in the market
capitalization of the stock market rose from 24 per cent to 40 per
cent in the same period (Hanson2009; Sprenger 2010).
Many scholars see the expansion of state ownership during
Putin’s second term essentially as redistribution of lucrative assets
to regime loyalists, particularly with a background in the security
services (Remington 2008; Hanson 2007; Davisha 2014). However,
the evidence does not fully support this ‘kleptocratic’ thesis. For
example, in her statistical study of the re-nationalizations in 2004-
2008, Lucy Chernkykh (2011) did not find any evidence that the state
systematically targeted best performing companies or companies in
the most profitable industries. Instead, the state seemed to target
companies in the sectors that were legally defined as ‘strategic’,
leading Chernykh to conclude that the government attempted ‘to
‘correct’ spontaneous privatization mistakes in strategically sensitive
sectors’ (Chernykh 2011: 1250). Similarly, based on the detailed case
studies, Andrew Yorke found that at least some re-nationalizations
in the gas and nuclear industry were motivated by genuine
developmental concerns, not by rent-seeking (Yorke 2014).
In effect, the new dirigiste strategy could not be reduced to the
logic of patronage and corruption. Nevertheless, it never took the
programmatic form comparable to the neoliberal ‘Gref’s plan’. The
authorities were reluctant to recognize the shift in government policy:
on multiple occasions Putin denied that Russia was building ‘state
capitalism’ and promised that the newly-created state companies
would eventually be privatized. Rhetorically at least, neoliberalism
was still dominant.
Lack of programmatic cohesion of the dirigiste policies translated
into poor institutional design: sprawling goals, absence of clear focus,
problems of coordination between different government agencies
and state companies (Yorke 2014). Furthermore, even though rent-
seeking probably was not the driving force behind most of the new
36 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
measures, it certainly appeared to be their by-product. The same
policies that were supposed to increase the efficiency of state
corporations by granting them freedom of action (i.e. formal
protection from many forms of government oversight) resulted in
burgeoning cronyism and corruption in the state-owned sector of
the economy.
Furthermore, while the industrial policy took increasingly
dirigiste turn, the macroeconomic policy remained neoliberal.
According to Anders Åslund, ‘Since 2004, Russia’s economic policy
has been characterized by an intricate dualism between
microeconomic and macroeconomic policies’ (Åslund 2013: 375). In
2006, the government lifted all the remaining restrictions on
international capital mobility. High oil prices allowed the authorities
to repay public debt and run steady budget surpluses. Furthermore,
oil profits above a certain level were ‘sterilized’ in a Stabilization
Fund with an explicit purpose of decreasing inflation – a policy based
on monetarist economic reasoning.
Social policy during Putin’s second term represented a mix of
neoliberal and statist initiatives. In 2004, the government announced
a plan to replace the vast system of in-kind benefits, inherited from
the Soviet Union and expanded during the 1990s, with direct cash
payments. The authorities perceived this as a necessary first step in
the process of moving from the universalistic Soviet-era benefits to
the targeted (means-tested) benefits characteristic of the neoliberal
welfare regime. Importantly, the reform ‘was passed in a period of
fiscal surpluses, driven not by austerity but by the desire or perceived
need to rationalize welfare. An underlying element of liberal
fundamentalism informed the project’ (Cook 2013: 181).
The initiative was met with massive, mostly spontaneous
protests, particularly involving pensioners. In response, the
government increased the size of cash payments, introduced many
exceptions and in some cases allowed the recipients to choose
between money and in-kind benefits. Nevertheless, Putin’s approval
rating slided downward, making the authorities weary of such large-
scale welfare upheavals in the future. Later during Putin’s second
term, the government experimented with statist, expansionist
welfare measures. Priority National Projects in education and
healthcare, launched in 2006, involved significant additional
spending on schools and hospitals. Furthermore, the government
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 37
adopted a host of new measures in order to improve the
demographic situation. They included the Maternity Capital,
increased spending on birth centers and antenatal clinics as well
as extended maternity leave. However, neoliberal restructuring
continued alongside various statist initiatives, if only on a reduced
scale. For example, in 2008 the government introduced the
mechanism of incentive pay in the public welfare sector, increasing
the precarity of public employees such as teachers and doctors
and their dependence on the administration.
Overall, the turn to dir igis me and the divergence from
neoliberalism in 2004-2008 did not threaten the settlement achieved
between the state and the business elite in previous years. In the
context of high oil prices and easy availability of credit on the global
financial markets, the number of Russian billionaires increased
dramatically, from zero in 2000 to 87 in 2008, rivaled only by the
United States and China (Treisman 2016). The case of Mikhail
Khodorkovsky, the owner of Yukos, proved to be an exception. Other
oligarchs who, unlike Khodorkovsky, observed the rules set by Putin
in the early 2000s and made handsome gains from the expansion of
the state sector. For example, Roman Abramovich sold the oil
company Sibneft to Gazprom for 13 billion dollars in 2005, even
though he bought the very same company from the state for a mere
100 million dollars during the notorious ‘loans-for-shares’ auctions
in 1995.
2008-2012: Medvedev’s Interregnum and the Failed Neoliberal
Resurgence
The new political cycle (2008-2012) was defined by two events: the
election of Dmitry Medvedev as president and the economic crisis
of 2008-2009. Putin, who was constitutionally barred from serving
the third consecutive term, chose Medvedev, one of his long-standing
associates, to assume his place, while he himself became prime
minister. Many observers doubted that Medvedev’s presidency
could be more than a façade, yet others claimed that the changes
were more substantial. For example, Gleb Pavlovsky, a long-time
Kremlin insider, pointed out that Medvedev’s election did lead to
the emergence of two separate administrative teams that were
engaged in a careful balancing act. As a result, according to
Pavlovsky, ‘All the [Putin-Medvedev] tandem’s efforts went into
38 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
ensuring its own stability’ (Kolesnikov 2011). The informal
‘tandemocracy’ had major implications for the policy process.
The global crisis hit Russia harder than other countries: GDP
declined by 8 per cent in 2009, compared to 4 per cent on average in
OECD countries. Russia’s performance during the crisis was the
worst among the G20 nations. Medvedev framed the crisis as an
opportunity for substantial changes in Russia’s economic model. In
his programmatic article Go Russia!’ he called for wide-ranging
economic and even political ‘modernization’ of the country
(Medvedev 2009). His program had a distinct neoliberal dimension.
However, the realities of ‘tandemocracy’ and the existing patterns
of elite influence mostly thwarted its realization.
A key element of Medvedev’s project was the wide-ranging
privatization effort that went contrary to the dirigiste turn of 2004-
2008. In 2009 deputy prime minister Igor Shuvalov spoke of the need
for the new ‘structural privatization’. In November 2010 the
government approved a privatization plan for 2011-2013 with the
predicted revenue of USD 30 billion, comparable in scale only to the
‘loans-for-shares’ auctions of the 1990s. Yet in the summer of 2011
Medvedev requested to expand the plan even further. At the peak
of the government’s ambitions, Shuvalov suggested that the state
could sell its full stake in Rosneft as well as Zarubezhneft, an oil
company operating outside Russia. As a result, Gazprom Neft
(formerly Abramovich’s Sibneft) would be the only state oil company
left. The expanded plan, adopted in June 2012, included the full
privatization of Rosneft, RusHydro, Rosselkhozbank, Zarubezhneft
and several other companies (Radygin and Entov 2013).
However, the real pace of privatization in no way matched the
plan. The only major deals in 2011 and 2012 were selling 10 per cent
stake in VTB and 7.6 per cent stake in Sberbank. In the case of VTB,
the government had previously expanded its share in the bank’s
capital after the crisis, so the privatization was a partial post-crisis
exit. In April 2012 Medvedev expressed his frustration with the
progress of privatization, claiming that it was stalled by lobbyists:
‘The decisions are made, and then the country’s leadership is
confronted with a stream of lobbyists driven by different
considerations – some sincerely believe privatization is not necessary
at all, others think the time’s not right… Nothing’s implemented’
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 39
(RIA Novosti 2012).
Apparently, the most influential opponent of privatization was
Igor Sechin, the head of Rosneft and one of Putin’s closest associates.
Forbes reported that he sent several letters to Putin suggesting not to
sell shares in state companies (including Rosneft) when their market
price was lower than the initial offering, to postpone the privatization
of Transneft and to cancel completely the privatization of
Zarubezhneft. According to Forbes, it was Sechin who was
responsible for the non-implementation of the government’s
privatization plan during Medvedev’s years in office (Ivanitskaya
2012). Other state managers opposed privatization as well, for the
obvious reason that they could lose control over ‘their’ companies
as a result of it. In the end, Putin seemed to agree with them. The
reason could be ideological, but politics played an important role as
well. Privatization could have provided Medvedev with loyal clients
among the new owners of the privatized companies. Indeed, some
journalists speculated that the whole project was in fact the way to
consolidate Medvedev’s own ‘pool of businessmen’, thus providing
him with a degree of autonomy from Putin (Rosbalt.ru 2012).
Naturally, it was not in Putin’s interests, and thus he vetoed
Medvedev’s initiative.
Not all of Medvedev’s plans fit into the neoliberal paradigm
though. For example, his dramatic rearmament program, worth 20
trillion roubles (680 billion dollars in 2011) over 10 years, threatened
fiscal stability and thus faced strong criticism from the finance
minister Alexey Kudrin, chief proponent of the neoliberal financial
policies in Russia. Kudrin strongly supported Medvedev on
privatization, but the issue of the rearmament program led to an
open conflict between them. The program was eventually adopted
despite Kudrin’s objections, and Kudrin himself had to resign over
his disagreement with Medvedev who, on this particular issue,
had the support of Putin.
2012-2018: Crisis Tendencies and Nationalist Fixes
With Putins return to the presidency in 2012, Medvedev’s
privatization program was largely scrapped. Although rhetorically
Putin reaffirmed his support for the reduction of the state’s role in
the economy (Putin 2012), the new, revised privatization plan for
40 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
2014-2016, adopted in July 2013, was significantly reduced in scale:
in particular, the idea of the full privatization of the oil and energy
companies was abandoned (Radygin and Entov 2013). Instead, the
state continued to increase its presence in the economy. This was
particularly evident in the oil sector: in 2013, Rosneft acquired TNK-
BP, Russia’s third-largest oil producer, for 55 billion dollars. Bashneft,
Russia’s sixth-largest oil producer, was renationalized in 2014 while
its owner Vladimir Evtushenkov was temporarily placed under
house arrest. Eventually it was also absorbed by Rosneft.
Furthermore, Rostec, a state-owned defense corporation with a
plethora of other assets, moved aggressively into the pharmaceutical
industry by creating the National Immunobiological Company in
2013. Rostec’s Sergey Chemezov, another long-standing associate
of Putin, wrote him a letter asking to make the newly created
pharmaceutical company the exclusive supplier of certain medicines
to the state. Chemezov quickly received Putin’s approval. The issue
of privatization reappeared again in 2016, when fiscal concerns forced
the authorities to sell 19.5 per cent stake in Rosneft to foreign
investors for USD 12.2 billion.
Furthermore, in the context of the renewed confrontation with
the West, the dirigiste policies acquired a new focus: import
substitution. Thus the microeconomic policy moved even further
from the neoliberal paradigm. In 2014, the government adopted the
Plan to Encourage Import Substitution in Industry, and the
Government Commission on Import Substitution has met regularly
since 2015. The new policy framework involved both incentives and
restrictions. Incentives consisted in cheap credits from the newly
created Industry Development Fund as well as tax breaks.
Restrictions mostly covered state companies, requiring them to
procure necessary inputs from the Russian contractors. Overall, state
spending on import substitution in 2014-2017 amounted to 120 billion
roubles (2 billion dollars).
State officials, including Putin, claimed that the goal of the new
policy was not simply to reduce Russia’s dependence on Western
technologies, especially in defense-related sectors, in the context of
the Western sanctions against Russia. Instead, they portrayed import
substitution as a necessary first step in the development of
competitive export-oriented industries. Minister for industry and
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 41
trade Denis Manturov explicitly claimed that reaching world
markets for non-resource products was the ultimate goal of import
substitution policies (Ruvinsky 2018). However, the actual policy
framework did not reflect this goal. For example, Manturov’s
ministry reported that the federal spending on import substitution
in 2017 was USD 1.3 billion, yet spending on export promotion
activities was only USD 340 million, 74 percent less. The share of
non-resource exports declined rather than grew in 2017 (Ruvinsky
2018). As an actual policy, import substitution became a goal in itself
and an economic correlate to the new isolationist nationalism that
has spread in Russia since 2014.
While the government continued to experiment with the new
dirigiste policies, the fiscal and monetary framework remained
conservative: the ‘intricate dualism’ between microeconomic and
macroeconomic policies was maintained during Putin’s third term
in office. The government did not introduce capital controls to arrest
capital flight during the acute phase of the crisis in 2014. Despite the
20-35 percent reduction in oil revenues in 2015-2017 due to the falling
oil prices, federal budget deficit was not allowed to reach more than
3.5% of the GDP (see Figure 1). Federal expenses on education,
healthcare and culture fell victim to austerity, yet defence spending
was maintained at a very high level (see Figure 2).
Figure 1. Federal budget surplus (deficit), as % of GDP, 2006-2017
42 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
Figure 2. Average annual growth of federal budget outlays in
nominal terms, in %, 2012-2017
Public welfare sector suffered dramatically from the cutbacks
and other forms of restructuring. In 2012, Putin announced an
ambitious plan to increase the salaries of public employees such as
teachers and doctors. However, the government never allocated
proper financing for the plan. As a result, the providers of public
services such as schools and hospitals had to dismiss some employees
in order to be able to raise the salaries for others. In 2013-2016,
employment in the public welfare sector declined by 7.6 per cent, or
almost half a million people. In this way, the government finally
realized one of the measures long advocated by the neoliberal
reformers reducing the public sector employment, which the
reformers considered to be ‘excessive’ and an obstacle to economic
growth in Russia. The cutbacks led to some protests, most notably
in Moscow, where several thousand people rallied against the plan
to radically downsize the city’s healthcare system in 2014.
The Russian System: Stagnant but Unstable?
In the previous sections I have traced the historical evolution of
Russia’s policy regime characterized by a mix of neoliberalism and
dirigisme. Some scholars claim that there is a certain functional
complementarity between the different elements of this policy mix;
that is, they help produce stability (in the sense of avoiding both
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 43
sharp economic shocks and political threats to the regime) at the
expense of economic growth (Åslund 2017; Miller 2018). Thus, for
example, a recent article by Anders Åslund is called Russia’s Crony
Capitalism: Stagnant But Stable.
At the heart of this ‘stability’ thesis lies the conservative fiscal
and monetary policy that helps fight inflation, build up reserves
and keep public debt low. However, the price to pay is economic
dynamism. Other neoliberal policies, such as the flat income tax,
enhance the regime’s political stability by maintaining the class
settlement with the oligarchs. After all, there were 40 individuals in
2016 who declared income of over USD 150 million and 525 others
who declared income of USD 15-150 million. Such incomes were
taxed at the same 13 per cent rate as the incomes of 19.8 million
people living below the poverty line (USD 150 dollars per month).
The dirigiste policies also help maintain political stability. On the
one hand, they secure the political basis of the authoritarian regime
by allowing Putin’s associates to enrich themselves in the state-owned
sector of the economy. On the other hand, state ownership as well as
subsidies to private companies help maintain employment, especially
in the monogorods, or one-company towns, avoiding mass protests at
the expense of subsidizing unproductive enterprises.
However, the stability produced by this policy mix should not
be exaggerated, as the lack of growth itself is a threat to stability
(Crowley 2015). For one, economic growth has always been
important for the regime’s legitimacy. The economic slowdown in
2011-2013 coincided with the downward drift of support for Putin
and his government. However, Putin’s approval rating soared after
the annexation of Crimea despite the economic crisis in a clear
example of the ‘rallying behind the flag’ effect (Hale 2018). This
allowed the government to survive the period of economic crisis
and implement severe austerity measures in education, healthcare
and other public services. Yet the ‘Crimea effect’ finally came undone
in 2018 after the government announced the increase in the
retirement age. The subsidy to the Pension Fund came to represent
the single largest outlay in the federal budget, threatening fiscal
stability, yet the authorities correctly predicted that any substantial
retrenchment of the pension system would be deeply unpopular.
The reform was orchestrated to coincide with the beginning of the
new political cycle (Putin’s election for the fourth term) as well as
44 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
the FIFA World Cup held in Russia, to distract the population, yet
it still had serious political consequences. Mass protests against
the reform, while quite strong, did not pose a serious threat to the
regime. However, Putin’s approval rating as well as the population’s
optimism about the state of the country went down to pre-Crimea
levels (see Figure 3). Against the background of economic stagnation,
it will become ever more difficult for the government to maintain
fiscal stability, leading to more unpopular reforms in the context of
stagnating or declining real incomes. Inescapably, Putin’s fourth term
(2018-2024) will be the biggest test yet for the regime’s ability to
maintain popular legitimacy.
Figure 3. Poll numbers: Levada.ru. GDP data: Rosstat.
On the other hand, the confrontation with the West, while helping
to galvanize popular support for the regime, was the first serious
threat to the class settlement with the oligarchs since the early 2000s.
Some Russian companies and businessmen were directly sanctioned
by the United States and the European Union, but even more
importantly, Western sanctions hindered the ability of the corporate
sector as a whole to borrow money abroad, which is crucial to its
STATE, CAPITAL, AND THE TRANSFORMATION OF THE NEOLIBERAL POLICY ... 45
mode of operation. Some analysts conclude that the standoff with
the West is increasingly putting a strain on the oligarchs’ relationship
with the regime (Snegovaya 2018).
Combined with the biggest challenge of personalistic
authoritarian regimes – the challenge of succession that Putin’s
regime faces in 2024 the gradual erosion of popular legitimacy
and the inter-elite tensions make the future of Russian politics highly
uncertain.
Conclusion
One of the chief paradoxes of Putin’s rule is that it has always been
based on a sharp rhetorical break with the 1990s, fixed in the national
consciousness as a period of social and economic disaster, and yet
Putin continued many of the neoliberal policies of his predecessor
in fact, in some areas, such as welfare, carrying them out far more
consistently than Yeltsin ever could. Using aggressive rhetoric
against the oligarchs, even promising to ‘eliminate them as a class’,
Putin nevertheless allowed them to accumulate unprecedented
wealth. The neoliberal reforms of his first term played a central role
in this outcome. Unable to establish popular hegemony,
neoliberalism in Russia came to depend on the Bonapartist
authoritarian figure of the ‘national leader’. At the same time, a
combination of neoliberal policies and nationalist rhetoric that Putin
deployed was quite characteristic of neoconservative leaders in
Western democracies.
Since the mid-2000s, the Russian government has increasingly
experimented with alternatives to the neoliberal orthodoxy. These
experiments were not the result of the popular pressure to abandon
neoliberalism. Instead, they were driven by elite considerations and
interests. As a result, the new dirigisme mostly focused on industrial
policy and not on social policy. The oligarchs had to make room for
siloviki, Putin’s associates with a background in the security services,
who now occupied key positions in the state-owned sector of the
economy. However, the dirigiste turn never took programmatic form
and generally did not threaten the position of big business. In the
area of welfare, divergence from neoliberalism was animated by a
concern for the demographic situation, seen by the regime as central
to the nation’s sovereignty and strength. However, education,
healthcare and other public services were badly neglected.
46 INTERNATIONAL REVIEW OF MODERN SOCIOLOGY
Since 2014, the government’s policies took increasingly
isolationist turn. The new ‘militant Russia’ (Malle 2016) is even less
hospitable to welfare concerns than before. Instead, it envisions a
still stronger centralization of resources and control in the hands of
the elite that is no longer afraid to say directly to the people: ‘You’re
on your own’. Developing a popular (as opposed to elite) alternative
to neoliberalism is still the task for the future.
Notes
1. Dirigisme refers to various directly interventionist practices of the state, as
opposed to arm’s length regulation characteristic of the neoliberal policy
paradigm.
2. For the best critical analysis, see Kotz and Weir 2007.
3. ‘Red directors’, i.e. managers of Soviet enterprises, were the prime beneficiaries
of the ‘spontaneous privatization’ in the late 1980s and early 1990s. The official
privatization that began in 1992 essentially legalized their property grab.
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This book is a major intervention into a central debate in international relations: how has globalization transformed world politics? Most work on world politics still presumes the following: in domestic affairs, individual states function as essentially unified entities; and in international affairs, stable nation-states interact with each other. In this book, the state lies at the center; it is what politics is all about. However, the author contends that recent experience suggests another process at work: "transnational neopluralism." In the old version of pluralist theory, the state is less a cohesive and unified entity than a varyingly stable amalgam of competing and cross-cutting interest groups that surround and populate it. Contemporary world politics is subject to similar pressures from a wide variety of sub- and supra-national actors, many of which are organized transnationally rather than nationally. In recent years, the ability of transnational governance bodies, NGOs, and transnational firms to shape world politics has steadily grown. Importantly, the rapidly growing transnational linkages among groups and the emergence of increasingly influential, even powerful, cross-border interest and value groups is new. These processes are not replacing nation-states, but are forging new transnational webs of power. States, this book argues, are themselves increasingly trapped in these webs. After mapping out the dynamics behind contemporary world politics, the book concludes by prognosticating where this all might lead.
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Over the past few years, many of the former Communist-rule countries of Central and Eastern Europe have taken a steady path toward becoming more or less normal capitalist countries - with Poland and Hungary cases in point. Russia, on the other hand, has experienced extreme difficulties in its attempted transition to capitalism and democracy. The pursuit of Western-endorsed policies of privatization, liberalization and fiscal austerity have brought Russia growing crime and corruption, a distorted economy and a trend toward authoritarian government. In their 1996 book - Revolution from Above - David Kotz and Fred Weir shed light on the underlying reasons for the 1991 demise of the Soviet Union and the severe economic and political problems of the immediate post-Soviet period in Russia. In this new book, the authors bring the story up-to-date, showing how continuing misguided policies have entrenched a group of super-rich oligarchs, in alliance with an all-powerful presidency, while further undermining Russia's economic potential. New topics include the origins of the oligarchs, the deep penetration of crime and corruption in Russian society, the financial crisis that almost destroyed the regime, the mixed blessing of an oil-dependent economy, the atrophy of democracy in the Yeltsin years, and the recentralization of political power in the Kremlin under President Putin.