Five myths about Putin’s foes

They're not leaderless, they're not all middle class and they don't want a revolution.

It’s fashionable to see Russia’s opposition as the Moscow stirrings of a “global middle class” making protest waves from Brasilia to Istanbul. Forget it. Russia’s underground is not what it seems.

Myth 1 – This is a leaderless network

Rather the exact opposite. Russia’s opposition is a one-man show called Alexey Navalny. Politically he is populist, a cross between an Islamophobe and a liberal. But Navalny sells his absolute charisma before his policies. After a decade of faceless Putinist bureaucrats every night on the evening news – his Aryan looks and laugh-out-loud wit have electrified a capital bored without politics.

Navalny understood the initial December 2011 protests were his big chance. Whilst other actors dawdled – he become the movement’s orator. By the end he was its uncontested leader. Ever since Navalny has been so good at shining like a white knight fighting “the bloodsuckers” – the opposition had become the Navalny movement.

However, building proper opposition institutions failed. Online election for the opposition “parliament” flopped. The Kremlin barred their attempts to register a party. Then it frightened away a real funding base. Hamstrung, the opposition fell short in the local elections outside Moscow.

This has turned the opposition into a leader cult. The “other Russia” has pinned all its hopes and all initiative on Navalny himself. Ironically, Putin has only reinforced this. Threatening to jail Navalny has underscored his bravery and built up his legend. Polls show his name recognition and popularity soaring.

Leader cults are tricky things to kill. Mr. Putin is now in awkward position. Throwing the “hero” into a Siberian prison camp will turn him into Russia’s Nelson Mandela. Nor can he leave him ta large nibbling away at his own cult of invincibility.

Navalny’s cult of personality is troublesome for the opposition too – detracting from the hard, necessary task of building a movement like Poland’s Solidarity that could turn people power on Putin.

Myth 2 – They are middle class

Russia now has a huge middle class. But don’t think of all them as supporting radical change. As it stands roughly a third of Russians can be considered middle class – making over $30,000 a year.

But Russians are quick to remind you – being middle class does not make you “independent.” Roughly 50 per cent are state employees. Fear keeps most of them off the streets. In Russia’s enormous outback its doctors, teachers and bureaucrats would never dream of taking to the streets. They know that is a sure fire way to lose your jobs.

So forget the idea of the revolt of the “middle class.” Despite its huge size (up to 40m people) the scale of dissent is still tiny. There are roughly 80,000 hardcore Navalny supporters and no more than 400,000 loosely affiliated ones. Who are the people actually protesting and throwing themselves into the frenzy of online activism?

First, this is a Moscow affair. Almost forty per cent of the opposition leader’s almost 400,000 Twitter followers are in the capital. Not even St. Petersburg scrapes above five per cent. Second, this is something well to do. There is a snobbish tinge and an elitist, clubby feeling to opposition circles. The leading lights of the movement – like their followers – are both richer and better educated than the rest. Russians talk about them as being “intelligentsia” – from a class of professionals, intellectuals and civil servants. Their Britain equivalent would be the London upper middle class with a strong Oxbridge component.

Myth 3 – They are pro-western

Russia’s opposition movement is pro what they call “European values.” That means a free media, free speech, free assembly and visa free travel to the west. They broadly think that Vladimir Putin’s anti-American and anti-British propaganda is hysterical and faintly silly.

Just don’t confuse them for passionate supporters of NATO or the EU. These are no adulators of the west. Navalny and his team increasingly see Europe – especially British elites – as complicit in the “pillage” of Russia as stolen billions find a safe haven in London property, the French Riviera or Austrian banks. Just like Putin supporters they are irritated by European “lecturing” and American “hypocrisy.”

Navalny does not have a NATO worldview. He believes that Russia, Belarus and Ukraine should reunite into one great power. He passionately supports the “independent” South Ossetia and Abkhazia carved out of Georgia. He would even recognize the Russian enclave of Transdinestria in Moldova – something that would horrify Brussels.

Myth 4 – They’ve had no impact

It’s tempting to dismiss the Russian opposition as having had no impact. It’s also not true. They have made Russia much more repressive, xenophobic and homophobic by accident in a Kremlin crackdown.

Navalny’s campaigning has also forced policy action. Putin has started trying to shore up its public support in a frenzies series of policy initiatives – stolen from the opposition. There has been a purge of corrupt officials and billions are about to be invested in bad roads.

This is most evident in Moscow. Navalny is running for Mayor making the Kremlin throw huge wads of cash into public goods neglected for years. Putin’s candidate had stolen opposition battle cries like battling illegal immigration. He has even installed a cycle hire scheme. Before Navalny’s surge it was inconceivable the Moscow authorities would have done something like this – because people wanted it.

Myth 5 - They want a revolution

Not one bit. Russians, even those protesting, are terrified of revolution. What the opposition hopes to achieve is to delegitimize Putin and his cronies – those they accuse of pillaging Russia – amongst the rulers of Russia and their apparatchiks.

The aim is to make Putin a liability. The hope is that the closer we get to the 2016 parliamentary and 2018 presidential elections an ever increasing number of petrol barons, police chiefs and provincial governors will realize repression will cost them their positions. The hope is they will ditch Putin – and install a new leader who could legitimize them before finally hold fair elections. Of course, Mr. Navalny aspires to be that man. 

Ben Judah is the author of Fragile Empire: How Russia Fell In And Out Love With Vladimir Putin. His full article is published by IPPR in their quarterly journal Juncture

Russian opposition leader Alexey Navalny delivers a speech on August 25, 2013 in Moscow during a campaign rally for the Moscow mayoral election. Photograph: Getty Images.

Ben Judah is the author of Fragile Empire: How Russia Fell In And Out Love With Vladimir Putin.

Getty
Show Hide image

We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?