Vlad the Great

Putin has dismantled the fragile democracy of the 1990s, but has never been more popular. The New St

Russia is creeping towards dictatorship. The imminent parliamentary elections will be another step towards the re-establishment of a one-party system in Russia. No one doubts that the Kremlin-backed United Russia will dominate the next Duma - its propaganda dominates the media. To make sure, however, the Electoral Commission has raised the threshold for winning seats from 5 to 7 per cent of the vote and barred many of the weak and divided opposition parties from participating in the poll, using complicated registration laws. Opposition meetings are regularly broken up by the police.

Vladimir Putin may use United Russia's victory to break the constitution by standing for a third term in the presidential elections in March 2008. He has spoken ominously of his "moral right" to remain in power. Rallies "For Putin and For Russia" have been organised in a number of towns to encourage him to stand. A more likely scenario, perhaps, is that Putin will simply move from the post of president to that of prime minister, and that a corresponding shift of power will take place; or that he will get one of his cronies elected president (the newly appointed prime minister, Viktor Zubkov, is the obvious candidate) and replace him when he steps down for reasons of "ill-health". Either way, it doesn't really matter what the outcome of this intrigue is: Putinism is here to stay.

What is Putinism? First, it is a reassertion of the state, a counter-revolution against democracy, which in the eyes of the president's supporters brought Russia to the verge of ruin during the 1990s. The men behind this counter-revolution are the siloviki (from the Russian word for power) - men like Putin from the old KGB (reformed as the FSB), or the armed forces and the "power ministries", which together formed an inner cabinet in Boris Yeltsin's government and brought in Putin as his replacement in 2000.

The siloviki have taken over government. Their clients rule the regions, cities and towns and control the police and courts. They have steadily increased the staff and powers of the FSB, which today has 40 per cent more officers per citizen than the Soviet-era KGB. They have carried out a systematic assault on freedom of speech and information, intimidating independent newspapers and turning a blind eye to the contract killing of dozens of journalists, not to mention many more suspicious "accidents" over the past seven years.

The emerging political system is not yet a dictatorship, but nor is it democracy in anything but formal terms. Opposition parties can exist - but only within certain bounds. Elections are held - but their results are a foregone conclusion and the power-holders chosen in Kremlin corridors long before the polls open. There is no real political debate in the public media, and no broader culture of democracy to foster diversity of opinion. In many ways the problem is not the growing power of the Putin state (it could be argued that it is not as strong as it appears), but the chronic weakness of civil society. Sixteen years after the collapse of the Soviet regime, there are still no real social organisations, no mass-based political parties (except perhaps the Communists), no trade unions, no consumer or environmental groups, no professional bodies, and only a very small number of human rights associations, such as Memorial, to counteract the power of the state.

No need to pay

The second element of Putinism is the intimate connection between politics and business. Senior state officials control and own the public media, sit on the boards of state-owned corporations and enrich themselves from it, have lucrative connections with the oligarchs, and own large shares of the country's banks as well as its oil, gas and mining companies. At a lower level, in many Russian towns, politics and business are closely intertwined with the police and organised crime. Much of this goes well beyond corruption in the conventional meaning of the term (businessmen offering bribes to officials). In Putin's Russia the politician is usually a businessman, too, and perhaps an FSB official as well, so he doesn't need to pay a bribe. Political connections are the fastest way to become rich. The most successful oligarchs are shadowy figures in the presidential entourage. And all the country's senior politicians are multimillionaires, their money safely stashed abroad for them by Kremlin-favoured businessmen.

Thanks to the high price of oil and gas, Putin has overseen a strong upturn in the economy, which accounts for much of his popularity. The core of his constituency is the fast-growing middle class - the eight million Russians in 2000 and some 40 million today who are doing well enough to own homes and cars and go abroad on holiday. But Putin is also popular among a broader section of the population that has been lifted out of poverty by the recovery of recent years. The hyperinflation and economic instability of the 1990s are a fading memory. The rouble is strong; reserves are huge; public sector salaries are paid on time and, like pensions, have increased under Putin; and the government is at last starting to invest in the country's creaking infrastructure, hospitals and schools.

Yet there are serious economic vulnerabilities, not least Russia's heavy dependence on the export of its natural resources and the weakness of its manufacturing, services and hi-tech industries. The most serious concern is an imminent demographic crisis, largely brought about by high death rates (in particular among men, the main vodka drinkers) and westward emigration from Russia by large sections of the young and talented. Since 1991, the population has fallen by ten million to 140 million. A UN report estimates that it could fall below 100 million by 2050. Already there are shortages of students at universities and of staff in the workplace in many areas.

Meanwhile the Muslim population, with its historically high birth rates, continues to grow, in part as immigrants from central Asia fill the gaps in the labour market. There are 25 million Muslims in Russia today (demographers predict that they will be the majority within 50 years). Like the Jews in previous times, Russia's Muslims have become the focus of a rising wave of xenophobic Russian nationalism that is only partly satisfied by Putin's increasingly nationalist rhetoric. If it weren't for him, millions of Russians would vote for an ultra-nationalist - for instance, Vladimir Zhirinovsky, whose Liberal Democratic Party is expected to come second, or perhaps third behind the Communists, with roughly 10 per cent of the vote.

Humiliation

Nationalism is the third main element of Putinism, and perhaps the key to its success. Putin's nationalism is more complex than the reassertion of Russia's influence in the "near abroad" of former Soviet satellites (notably against the pro-western governments of Georgia and Ukraine, see Thomas de Waal, page 38) or the flexing of Russia's oil-pumped muscles on the international scene. At its heart is a long historical tradition of imperial rule and resentment of the west that has shaped the national consciousness.

The collapse of the Soviet Union was felt as a humiliation by most Russians. In a matter of a few months they lost everything - an empire, an ideology, an economic system, superpower status, national pride. They lost a national identity connected to the official myths of Soviet history: the liberating power of October 1917, victory in the Great Patriotic War, Soviet achievements in culture, science and technology. Within months of the Soviet collapse, the Russians had fallen into poverty and hunger and become dependent on relief from the west, which lectured them about democracy and human rights. Everything that happened in the 1990s - the hyperinflation, the loss of people's savings and security, the rampant corruption and criminality, the robber-oligarchs and the drunken president - was a source of national shame.

From the start, Putin understood the importance of historical rhetoric for his nationalist politics, particularly if it played to popular nostalgia for the Soviet Union. Polls in the year he came to power showed that three-quarters of the Russian population regretted the break-up of the USSR and wanted Russia to expand in size, incorporating "Russian" territories such as the Crimea and the Don Basin, which had been lost to Ukraine. Putin quickly built up his own historical mythology, combining Soviet myths (stripped of their Communist phraseology) with statist elements from the Russian empire before 1917. In this way his regime was connected to and sanctioned by a long historical continuum, a Russian tradition of strong state power, going back to the founder of the empire, Peter the Great, and Putin's native city, St Petersburg.

Integral to this is the idea, fostered by Putin, that Russia's traditions of authoritarian rule are morally the equal of democratic western traditions. Indeed, his supporters often say that Russians value a strong state, economic growth and security more than the liberal concepts of human rights or democracy, which have no roots in Russian history.

The rehabilitation of Stalin is the most disturbing element of Putin's historical rhetoric - and the most powerful, for it taps into a deep Russian yearning for a "strong leader". According to a survey in 2005, 42 per cent of the Russian people, and 60 per cent of those over 60 years of age, wanted the return of a "leader like Stalin". At a conference last June, Putin called on schoolteachers to portray the Stalin period in a more positive light. It was Stalin who made Russia great and his "mistakes" were no worse than the crimes of western states, he said. Textbooks dwelling on the Great Terror and the Gulag have been censored, historians attacked as anti-patriotic for highlighting Stalin's crimes.

All this comes as a huge relief to most Russians. Brought up on the Soviet myths, they felt ashamed, uncomfortable and resentful when, for a short time in the late 1980s and early 1990s, they were suddenly confronted by these awkward truths about their past. Now they needn't feel ashamed. With Putin's rewriting of Soviet history, they can feel good about their nation and themselves (as if, by way of a comparison, the postwar Germans had been told that the Holocaust had never taken place). Thanks to Putin, the Russians can move on and live their lives without asking awkward questions of themselves. It is how they lived in the Soviet Union.

Interviewing hundreds of survivors of Stalin's Terror for my book The Whisperers, I encountered many legacies of the Stalin period that affect the way Russians think and act today. One of the most striking is a strong political conformity, a silent acceptance and lack of questioning of authority, which was born of fear in the Stalin period but then passed down the generations to become part of what one might call the post-Soviet personality. No doubt this conformism will play a part in the elections, and in the resolution of the power question in the months to come. If Putin chose to sweep away the constitution and declare himself a dictator, I doubt many Russians would protest.

Orlando Figes's The Whisperers: Private Life in Stalin's Russia is published by Allen Lane (£25).

Russia’s election by numbers

number of seats in the Duma: 450
number of parties eligible to stand: 11
number of parties likely to win seats: 4
number of registered voters: 108m
total who voted in the last elections in 2003 (56 per cent of those registered): 60.7m
proportion of voters who feel they have little or no influence over what happens: 94%

Research by Craig Burnett

This article first appeared in the 03 December 2007 issue of the New Statesman, Russia’s fragile future

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

***

In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt