Russia’s Third Crisis

13 february 2016

Reflections on the Cycles of Russian History

Andrei Ivanov is a financier and the winner of the competition “National Interest as Seen by Young Authors,” organized by Russia in Global Affairs.

Resume: How long can the degradation of the Soviet empire, which started in 1962, continue? Pulling through hardships with minimal losses while avoiding making the same mistakes, is the immediate task that Russia is facing and with which it is able to cope.

“Never heard of it before... and here it is again!”

Victor Chernomyrdin

The events of the past several years have evoked a strong sense of déjà vu, as if Russian history has been going around in circles. Let us see if this is really the case.

In 2012, I predicted a large-scale political crisis in Ukraine at the end of 2013 and early 2014. I expected to see Ukrainian President Victor Yanukovich disappear from the political stage, Ukraine reject Russia’s integration projects, the rise of separatist sentiment in Crimea, an economic crisis in Russia starting in the fall of 2014, an exchange rate of 60 rubles/$1 in 2015, and an escalation of tensions in Nagorno-Karabakh. It seems my forecast was based on the right assumptions and has proven correct.

A new country—the Soviet Union—came into existence in 1917 and survived a geopolitical catastrophe in 1991 without any foreign intervention or a civil war. Yet the losses were staggering. The agreements to dissolve the Soviet Union left 50 percent of its population and 25 percent of its territory outside of Russia’s control. More than 25 million ethnic Russians lived in the territories lost in 1991.

But was that the end of the Soviet empire?

Has Russia changed so much after all?

History knows three possible scenarios after the fall of an empire: a new empire replaces it; another empire seizes the former empire’s territory; or a non-imperial state is built.

A new empire. What happens in this case is clear from what took place in France after the French Revolution and after 1944-1945 (the demise of the Vichy regime can be considered the end of an entire political era), in Russia after 1917, in Germany in the 1930s-1940s, and in China after 1945. All of these countries experienced the killing, imprisonment, or expulsion of the former head of state, changes in the political elite and dominant ideology, a break in continuity, destruction of the previous empire’s heritage, and rapid economic and demographic growth. Regime change is usually accompanied by armed struggle between different centers of power seeking dominance and by subsequent territorial expansion of a young empire. 

Seizure by another empire. Other empires have not seized Russia or any other former Soviet republic. The admission of the Baltic States to the European Union does not count because the EU is not a classical empire, but rather a political and economic entity comprised of competing countries. 

A non-imperial state. Sweden after 1818 can serve as an example. Sweden’s monarchy and constitution were preserved while the ruling family was changed, a considerable portion of the political elite retained its positions, imperial ambitions were dropped, the country was demilitarized, a national democratic state was built (with Norway allowed to leave in 1905), and the population doubled from 2.6 million in 1820 to 3.9 million in 1860, accompanied by steady economic growth. Throughout the 20th century Sweden maintained its neutrality and refused to join NATO.

But what happened in Russia in the 1990s and the 2000s?

The last Soviet leader Mikhail Gorbachev is safe and sound. The majority of the Soviet elite successfully transformed into its Russian analogue in which Communist Party functionaries took top government positions in the new Russia, and Komsomol activists became tycoons. It is quite remarkable that Boris Yeltsin, former First Secretary of the Moscow and Sverdlovsk Party Committees and ex-candidate for the Politburo of the Communist Party Central Committee, became the first leader of post-communist Russia and handed over the reins of power to former KGB officer Vladimir Putin. All of the 1991 coup plotters were amnestied: Vassily Starodubtsev later was elected as Tula Region governor, and Dmitry Yazov and Valentin Varennikov received state awards in 2004. Yevgeny Primakov, who had headed one of the two chambers in the Soviet parliament, served as Russian prime minister in 1998-1999 and was given a state funeral in 2015.  

From the beginning the Russian leadership reaffirmed the continuity of the Soviet Union’s policy in international, financial, legal, and other affairs. Some Soviet regulatory acts are still in effect in Russia: Soviet awards are recognized, the 1917 October Revolution is still commemorated on November 7, the body of the founder of the Soviet state Vladimir Lenin still lies in state on Red Square, and monuments to Lenin are in all Russian cities. Unlike Eastern Europe, Russia has never conducted even a limited purge of former Communist officials. Finally, Victory Day on May 9 is the major national holiday marking the victory of the Soviet Union over Nazi Germany in World War II. In fact, Victory Day is celebrated as the peak of the Soviet empire’s military and political glory.  

The Russian Communist Party, a fragment of the Soviet Communist Party, is one of the main political forces in Russia today. Communist members have served as Duma speakers, regional governors, and federal ministers (this tradition of the 1990s is returning again). Also, the Communist Party was a dominant political force in the second Duma with 157 seats out of 450. “Liberal reformers” focused on the transition from a planned to market economy, paying little attention to building civil society and eagerly agreeing to “managed democracy” in 1996.

The country had periods of a semi-market economy during the New Economic Policy (NEP) in 1921-1928. In 1936, Leon Trotsky predicted the events of the early 1990s: state property is taken over by the party nomenklatura and secret police, and the entire population of the communist country ends up as hired labor. In Trotsky’s opinion, this weird form of capitalism was “imminent” during Stalin’s lifetime. He was off by fifty years.

The popularity of the first leader of a new country and the special aura surrounding him are an important part of the images associated with Vladimir Lenin, Adolf Hitler, Charles de Gaulle, Konrad Adenauer, and Mao Zedong. But none of this can be said about Boris Yeltsin after 1993. In fact, the period of his rule is generally referred to as “the tumultuous 1990s.” 

Estimates made by economist Andrei Illarinov indicate that industrial production in Russia in February 2013 was only 77 percent of the level recorded in January 1990, and GDP plummeted by 41 percent in 1990-1996. Russia’s Federal State Statistics Service reported that Russian GDP came close to the 1990 level only in 2008.

The demographic situation in post-communist Russia is also quite discouraging. The 1989 census put Russia’s population as 147.4 million. As of January 1, 2015, it was 146.3 million (including 2.3 million people in Crimea), according to the State Statistics Service. The Russian population shrank by 3.4 million over a span of 25 years even though five million immigrants entered the country. The number of people living in Magadan Region decreased by 62 percent to 148,000 from 391,000, and by 23 percent in Pskov Region to 651,000 from 846,000.

Almost no armed struggle for power occurred. The Moscow revolt in 1993 was suppressed within several days and never spread beyond the city limits. Nor was there any territorial expansion of the new state, with the exception of the incorporation of Crimea last year. All disputed territories in the Far East were ceded to China.  

All things considered, one can conclude that neither a new empire nor a non-imperial state emerged after 1991, and no one invaded Russia, of course.

On the contrary, the situation in the Russian Federation, the Soviet empire’s core entity (the Russian Soviet Federative Socialist Republic, or the RSFSR) was the first Soviet state created in 1917, with the Soviet Union officially appearing only in 1922), has stabilized after the turbulent 1990s. Russia has attempted (although not very successfully) to bring former Soviet republics back into the orbit of Moscow’s influence.  

So, Russia today is a direct continuation of the Soviet Union. Indeed, the third Russian empire is still around, but degrading (the Grand Duchy of Moscow ruled by the Rurik dynasty was the first empire, and Russia under the Romanovs, the second). Historian Fyodor Sinelnikov’s article offers more insight into the imperial cycles in Russian history.

The crisis began in 2011

What can one expect from “Weimar Russia” (the term proposed in the mid-1990s by thinker and publicist Alexander Yanov)?

First of all, in 2008 the Russian state had reached a new local peak, as it had done before in 1980, and entered a period of stagnation in the fall of 2008. Just like Leonid Brezhnev’s peaceful stagnation, Vladimir Putin’s stagnation (2000-2008) began with economic reform (masterminded by German Gref and similar to reforms introduced by Alexei Kosygin in the Soviet era), but ended in a war (with Georgia, just like the Soviet Union’s earlier war in Afghanistan). Attempting change, the state tried to renew and lead the transformation with the “being free is better than being unfree” slogan, coupled with innovations, modernization, and an anti-drinking and alcohol awareness campaign… But having taken the first little step, the government remembered the frightening results of perestroika and decided to stand its ground.

Stagnation during Dmitry Medvedev’s “interregnum” (as evanescent as the Soviet “period of funerals” when three leaders died in quick succession between 1982-1985) ended and the decaying state sank into its third crisis in late 2011. The second crisis occurred in 1985-1991, following the first one (the smallest of all and almost unnoticed) in 1962-1964, when the Kremlin basically backed down during the Cuban Missile Crisis. 

Although essentially similar, the third crisis differs from the second one. While in the 1980s the authorities responded with a liberal turn towards partial democratization (later dubbed “imitation” or “managed democracy”), now the country is trying to stabilize the situation by invoking past experience. The current “left turn” appealing to Soviet heritage will prevail in the forthcoming mini cycle and last until the next crisis.

The following tendencies will grow stronger in the next several years: renewed confrontation with the West, militarization, economic autarky, reliance on the Soviet past, conservatism and traditional values, state control in the economy, nationalization of elites, an anti-corruption campaign, and the incorporation into the power structure of the All-Russia People’s Front and the left flank of the so-called “system opposition,” which are to replace ruling United Russia as “the party of power.”

Interestingly, even before mass protests in the fall of 2011 some experts, like Igor Bunin in his article Like in 1984 or Liliya Shevtsova’s On the Tandem’s Death, started comparing the situation in Russia with the pre-perestroika period.  

But let us return to chronology. What were the signs of the crisis in late 2011? There are a number of political, economic, and demographic indicators.

Firstly, the electoral legitimation of Putin and his “party of power” decreased for the first time despite the Central Election Commission’s gimmicks. Putin received 52.94 percent of the votes in 2000 and 71.31 percent in 2004 (Dmitry Medvedev had a comparable but understandably lower result of 70.28 percent in 2008), but 63.6 percent in 2012 amid a fierce election campaign. The results of the Duma elections are similar: Unity had 23.32 percent in 1999 (73 seats), 37.56 percent in 2003 (223 seats), 64.30 percent in 2007 (315 seats), and 49.32 percent in 2011 (238 seats). Support for the Communist Party and A Just Russia grew immensely in 2011—by 7.62 percent and 5.50 percent, respectively, and even by as much as 10-15 percent in some Russian regions. Left-wing sentiment will continue to increase in society along with the number of pensioners, and therefore voters, in the next decade. 

Electoral legitimation declined due to erosion of support for the regime from many Russians and the regional elites responsible for elections. The response was quick. Putin’s May Decrees and the “Bolotnaya Square case” were addressed to the former, and a limited resumption of gubernatorial elections, with subsequent termination of mayoral elections, was intended for the latter. All governors who performed poorly were dismissed.  

Quite harmless for the central government, alternative local elections were introduced in the Soviet Union in 1987 accompanied by a crusade for broader “inner-party democracy.” In fact, this is very similar to United Russia primaries now.

Putin’s rating became a sociological indicator of the crisis when it plunged to 48 percent in August 2012. Polls by the Levada Center indicate that Putin’s rating had not dropped so low even during the benefit monetization campaign in the winter of 2005. 

Secondly, integration in the post-Soviet space had stalled. The Customs Union became operational in the summer of 2010, lifting export/import controls on internal borders on July 1, 2010. Russia tried to bring Ukraine into the Customs Union, but Kiev adamantly resisted such attempts. Relations between the two countries began to deteriorate. Medvedev canceled two trips to Ukraine in the summer of 2011, and a trilateral meeting between Putin, Medvedev, and Yanukovich in Zavidovo, Russia, on September 24, 2011 turned out to be fruitless. 

Plans to build partner relations with the West never came true even though this was one of the key priorities in Medvedev’s presidential election campaign. 

A rapid (within two years) economic recovery after the crisis of 2008-2009 gave way to stagnation. Russian GDP grew by 4.5 percent in 2010, by 4.3 percent in 2011, 3.4 percent in 2012, 1.3 percent in 2013, and a mere 0.6 percent in 2014. The figures indicate that the slowdown began in 2011 when average annual Brent crude oil prices were quite high at about $110 per barrel in 2011-2013. For comparison, GDP grew at a rate of 5-10 percent in 2000-2007.  

With world economy growth averaging three percent per year in 2011-2013, Russia’s share in global GDP (by purchasing power parity) dropped from 3.21 percent in 2008 to 2.95 percent in 2013, according to the Center of Development at the Higher School of Economics. Since then, the Russian economy has not grown faster than the world average.

Capital flight slowed in 2000-2005 (except for 2004), followed by an influx in 2006-2007. The situation changed in 2008 when $130 billion were taken out of the country. However, in the following two years capital flight decreased to $57 billion in 2009 and $33.6 billion in 2010.

In 2011, the opposite trend emerged and the amount of capital leaving the country has never been below the 2009 level ever since: $84 billion in 2011, $57 billion in 2012, $61 billion in 2013, and $151.1 billion in 2014.

Housing prices in Moscow are another interesting indicator. Having dropped from slightly over $6,000 to $4,000 per square meter in 2008-2009 (according to www.irn.ru), prices went up to $5,100 by the end of 2011 and hovered around $4,900-$5,400 until February 2014.

2011 was unremarkable in demographic terms, but the birth rate stopped increasing in 2012 after rising almost continuously since 1998. Interestingly, births returned to the 1990 level (13.4 per 1,000 people) when the previous crisis was ending. The last time the birth rate stabilized in Russia and the Soviet Union was in 1984-1987 after an almost continuous growth in 1969-1983. 

The overall demographic burden (the number of children and elderly people per 100 working-age population) declined in 1965-1980, but started growing with the onset of stagnation in the Soviet Union and kept increasing until 1993. In 2008 (when a new period of stagnation began), demographic pressure started rising again and experts predict it will continue to go up until 2027-2031 (until 2026-2027 according to the State Statistics Committee).

The left turn

Russia’s third crisis began in late 2011 and entered its second phase in 2014 as was forecast in 2012. In political terms, the crisis was accompanied by Ukraine’s breaking free from Russian influence. The incorporation of Crimea and the armed conflict in eastern Ukraine in an attempt to make up for this loss only exacerbated the situation. The first Western sanctions were imposed and cooperative ties with Ukraine, which were critical for Russia’s rocket manufacturing and other industries, were severed. 

The next turn occurred at the end of summer and the beginning of fall. Accusations of the Malaysian Airlines fight MH17 crash and escalation of the conflict in Donbass cut Russia off from Western capital markets and isolated it internationally. Coupled with low oil prices, this led to a dramatic devaluation of the ruble and a new economic crisis. 

Contrary to general expectations, the current crisis was not politically resolved in the first half of 2015 and will continue. When will it end? How long will the turmoil, like in 1991-1993, last? And when will the next quasi rise begin? These are the questions I invite everyone who is interested to discuss. The third crisis will most likely last as long as the previous one in 1985-1991 and end no earlier than 2018, give or take a few years.

Elites are already changing. During his presidency, Dmitry Medvedev fired almost every old-timer who had become regional governor in the 1980s-1990s. The next to go were legislators during Putin’s third presidential term. There have also been feeble attempts to shake up the federal elite (Serdyukov and Yakunin lost their jobs), accompanied by open moves to face down or jail regional and federal officials. This policy will continue until the end of the third crisis.

There are two regional leaders who have kept their positions since the 1990s—Kemerovo Region Governor Aman Tuleyev and Belgorod Region Governor Yevgeny Savchenko—both of whom fit into the new “left turn” almost perfectly.  Russia will not fall apart at the current stage of its development and this threat will not be on the agenda again at least until the end of the next, and fourth, crisis. Chechnya, as before, may be the only exception. But on the whole regions will become more self-sufficient. 

The main trends of the forthcoming mini cycle are described above. Their concrete forms will depend on a variety of factors, both internal and external. For example, a transition from a presidential to a parliamentary-presidential system will hinge on the degree of integration in the post-Soviet space and separatist tendencies in regions. If the Customs Union does not break up before the next mini cycle, it can be better preserved and developed if Russia gives up the authoritarian form of government. High internal risks of disintegration will compel Russia to keep the presidential model, but it can still drop it and make up for that by enhancing the role of the army. Growing tensions between world powers and Western pressure on Russia can also hinder the transition to the parliamentary system.  

Political freedom could broaden because the state will no longer be able to exert as much pressure on society after the beginning of a new mini cycle as it did before. The left-wing regime will not be able to ensure complete dominance of one party, direct appointment of governors, or the level of electoral manipulations achieved under Putin. The Union of Nationalities may be restored or a three-chamber parliament created in which the Federation Council will have a less important role and status.

The Afghanistan of the third crisis is quite multifaceted. The Russian army did not participate in military operations abroad (except for UN peacekeeping missions) in 1991-2008, but now it seems unable to restrain itself any more as it gets involved in Georgia, Ukraine, and Syria. This outburst of military activity will subside by the end of the current crisis and is unlikely to recur at the beginning of the next mini cycle.  

An economic decline will most probably be less dramatic simply because the Russian economy is not as complex as the Soviet one and is based mainly on the export of raw materials. However in all likelihood the state will take control of large companies, at least in the natural resources sector which generates most of the foreign exchange revenues, and subsequently create joint ventures on the basis of state-owned enterprises. The government may start printing more money and implement restrictions on the movement of capital similar to or harsher than those in the 1990s. The exchange rate may skyrocket to 150-200 rubles/$1 at the end of the third crisis. But the Russian economy will hit bottom later when the next mini cycle begins.      

Attempts failed to integrate Russia into the Western community in the 1990s and the 2000s. Now Russia will have to try to push for partnership through confrontation as the Soviet Union did. 

Russia, however, is not degrading alone. All existing powers are going through identical processes, each in its own way. But the overall vector, stages, and criteria are the same. How long can the degradation of the Soviet empire, which started in 1962, continue? History knows different examples that lasted from several days to three centuries. Russia experienced such declines in 1584-1610 and in 1855-1917. Pulling through this time of hardships with minimal losses for the country and its people, while avoiding making the same mistakes, are the immediate task that Russia is facing and with which it is able to cope. But a more ambitious task—a transition to a non-imperial state—still remains a dream.

 For now, my only advice is to forget about the 2000s, because they are gone for good, and remember the 1990s.

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