The night of the long shovels
(The shop is temporarily closed. Says it all really.)
In recent days, the main economic news in Russia is not the oil price (which of course remains dangerously low), but the clearing out of street stalls and kiosks around the subway stations. Those used to serve the function of mini-markets for the passers-by for a long time. Of course, most of them were pretty ugly and they looked as if they had been compiled out of materials from the scrap-heap. But many people still bemoan their removal because, apart from essentially being convenient little stores, they used to sell cheaper than the larger supermarkets. The authorities are preparing to remove at least 100 such vendors from various parts of Moscow, claiming these have been raised in violation of trade law and all hygiene requirements.
The response around the social networks has been that of dismay and anger. Many have called the actions of the Moscow mayor "the night of the long shovels", in a somewhat hyperbolised allusion to Hitler's Night of the Long Knives. Still, one could sympathise with the Muscovites, because the measure will narrow the market down to a very elitist segment of big trade chains, and will force many people to change their customer habits, and spend more money in a situation that already awfully smells of recession. Some are logically asking themselves why the city authorities would do such a thing in an election year, and risk creating thousands of potential protest votes.
This animosity to the actions of the Moscow mayor Sergey Sobyanin (himself a former Putin party aide) is added to the deteriorating economic situation in the country. Recent polls indicade that 40% of the Russians believe the situation is worse than it was in 2005 (another crisis time). And for a good reason. Last year the Russian economy shrank by 3.8%, which is its worst slump since 2009. Inflation was 13% in 2015, and keeps soaring. Meanwhile, the real salaries are plunging. Foreign investment is drying up because of the sanctions, and the low oil prices have caused the ruble to plummet. Which all means that 2016 will be a second recession year in a row.
Now even the government admits the economic situation could sharply deteriorate sometime in the near future if the oil price (the country's main revenue source) keeps sinking. So the authorities are busy preparing a crisis plan, and last month Putin called all CEOs of the 7 largest state corporations to a meeting, and brought up the possibility of privatisation. The idea is to sell chunks of major key assets like oil giant Rosneft, second-largest bank VTB, and the Aeroflot air carrier. This is an obvious attempt to plug some gaping holes in the budget, but the thing is, aside from putting out the fire, Putin would also need to do some serious reform. As for the opposition, it remains passive in the whole situation. People themselves, on the other hand, seem prepared to protest, although they keep waiting and hoping that the government would "do something" for the time being. For how long - that remains to be seen. The Russian patience could be really huge at times. But once it runs out, things could get ugly.
We've talked here about possible coups against Putin in case Russia gets entangled in Syria too deeply. I'd say that's not going to be the main reason for social unrest - rather, it'd be again the economy.
A simple check reveals that "price per barrel" is currently among the most popular searches around the Russian search engines. Although estimates show that oil's share in the Russian economy has diminished from 70% to 45% now, oil price remains the main indicator for the state of the Russian economy. The dollar rates are among the most frequently discussed topics in the Russian social networks. The dollar now costs well over 80 rubles, and there were days when it seemed close to breaking the 100 ruble psychological threshold. So you can imagine why the news that flights to Egypt (previously canceled after the downing of the Russian plane over Sinai) could be restored now, is no longer making anyone happy. The Russians have visibly limited their trips abroad, and now they prefer to remain passive, and save money instead. The middle class, which was one of the major achievements of Putin's initial years of prosperity, is visibly wearing thin. In the meantime, a process that some call "anchoring into poverty" is gaining pace: more and more households are focusing on meeting their basic everyday needs, postponing larger investment and preferring to spend money mostly on food and clothes instead.
Still, Putin's approval ratings remain high enough, although they may've taken a wee hit lately (from 85% to 82%). In the meantime, 34% of the polled believe the country is moving in a wrong direction, while 45% disagree.
Most Putin critics both from the right and left are saying the government will finally make up its mind on doing tough reform as soon as the oil price goes below 20 dollars per barrel, as was the case in the 90s (although the situation was much worse back then). As if to remind of those days, one of the major Russian TVs has aired a movie about the 1998 collapse and the way the government of Sergey Kiriyenko fell after the PM had announced Russia would no longer be serving its foreign debt. The current finance minister Anton Siluanov also recently hinted on a possible repetition of the 1998 scenario, although he didn't mean total collapse but rather hyperinflation that Russia could face if the budget is not revised soon. Granted, the government has already started correcting its expenditure part, the budgets of most sectors being expected to be cut by at least 10%, save for welfare. But, as the Kommersant newspaper estimates, this whole plan is likely to be worth just 737 bn rubles, while the real cuts that are needed exceed 1.7 trillion.
In addition, the government says it's preparing a crisis plan, which includes financial aid to such key sectors like agriculture, the heavy industry, residential construction, and the food industry.
Former finance minister Alexei Kudrin, now positioned close to the liberal opposition, but still having some influence on the president, has already criticised the plan. He believes it won't help the Russian economy much, because what's needed more than this is structural reform. Many sectors will have to be overhauled, but it's important not to touch education and health care, he says - welfare and defense will probably suffer, though. And all of this will have to be done with extreme caution.
The government is trying to contain the steep dollar rates for now, without venturing into serious budget changes. If that doesn't help, either taxes will have to be raised and/or social expenses to be cut. And money-printing will ensue. In any case, Putin will attempt some heavy-hand intervention: possible interest rate cuts, even placing limitations on foreign currency purchases in some cases. We should note that the idea of a re-industrialisation and reorientation to domestic production rather than imports is also supported by some moderate liberals. But no matter if Putin opts for the liberal or the leftist plan, the oil price doesn't look likely to go back up any time soon. And this will bring trouble to some Russian regions - many of which heavily rely on subsidies.
(Regional economic disparities: winners [red], mediocre [brown], and losers [green]).
Curiously, most expenses in the crisis plan are meant to be funneled to the lagging regions. As a rule, the level of attention that the regions are granted is a fine indicator of the situation, because at times of crisis, the authorities tend to get overly concerned that the weaker parts of the country could be hit first, and this could cause social unrest that could then spread into the more developed areas. Indeed, people in the regions have already experienced a drastic slump of their living standard because of inflation. This is most severely felt in the Ural region, where prices have increased by 15%. Ironically, it is this region that Boris Yeltsin came from, the first opposition leader in the dying Soviet Union who became the champion of the protests, and subsequently the first president of Russia. The polls suggest that nearly 17% of the Russian public could participate in possible protests. A few days ago, dozens of angry citizens who had become victims of "currency mortgage" blocked one of Moscow's main streets, Tverskaya. They had taken mortgage loans in dollars at a time when the USD was worth 36 rubles - and now that the ruble has plunged, they're no longer able to pay their installments. The debtors are prepared to protest, granted, but they still seem to believe that the government is the one factor that would be able to help them - even if it was the government that failed to avert the current situation.
The expectation is that the most likely trigger for possible mass protests would be a major halting of salary payments (another reminiscence of the 90s). Tends of thousands of people from all across the country are already complaining of such a problem, the bulk of them from the public services sector and the education sector. Prime minister Medvedev now admits it's possible to have a chronic delay of salary payments because of the crisis situation. Sure, minor social protests tend to happen in Russia every now and then, but it's still early to make predictions about things going out of hand. The reason is that the level of tolerance of the Russian people is quite high in general. It is possible to see some regional expressions of discontent, but in order to see something serious, we may have to wait for the real incomes to be cut in half or even lower.
So far, most Russians prefer to look for alternative, additional sources of income in the crisis, rather than occupying themselves with pissing against the wind. For instance, I'm familiar with a guy whom I often call whenever I visit Moscow on a biz trip, who has agreed to be my regular taxi driver at some generous discount. I know for a fact this is actually his third job, apart from being a guard at a sanatorium for 130 dollars a month, and an occasional delivery guy. He now says the three jobs are barely enough for him and his wife to make ends meet. And yet, he doesn't seem to be willing to go protesting any time soon, because he's concerned this could make things even worse.
Quite tellingly, the debate about the Russian economy being in urgent need of a major overhaul is now very much present in the Russian televisions as well. As a rule, the more serious topics are kept away from the general public - not necessarily through censorship, but by dumping them in the late TV hours - while all sorts of bullshit criminal soapies circulate around the waves in prime time for everyone to keep themselves occupied with. In recent times, just as in the late Soviet times, the TV has started sneaking in stories about how bad things have gotten in Western Europe - again a distraction (or an excuse?) from the domestic problems. Some have joked that this all reminds of Soviet-time propaganda "documentaries" that used to report things like, "New York is busy, preparing for Christmas. This won't make unemployed John any happier". Never mind the fact that in the meantime your regular babushka in Moscow would barely be able to afford thе daily loaf of bread.
Except, things aren't that funny any more. Sure, Russia would hardly revert to the 90s situation - that threshold may've been passed for good already. But it's also true that Europe in general, and Russia included, is going to spend a lot of time in austerity mode from now on, whether it likes it or not. What's more, people in Russia, as usual, keep hoping that the state would solve their social problems. That's part of the Russian mentality: always look for the state first to solve things for you. Deep down, the state may be despised, hated even - but on the surface, it's still being respected and obeyed, and viewed as the lesser among an array of evils (chaos and disruption being the worst of them). If this confidence in the state as the primary factor gets eroded beyond a critical level, it's then that things could go ugly. Not before. And not because of external events like some war thousands of miles away.
The problem is, that same state keeps operating within an economic model that's been there for decades, is inherently dysfunctional, and whose flaws, long concealed, are now being readily exposed by the pressure that the current economic situation has put on the whole system. Russia is not just in deep crisis - it suffers an internal crisis of confidence in its core institutions, and even worse, a lack of a sense of direction. And all of this is happening at a time of extraordinary activeness at the international stage - just as Russia is trying to break the US-dominated monopolar world model that came into being after the Cold War (the interventions in Ukraine and Syria being the starkest examples).
The hopes that the oil shock would painfully bring Russia back to a state of political and economic realism and pragmatism that would then kick-start a cathartic process of meaningful economic diversification, technological development and real investment in human capital, are proving futile. The current financial and power elites are so entangled in the status quo that they're fiercely opposed to changing it. Instead, they're hoping that the oil price would somehow magically go back up to comfortable levels on its own. Meanwhile, the groups that are interested in real change remain too weak to do anything on the matter. All the while, every day of postponing the Russian revival is bringing Russia one step closer to rot, and eventually, collapse.