Latynina on the Russian Morass

Hero journalist Yulia Latynina, writing in the Moscow Times:

Although everyone is now saying that Russia is going through a financial crisis, this seems strange to me. Imagine a drug addict who sold everything he owns to support his addiction, loses his job and his wife, and then says his problem is that he has no money.

The global financial crisis has shown the whole world the extent to which Prime Minister Vladimir Putin’s power vertical model is flawed — both politically and economically.

Over the past eight years, the government apparatus has been used as a mechanism to protect the highest-ranking officials to rule as they saw fit, regardless of how ineffective and incompetent they were. When oil prices were high and the state coffers were overflowing with petrodollars, the cost of running the country poorly was virtually nothing.

But with the crash in oil prices, what is going to happen now?

First, let’s look at the financial markets. The amount of corporate debt remains excessively high at a time when companies’ market values have crashed. This means corporate defaults on debt payments are bound to increase sharply. Any available funds will flee to safe havens outside the country. The only thing that will be left in Russia is a huge pile of debt, which, of course, can’t flee to the West.

What were Russia’s oligarchs doing in the years leading up to the crisis? Using shares in their Russian holdings as collateral, they gorged themselves with cheap credit from Western banks and bought up shares in Western companies. The oligarchs dutifully supported Putin’s regime in words, but their actions — investing outside of Russia — spoke louder.

Putinomics is a distorted combination of socialism and capitalism — production is socialist and consumption is capitalist. In other words, the state bears all the costs of production, and the profits are siphoned off into the personal bank accounts of a small clique with close ties to the Kremlin. Can this contorted business model hold up for long when petrodollars have stopped flooding the economy?

Even though the market value of Russia’s leading companies has dropped on average 70 percent this year, the top bureaucrats are trying to maintain the same high standards of living that they enjoyed during the oil boom years. The only way they can do this is by increasing the price of bribes that they extort from businesses and individuals.

This, of course, will increase the level of corruption even more. It will also mean that general lawlessness will run rampant in society. When there is a total collapse of the state, business owners — especially small business owners — will realize it is easier and more advantageous to simply shoot the government extortionists than to pay them.

Putin’s current model for ruling the country is clearly fundamentally flawed. The few freedoms that were granted to the people when oil prices were high will become a serious threat to the state as soon as that income flow slows down to a trickle.

For the last eight years, we have been inundated with propaganda about how the country’s enemies are trying to prevent a resurgent Russia from getting up off its knees. But when the masses become jobless, hungry and angry, it will be increasingly difficult for the Kremlin to convince the people that all of the country’s problems are the fault of the West.

In the end, however, even a severe crisis probably won’t tarnish Putin’s popularity. After all, poverty never has been a problem for dictators. As U.S. President Franklin D. Roosevelt once said, “People who are hungry and out of a job are the stuff of which dictatorships are made.”

After Russia’s oil money dries up, it is almost inevitable that Putin will become a dictator

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