Putin’s Self-Destruction: Russia’s New Anti-Corruption Campaign Will Sink the Regime

Tr@nsit Online

This spring has been almost eerily calm in Russia. The protest movement, which coalesced after the rigged parliamentary elections in the autumn of 2011, has all but disintegrated, and hopes for substantive political opening have faded. High-profile liberals are in retreat or retirement, a dozen opposition activists are in jail, and President Vladimir Putin’s will is unchallenged. Even the weather has been nice, perhaps lulling the Kremlin into believing that it has little to fear. In fact, it does: unwittingly, Putin’s recent anti-corruption campaign has set the stage for the system’s collapse.

Putin’s Self-Destruction: Russia’s New Anti-Corruption Campaign Will Sink the RegimeThe anti-corruption campaign was a choice. In April, the lower house of the Russian legislature passed a law that bans members of both houses from holding foreign bank accounts. The prohibition was extended to include all public servants, including central bank officials and functionaries of state-owned corporations. Three months after Putin signs the law, government officials will be barred from opening bank accounts abroad, even to pay for educational or medical expenses.

Putin has pledged that this is only the beginning. He and his advisers know well that attacks on corruption are popular with the public. They are counting on the campaign to shore up support after the protests and to mobilize Putin’s supporters. What the Kremlin is neglecting, however, is that the campaign could be a double-edged sword that ultimately delegitimizes the regime, as Putin’s own acolytes are swept out while the government’s house is cleaned.

From Gorbachev to Putin

The fate of Mikhail Gorbachev’s anti-alcohol campaign in the last years of the Soviet Union should have provided a warning. By the 1980s, alcohol had become a major cause of death, absenteeism, and low labor productivity in the country. Its cost to the Soviet economy totaled no less than 10 percent of national income. When Gorbachev launched a program to end alcoholism in 1985, he was celebrated across the country for his courage and strategic vision. The campaign did succeed in reducing alcohol consumption, but that didn’t stop it from quickly becoming a political disaster. Ordinary Soviet citizens believed that drinking themselves to death was their right, and they actively resisted the state’s attempt to infringe upon it. They ridiculed the policy, disobeyed regulations, and made their own alcohol. These low-risk forms of everyday resistance were an enormous problem for Gorbachev, because they turned the people against the Communist Party. By the time the anti-alcohol campaign was abandoned at the end of 1987, it had severely damaged both the credibility of Gorbachev’s reforms and the Soviet leader’s popularity.

Putin’s anti-corruption effort could very well suffer a similar fate. Today, he faces his own rights-based problem: Russian elites believe that they are entitled to rob the country blind. Indeed, it is an essential part of their informal contract with Putin. They are so convinced of the sanctity of this bargain that they are ready to oppose the anticorruption effort tooth and nail. Several Russian businessmen have already resigned from the senate in order to keep their foreign bank accounts. Others have tried to hide their money better. In the next two or three years, the anticorruption campaign could puncture the myth of Putin’s power in the same way that Gorbachev’s abortive antialcohol campaign laid bare the weaknesses of the Communist Party.

Making things all the worse for the elites, the campaign came as a complete surprise to them. Throughout his time in power, Putin has been careful never to cross the elites or to raise society’s hackles about them. In fact, the family of former Russian President Boris Yeltsin buoyed Putin to power expressly to forestall any push to fight high-level political corruption and revisit the outcomes of his unpopular privatization policy. So when Putin has clamped down against graft — most notoriously in the case of the jailed former oligarch Mikhail Khodorkovsky — he has limited himself to precision strikes against well-known targets. During the days in which Putin governed Russia in tandem with then President Dmitry Medvedev, corruption was treated mostly as an institutional issue to be cured by the market, not by the courts. Between 2009 and 2012, the number of corrupt Russian officials sentenced in court was nearly halved, from 10,700 to 5,500.

Putin’s reasoning was all very simple: in his nightmares, he saw elite-led unrest in Russia’s far-flung regions and infighting among the Moscow elite bringing down his regime. The traumatic fragmentation of the 1990s haunted him. Demurring on corruption, he believed, was key to exerting control — or at least buying it from elites. To provide enough patronage to go around, he dramatically increased the size of the bureaucracy. From 2000 to 2012, the number of state officials increased by more than 65 percent — from 1.3 million to 2.1 million. And the number of security personnel in Russia, excluding the military, reached 2.3 million. Corrupt state officials have become the most important support group for the regime. So instead of reducing the corrupt bureaucracy or purging it, Putin decided to enlarge it. In the 1990s, business captured the state in Russia; after Putin’s ascendance, the state captured business. No longer was it necessary for a businessperson to bribe a state official in order to procure a government contract: in most cases, it would be the state official’s wife, lover, or partner who would win the deal.

Making corruption from above seem normal, and matching it with ever-present petty corruption from below, was also a key element of the message that was at the heart of Putin’s regime: namely, that there were no alternatives. Indeed, surveys reveal that support for the regime derives not from those who believe that corruption is not a problem — that segment of the population is fairly miniscule — but from those who agree that nothing can be done about it. It is easy to understand why: currently, approximately $300 billion — or 16 percent of Russia’s GDP — has been eaten up by corruption. In general, the costs of state investment projects exceed original es¬timates by anywhere from 250 to 400 percent.

The Navalny Factor

Why, then, did Putin bet the farm on an anti-corruption effort? The answers are surprisingly straightforward: a sluggish economy, political pressure created by a lawyer-blogger named Alexei Navalny, and, finally, a sense of betrayal.

First, in the wake of the financial crisis, Putin’s ability to deliver on earlier promises has diminished; to secure social harmony, Moscow has dramatically increased its budgetary spending, even if most of that money is either wasted or stolen. Economists claim that the cost of organizing the Winter Olympics in 2014 will be as high as the cost of organizing the games of 1994, 1998, 2002, 2006, and 2010 combi¬ned. Putin’s bureaucracy has become not only too expensive but also, as the Moscow protests demonstrated, incapable of ensuring political stability. So, more than ever before, the regime’s stability depends on its ability to improve the real incomes of ordinary Russians, and reducing corruption is the most obvious way — but as Putin will learn, also the most politically risky way — to increase government revenue.

In addition, Putin knows that Alexei Navalny, who became Russia’s most popular opposition leader after the protests of 2011, is an opponent to be taken seriously. It was only Moscow’s middle class that demanded “Russia without Putin,” but Navalny’s anti-corruption message resonated outside the capital. Most Russians endorsed his claim that the governing United Russia party was “a party of crooks and thieves.” Opinion polls indicate that, by 2010, state officials, not the oligarchs, had become the poster children for corruption. And while Navalny titillated citizens with the hope that one day he could become president, Putin wholesale adopted Navalny’s role as white knight of the corruption fight. He has tried to position himself as a man of anti-corruption actions, not simply of anti-corruption talk. (Of course, Navalny himself will probably be put in prison on a charge of — what else? — corruption.)

The reluctance of the Russian elites to join the Kremlin’s anti-Western hysteria in the wake of the Moscow protests was another factor that encouraged Putin to confront corruption. The elites’ disinclination to confront the West indicated to Putin that corruption is a veritable instrument of control but that he does not have a monopoly on wielding it. After all, Russian elites may be loyal to Putin, but they have insured themselves in the West. It is hardly surprising that those who keep their money and their families in the West are not eager to badmouth the countries where their treasured assets reside. Putin’s war on corruption — and its crackdown on foreign bank accounts — was meant to punish those elites who refused to do his bidding and force them back into the fold.

Unintended Consequences

Putin will soon learn that pervasive corruption leads to the decay of authoritarian regimes, but — as the breakdown of Hosni Mubarak’s regime in Egypt demonstrated — it is anti-corruption campaigns that often cause their collapse. In the absence of an ideology that secures the elites’ loyalty, the leader can either control corruption or use it as an instrument of control; he cannot do both.

The signs of trouble are clearly at hand. In February, Vladimir Pekhtin, chair of the State Duma ethics committee (and a well-known Putin loyalist), ironically became the first high-profile victim of the declared war on corruption. After Navalny revealed on his blog that Pekhtin had failed to declare a Miami condominium worth several million dollars, Pekhtin was forced to vacate his parliamentary seat. Putin had not wanted to punish the loyal Pekhtin, but he was forced into it by his own rules. The case is illustrative: Putin cannot decide on the targets of the anti-corruption campaign unilaterally.

Apart from the Pekhtin episode, the Kremlin initiated a wave of anti-corruption cases implicating various government agencies and state-owned companies. The Ministry of Defense came first. Following an investigation, Defense Minister Anatoly Serdyukov was sacked and questioned as a witness in a case involving illegal sales of military-owned real estate, resulting in more than $130 million in damages. Next up was a case of embezzlement by the Ministry for Regional Development for the construction of facilities for the 2012 Asia-Pacific Economic Cooperation summit in Vladivostok. (Former Deputy Minister Roman Panov wound up in prison.) Soon afterward, OAO Russian Space Systems, the company responsible for building the GLONASS satellite positioning system, found itself at the center of a scandal when it was discovered that more than $210 million had been transferred to fly-by-night company accounts. And just recently, the Ministry of Agriculture, the Ministry for Regional Development, and the Ministry of Communications have become the focus of high-profile corruption scandals. In every case, the moral of Putin’s story is unambiguous: stealing in exchange for loyalty remains the custom, but if the elites want to continue enjoying their right to steal, they should repatriate their money and family to Russia. In the case of state officials, keeping money abroad is now considered treason.

One major problem, however, is that the elites have nothing to gain from this new contract. Russian history has taught them that in times of purges, nobody can feel secure — today’s hangmen are tomorrow’s victims. The anticorruption campaign will not clean up the elites, but it will purge those who are best integrated into global business networks. The anti-corruption crusade has shifted the power of managing the economy from relatively competent liberal economists to managers enjoying the support of the top levels of the law-enforcement agencies. It is hardly surprising, therefore, that what is propagated as a war on corruption has turned into a war for power between two or more clans of corrupt officials. For the moment, the anti-corruption campaign has weakened the position of those closer to Prime Minister Dmitri Medvedev — not because they are more corrupt but because they are judged as less loyal. Putin, meanwhile, is doomed to face the bureaucracy’s forms of everyday resistance, such as constant delays, lost files, confused explanations, and low-risk boycotts.

Two factors are working to erode Putin’s power: the elite’s natural tendency to think beyond short-term interests and Putin’s enhanced requirement of loyalty. On the first point, elites are nervous because the legitimacy of the system is rooted in Putin’s personal popularity, and Putin has done nothing to prepare the system for his eventual departure. On the second, Putin has redefined loyalty so that it now means not only supporting the Kremlin’s decisions but also repatriating assets from abroad and fighting Putin’s critics as personal enemies. So, although it may look like Putin is consolidating power through the anti-corruption campaign, in reality he faces a critical moment and is at risk of losing his sway over the elites.

A familiar paradox to students of corruption is that the more the media writes about corruption, the more the people perceive their country and their government as corrupt. But it is not only this familiar dynamic that is at work in Russia. In fact, recent surveys reveal another correlation that should terrify the Kremlin’s spin doctors: the rise in citizen expectations about fighting corruption leads to demands for radical political change. And although the Kremlin hopes that the growing insecurity of the elites will make them more obedient, a viable alternative scenario is that it will push them to seek guarantees outside of Putin’s system. So, contrary to the Kremlin’s expectations, the anti-corruption campaign could both weaken the loyalty of the elites and strengthen the citizens’ demands for change. In an effort to revise the bargain that has kept him in power for over a decade, Putin may well have planted the seeds of his own demise.

Reprinted by permission of Foreign Affairs, Putin’s Self-Destruction, June 9, 2013. Copyright by the Council on Foreign Relations, Inc.

Ivan Krastev is Chair of the Centre for Liberal Strategies in Sofia, Bulgaria, and a Permanent Fellow at the Institute for Human Sciences in Vienna.
Vladislav Inozemtsev is a Professor of Economics, the Director of the Centre for Post-Industrial Studies, Moscow, and a Visiting Fellow at the Institute for Human Sciences in Vienna.