Sat, Aug 26, 2017 - Page 9 News List

The Achilles’ heel of Putin’s regime

By Anders Aslund

Russian President Vladimir Putin’s authority is weaker than it seems. The bedrock of his power — the clientelist economic arrangements that he has assiduously consolidated over the past generation — has become the main threat to his political survival.

The reason is simple: The lack of credible property rights under Putin’s system of crony capitalism forces senior Russian officials and oligarchs to hold their money abroad, largely within the jurisdictions of the Western governments against which Putin rails.

With the help of carefully selected loyalists, Putin has established three circles of power: the state, state-owned corporations and loyalists’ “private” companies.

The process began during his tenure as chairman of the Russian Federal Security Service, from 1998 to 1999, when he wielded control over the secret police.

However, it was Putin’s first term as president, from 2000 to 2004, that amounts to a true masterpiece of power consolidation by a budding authoritarian.

First, in the summer of 2000, he took charge of Russian television. Next, he established his “vertical of power” over the state administration and the regional administrations, as well as his “dictatorship of law” over the judicial system. Then, in the 2003 parliamentary election, Putin gained solid control over both the State Duma (the lower house) and the Federation Council (the upper house) of the Russian legislature.

At the pinnacle of state power, the Security Council, he installed three KGB generals: Sergei Ivanov, Nikolai Patrushev and Aleksandr Bortnikov.

To strengthen the second circle of his power, Putin seized control over the state corporations one by one, beginning with Gazprom in May 2001, by appointing loyalists as chief executives and chairmen. The three top managers of state-owned companies are Igor Sechin of Rosneft, Aleksei Miller of Gazprom and Sergei Chemezov of Rostec.

Putin clinched his authority over the state sector in 2007, during his second term, with the creation of vast corporations that have since expanded substantially, with cheap state funding, often securing monopolies in their industries.

Because these companies are treated as a source of power and rent, rather than of economic growth, they are peculiarly disinterested in competition, innovation, entrepreneurship or productivity. The only relevant standard of corporate governance is loyalty to Putin.

Then there is the third circle of power, comprising Putin’s most powerful cronies — the top four appear to be Gennady Timchenko, Arkady Rotenberg, Yuri Kovalchuk and Nikolai Shamalov — and their companies.

Their behavior is usually viewed as kleptocratic, although Putin has used his legislative authority to ensure that many of their dubious activities are technically legal.

For example, cronies are entitled to buy assets from state companies at discretionary prices and fill government procurement orders with no competition.

The system Putin has created is strikingly similar to the czarist system that prevailed until the “Great Reforms” of the 1860s.

Indeed, Putin is often called a new czar, because his power is legally unlimited — although his preoccupation with opinion polls shows that public sentiment does matter.

Rather than promoting institutional development, he has pursued far-reaching deinstitutionalization aimed at concentrating executive, legislative and judicial powers in his own hands.

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