Vladislav Inozemtsev: The Foreign Agent in the Kremlin

lakhta wreck

The Foreign Agent in the Kremlin
Vladislav Inozemtsev
The Insider
December 31, 2019

One of the crucial events of the past year was passage of the law on labeling Russian nationals as “foreign agents.” Although the law emphasizes that such “agents” should disseminate information from foreign media outlets and receive financial remuneration from abroad, the notion of “foreign agent” has a quite definite meaning for most Russians: someone who works on behalf of a foreign government to the detriment of their own country.

However, if you think hard about the new law and its implementation (the Justice Ministry has been charged with designating individuals foreign agents, but citizens and NGOs will probably also be able to take the initiative), the first thing that comes to mind is the man who signed it so showily into law on December 2—Vladimir Putin, president of the Russian Federation, who took office exactly twenty years ago today, albeit as acting president.

When Putin moved into the Kremlin, Russia was successfully emerging from an economic crisis triggered by a sharp drop in oil prices in the late 1990s and the ruble crisis of 1998. These two events largely brought to a close the aftermath of the Soviet Union’s collapse and the transition from a planned economy to a market economy. Welcoming the new president, people believed him when he said, “The country’s future, the quality of the Russian economy in the twenty-first century, depends primarily on progress in those industries based on high technology and hi-tech products,” while the world took him at face value when he claimed, “Today we must declare once and for all that the Cold War is over. We abandon our stereotypes and ambitions, and henceforth we will jointly ensure the safety of the European population and the world as a whole.” It seemed that the coming decades should be extremely successful ones for Russia, and the country would inevitably takes its rightful place in the world economy and politics. However, events unfolded following a different scenario, and nearly all the trends that we can now ascertain as well-established suggest that if a CIA officer had taken charge of his country’s recently defeated enemy he would have done less damage to it than Putin has done.

First, Russia in the early noughties had very low labor costs: according to Rosstat, the average salary was $78 a month in 2000. Given that energy prices in Russia were then seven to ten times lower than in Europe, it was self-evident the country should decide to undertake large-scale industrialization by attracting foreign investors. The Central European countries, which in the late nineties and early noughties became successful industrial powers by attracting European capital (we can recall what happened with Škoda’s factories) were an example of the strategy’s wisdom.

However, despite what Russian authorities said at the time, preventing foreign capital from entering strategic industrial sectors became policy. Almost immediately after Putin came to power, the government began renationalizing assets that had been privatized in the nineties: instead of raising taxes on companies owned by Russian oligarchs, the regime commenced buying them out, constantly ratcheting up the price, culminating with Rosneft’s purchase of TNK-BP for $61 billion in 2013. In fact, taxes raised from the competitive sectors of the economy and redistributed through the budget went to buy assets in the extractive sector and were invested in rather dubious projects. Consequently, by the early teens, the share of raw materials (mineral products, ore, and metals) in Russian exports had reached 79–80%, as opposed to 50.4% of Soviet exports in 1989. Finally, in recent years, Russia has begun “diversifying” its raw materials exports by reaching out to China, effectively becoming an “energy appendage” not only of Europe but also of the whole world.

Second, as the economy became ever more dependent on extractive industries, Russia under Putin began to deindustrialize rapidly, resulting in a sharp decline in the demand for skilled workers, who could have been employed to develop the country on new foundations. According to various estimates, 16,000 to 30,000 industrial enterprises, which had employed over 13 million people in the late-Soviet period, were closed between 2000 and 2018. As of 2017, 9.9 million people were employed in Russian processing industries, as opposed to 21.7 million people in the RSFSR in 1989, although there was no significant increase in labor productivity. We can concede, of course, that a good many of these enterprises were not competitive, but most of them were never put up for auctions in which foreign investors were allowed to bid, the Russian government did not provide potential investors guarantees on investments in technically modernizing enterprises, and so on. Essentially, the government adopted a consistent policy of simplifying the industrial infrastructure, increasing dependency on imports, and most significantly, downgrading whole cities that had previously been important industrial centers. It would be no exaggeration to say that the bulk of Soviet industrial enterprises was destroyed not in the “accursed nineties,” but in the noughties and the early teens.

Third, the process went hand in glove with a demonstrative lack of attention to infrastructural problems and managing Russia’s vast expanses. About 700 airports were closed between 2000 and 2010, domestic passenger traffic dropped below international passenger traffic, and so many roads fell into disrepair and collapse that since 2012 city streets have been counted as roads in order to buff up the statistics. Infrastructure projects have been concentrated either in Moscow (e.g., the Moscow Ring Road, the Central Ring Road, expansion of the Moscow subway) or on the country’s borders as a kind of exercise in “flag waving” (e.g., Petersburg and environs, Sochi, Chechnya, the Crimean Bridge, the reconstruction of Vladivostok and Russky Island).

Consequently, rural settlements have begun dying out massively in most regions of the country: since 2000, around 30,000 villages in Russia have disappeared, and nearly 10,000 of them have eight or fewer residents. The number of residents in cities with populations ranging from 50,000 of 200,000 people has decreased: population reductions have been recorded in 70% of these cities, while the population has dropped by a quarter in more than 200 such cities. There has been a massive exodus of people from the Russian Far East.  Even the solution of longstanding problems that were handled for better or worse in the nineties has been abandoned, including disposing solid wastes, minimizing harmful emissions, and storing hazardous industrial waste. Russian infrastructure is close to collapse: depreciation of the power grids exceeds 70%, while 75% of the heating network is obsolete. Only 52.8% of local roads meet Russia’s poor standards. All attempts to remedy the situation are propaganda tricks more than anything, and yet budget funds for infrastructure are allocated regularly, just as taxes are collected from the populace.

Fourth, despite formal achievements, such as increasing life expectancy and reducing per capita alcohol consumption, the nation’s physical and mental health is verging on the disastrous. From 2000 to 2016, the number of HIV-infected Russians increased almost twelve times, reaching 1.06 million people, meaning that the threshold for an epidemic has been crossed. Spending on health care has remained extremely low. It is usually measured as a percentage of GDP, but a comparison of absolute figures is much more telling: in 2019, the government and insurance companies allocated only 23,200 rubles or €330 for every Russian, which was 14.2 times less than in Germany, and 29 times less than in the US, not counting out-of-pocket expenses.

Despite the huge influx of immigrants and migrant workers during Putin’s rule, the population of Russia (without Crimea) decreased by 2.7 million people from 2000 to 2019. Drug addiction has been spreading rapidly, becoming one of the leading causes of death among relatively young people in small towns. And yet the authorities see none of these things as a problem, limiting access to high-quality foreign medicines and accessible medical care (the number of hospitals has been halved since 2000, while the number of clinics has decreased by 40%), all the while believing the HIV crisis can be solved by promoting moral lifestyles. There is little doubt that Russia’s population should began dying off at a furious pace now that the reserves of economic growth have been exhausted.

Fifth, the formation of a bureaucratic oligarchy, able to appropriate at will what the authorities see less as “public property” and more as “budget flows,” has generated enormous corruption and blatantly inefficient public spending. A sizeable increase in spending on the space program—from 9.4 billion rubles in 2000 to 260 billion rubles in 2019—producced a drop in the number of successful launches from 34 to 22. Despite promises in 2006 to build almost 60 new nuclear power units, only 12 units have been brought online over the last twenty years. Programs for growing the military-industrial complex have not been consistently implemented: production of new weapons has been minuscule, amounting to only ten to twenty percent of Soviet-era production. The country’s only aircraft carrier has for the second time suffered combat-like damage during an “upgrade,” while its only 4.5-generation fighter has just crashed during a test flight.

The latest challenges posed to Russia by the development of information technology around the world have elicited no response whatsoever from the regime. On the contrary, the bureaucrats and siloviki have consistently acted to discourage researchers and innovators. The dominance of the siloviki in most government decision-making, their utter lack of oversight, and unprecedented incompetence have meant that much of the money that could be used effectively in the military sector and open up new frontiers for Russia has been simply been embezzled.

Sixth, Putin’s rule has been marked by the impressive “gifts” he has made to countries which the Kremlin has often identified as potential enemies. Around $780 billion was spirited from Russia between 2009 and 2019, whereas less than $120 billion was taken out of the country during the entirety of the nineties. The most important cause of this outflow was a law, passed in 2001, establishing a nine-percent tax on dividends paid to “foreign investors” or, rather, the offshore companies registered as owners of Russian assets. (The subsequent abolition of this measure in 2015 has changed little.) Much of this money was invested in passive sources of income in the west or spent on the luxurious lifestyles of Russian billionaires, thus supporting local economies in other countries.

Even more “generous,” however, was Putin’s gift to west in the form of the four million Russian citizens who have left Russia during his presidency: mainly young and middle-aged, well-educated, willing to take risks and engage in business, they now control assets outside the country that are comparable to the Russian Federation’s GDP. This wealth has been generated from scratch by talented people the Russian regime regarded as dead weight. The destruction of human capital is the biggest blow Putin has dealt to Russia, and it is no wonder western analysts argue Russia will need a hundred years at best to bridge the emerging gap.

Seventh, we cannot ignore the holy of holies: national security. We have already touched on the military sector in passing. It is a realm in which technological progress has largely boiled down to showing cartoons to members of the Russian Federal Assembly: space launches are still carried out using Soviet Proton rockets, designed in the sixties; the last of the Tu-22M strategic bombers rolled off the line in 1993; the Su-57 is based on groundwork done while designing the Su-47 during the late eighties;  and the advanced Angara (S-200) missile was developed as part of the Soviet Albatross program from 1987 to 1991. Things are no better in the secret services: agents sent on secret missions set off Geiger counters, like Lugovoy and Kovtun, blow their cover wherever they can, like Mishkin and Chepiga, or get caught in the act, as was the case with Krasikov.

The elementary inability to carry out their work in secret is the height of unprofessionalism: a handful of journalists can dig up nearly all the dirt on Russian agents, using information freely available on the internet. The same applies, among many other things, to the downing of Malaysia Airlines Flight 17 over the Donbass and the regime’s use of unprofessional, incompetent mercenaries from various private military companies.

Finally, eighth, President Putin’s foreign policy deserves special attention. Over the past ten years or so, the Kremlin’s own efforts have led to the creation of a buffer zone of neighboring countries that fear or hate Russia. If something like this could be expected from the Baltic states, which sought for decades to restore the independence they lost in 1940, no one could have imagined twenty years ago that Russia would make Georgia and Ukraine its worst enemies. However, our country’s principal “patriot”—whose daily bedtime reading seemingly consists of the works of Zbigniew Brzezinski, who once argued that Russia’s “imperial backbone” would be broken only when it lost Ukraine once and for all—has consistently sought to make Kiev recognize Moscow as its principal existential threat.

Similar sentiments have emerged in Minsk, where the authorities and populace of the country that suffered the greatest losses in the Great Patriotic War for the sake of the Soviet Union’s common victory have been nearly unanimous in their opposition to further rapprochement with Russia. We won’t even mention Russia’s damaged relations with the US and the EU: at the behest of Moscow, which is immeasurably weaker than the collective west, a new cold war has been launched that the Kremlin has no chance of winning but that could lead Russia to the same collapse suffered by the Soviet Union during the previous cold war. Meanwhile, Moscow’s hollow propaganda and its theatrical micro-militarism have been a genuine godsend to western military chiefs, who have been securing nearly unlimited defense budgets, just like the designers of advanced technology, who have been developing new weapons and gadgets in leaps and bounds.

I will not catalogue the current president’s other achievements—from destroying the Russian education system and nourishing a cult of power in society, thus generating a crisis of the family, to undermining Russian federalism and nurturing an unchecked power center in Chechnya. I will only emphasize once again that not just any foreign agent, after spending decades infiltrating the highest echelons of power in an enemy country, would be able to inflict such damage. I don’t consider Putin a foreign agent in the literal sense of the word, of course, but if it is now comme il faut in Russia to identify those who are working, allegedly, for hostile powers and thus inflicting damage on their own country, it is impossible to ignore what Putin has done over the past twenty years.

The current head of the Russian state should have a place of honor on the list of “foreign agents,” just as “Party card number one” was always reserved for Lenin in bygone days. And the west should be advised not to seek to undermine Putin’s regime but, on the contrary, do its utmost to extend his term in the Kremlin, simply because as long as Russia is so inefficient, backward, and profligate it poses no threat to the rest of the world, however much the strategists at the Pentagon try and convince the top brass otherwise.

Photo and translation by the Russian Reader

Downhill

"Lose weight with us. LPG from 890 rubles. You'll feel thinner after the first procedure." Photo by the Russian Reader
“Lose weight with us! LPG from 890 rubles. You’ll feel thinner after the first procedure.” Photo by the Russian Reader

Raw Materials, Grain, and Transport
The Russian economy has been shrinking and devolving
Pavel Aptekar
Vedomosti
November 9, 2016

As many experts had predicted, the inertia of economic policy has led to an ever-increasing shrinkage of the economy and devolution of its structure. In the last two years, the role of primary industries and the cargo haulage they generate has grown even more.

In the latest issue of Commentaries on the State and Business, Nikolay Kondrashov of the Higher School of Economics has calculated that, in the third quarter of 2016, agricultural output grew in comparison with the annual averages for 2014 by 6.6%, mining by 3.6%, and cargo haulage by 3.4%. During the same period, the volume of retail trade has decreased by 14.7%, construction by 12.8%, and manufacturing by 7.2%. According to Rosstat, real wages decreased by 13% from the third quarter of 2014 to the third quarter of 2016. This has reduced domestic demand, purchasing power and, consequently, the production of a number of consumer goods and the tempo of new construction. Sales of domestic products have increased relative to banned or seriously inflated imported goods, but overall food consumption has fallen. The contribution of manufacturing, construction, and trade to GDP has decreased, while, on the contrary, the role of extractive industries, agriculture, and the cargo turnover they generate has grown.

It is extremely difficult to break away from a resource economy and get on the path of growth. It is impossible to radically restructure the economy without major investments. They are currently at a low level and, according Vladimir Nazarov, director of the Finance Ministry’s Finance Research Institute, they are unlikely to increase. Stronger guarantees of property rights are needed,  at least, for investments to start flowing.

We can take satisfaction in the growth of agriculture, which has received a good deal of government subsidies and import-substitution preferences, but it is unlikely to provide a robust multiplier effect: the agricultural sector is heavily monopolized, and it requires less and less manpower. Agricultural equipment manufacturers may still profit, but they face serious competition from the Belarusians. Given low economic growth, the best we can look forward towithin the current framework is a slight downtick in the primary industries due to an increase in retail sales and construction, notes Nazarov.

Some growth in the manufacturing sector can be attained through defense contrats, whose impact on demand and economic growth is generally quite small. Russia can produce a limited number of products that are popular not only in the domestic market but also foreign markets, but we should not expect them to be the source of structural improvements.

The Russia economy’s structural focus on extractive industries was also typical during the fat years, but then it was mixed with windfall profits from oil sales. Nowadays, there is no hope that oil will generate growth. During a crisis, we need freedom of entrepreneurship and the development of new sectors from the bottom up, thus increasing the demand for human capital, more than ever. Otherwise, human capital degrades as well. It does not take a lot of smarts to maintain pipelines and a small number of latifundia.

Translated by Death of a Salesman. Thanks to Gabriel Levy for the heads-up

The Stability Pit, or, Bend Them like Gandhi

Screenshot of a photograph on the website of the Debt Collection Development Center. The photograph was taken during a conference on debt collection. Source: Tsentr razvitiia kollektorstva
Screenshot of a photograph found on the website of the Debt Collection Development Center. The photograph was taken during a conference on debt collection. The man in glasses displayed on the screen is identified as “M. Gandhi.” Source: Tsentr razvitiia kollektorstva

Russia in the Pit of Stability
The state has disclaimed all liability for the country’s future
Elizaveta Alexandrova-Zorina
Moskovsky Komsomolets
June 22, 2016

The country has been handed the bill for Crimea, Donbass, and “stability.” The bill includes unemployment, poverty, and hopelessness. The petrodollar dolce vita is over. The only things growing now in Russia are prices, taxes, and utility bills, while incomes, purchasing power, and the standard of living are falling. Nineteen million Russians live below the poverty line. Yet the minimum monthly cost of living in Moscow is 14,413 rubles [approx. 200 euros], and 9,452 rubles nationwide, meaning that a huge number of people who are not officially poor are barely making ends meet. Thirty-nine percent of families do not have spare cash; they spend their entire incomes on groceries. The worst thing is that these people cannot afford to buy not only things but also medicines. Almost fifty percent of the population suffers from structural hunger. And that is not is the limit: the crisis is not over yet.

On the other hand, no one in the government has been sacked, there has not been a single bankruptcy on the Forbes list of the world’s billionaires, and the number of dollar millionaires in Russia has not changed. “We picked the sweet berries together, but the bitter berries I pick alone”?

“Berries Are Sweet,” a song from the film Earthly Love (Yevgeny Matveev, dir., 1974)

The propagandists have, of course, been trying to powder the ugly picture with “poll results” claiming that eighty percent of Russians consider themselves happy, ninety-four percent look to the future with optimism, and eighty-two percent support the president’s policies. Not even the most desperately optimistic patriots believe in this anymore, however. Universal jingoistic boldness has given way to a heavy hangover, and instead of talk about Russia getting up from its knees, you more often hear the saying, “It won’t be worse than the nineties.”

It will be worse. In the nineties, it was only the free hand of the market that suffocated ordinary folk, but now the market will be reinforced by the strong arm of the state. More and more new taxes will be introduced: on property, land, vehicles, securities, and anything that moves. More and more bureaucratic dodges will be devised so the state can get its share, but from everyone and for nothing. There will be more and more new construction projects whose price tags will be doubled or trebled so the “elite” can maintain their prosperity. Phrases like “Crimea tax,” “payment for an extractive economy and decades of incompetent sloth,” and “money for officials and security forces” will be inscribed in invisible ink on each new levy, requisition, and massive construction project.

Sensitive to change, since they have something to lose, and quick off the mark, because they are able to leave, the middle class has quickly realized that hard times are coming. Since the introduction of sanctions, its ranks have thinned: some have been ruined, while others have fled. Even before the crisis, the regime did everything it could to make doing business more or less honestly in Russia unprofitable. Even the sanctions and promises to support domestic producers have changed nothing. Those who steal have it good, those who work have it bad, and the smaller the business, the more it gets fleeced. Due to the government’s anti-western rhetoric, many entrepreneurs who do business with other countries also got scared they would be targeted with everything from travel bans to confiscations of money and property. Hedging their bets, they have taken refuge in the Baltic countries, where it is easy to get a residence permit, as well as in Europe, Asia, and even Latin America. So many economic emigrants have left the country in recent years that we could speak of “economic steamships” bearing them out of the country. Many have purchased citizenships in other countries, and many of those people plan to renounce their Russian citizenships due to the passage of new laws. (The question of whether Russia needs such citizens and whether we should mourn their departure is beyond the scope of the article.)

But what will happen to those people who stay here? Will the nineties seem like a piece of cake to them?

People had no money in the nineties, but neither they did have any debt. Today, around thirty-eight million people have outstanding bank loans. This is fifty-nine percent of the working population, and it excludes people in debt to semi-underground micro lenders. Moreover, eight million people have at least three outstanding loans, and every sixth person has no way to pay back his or her debts. More than half the loans taken out in 2016 were used to pay off outstanding loans. In addition, people raised on the ideology of consumption cannot kick the credit habit even in hard time. Impoverished and unemployed, they mechanically keep on acquiring debt, using the money they have left to buy appliances or a trip to a resort, thus getting bogged down ever deeper in debt. The laws are written in the interests of the banks, and the inaction of the police and the connivance of the authorities favor the debt collectors. Banks get away with things mere mortals could not get away with. Billions are spirited out of the country annually using crooked banking schemes, and these crimes go to trial only in exceptional cases. It is one thing, however, to move capital abroad and not returns millions in loans to the treasury. It is almost a safe thing to do.

It is another matter not to give back a bank 100,000 rubles on time. True, a law regulating the work of debt collectors has finally been passe. As of 2017, absolutely criminal methods of forcing people to pay their debts will be prohibited. The law is quite timely, but you can count on laws only in countries where they are obeyed. Debt collection will thus shift from the legal realm to the semi-legal realm. Instead of official bank employees, debtors will now be getting visits from shaven-headed wise guys who supposedly have no connection to the banks.

By the way, bailiffs have recently been permitted to garnish the bank accounts of debtors. No one could care less whether you need the money for a life-or-death operation or you have a whole house of children to feed. The bank needs the money more than you do. The more the debt burden of the population increases, the more such measures will be adopted to help banks get their money back.

In the nineties, after the collapse of the Soviet Union, utility rates had not yet skyrocketed, and people could put off paying bills for years on end, until better times. There were no methods of debt collection, and besides, the housing and utilities sector had not yet been divvied up among contractors, many of whom are now in the hands of officials and their “subsidiaries,” only minus any government liability.

Nowadays, people who are overdue paying their utility bills for a couple of months are threatened with having their gas, electricity, water, and heating turned off, sued in court (which in Russia is always on the side of the strong), and can legally be evicted from their apartments. The regime, of course, serves the interests of the property management companies by increasing fines and simplifying debt collection procedures. Trying to carve up a meager budget, people wonder whether to pay the utility bills or make their loan payments. They base their decision on whom they fear most: the extortionists from the utility companies or the gangsters from the banks. The water and the power will probably not be turned off nationwide, but targeted outages and evictions will definitely kick off, and the most defenseless will be at risk. In my landing, a pensioner living with her sick son has had her electricity shut off, and the widow of a man disabled during WWII has received a “polite” threat from the housing service.

For the time being, Russians are keeping on top of their bills, but according to experts, the numbers of overdue utility bills will skyrocket and grow exponentially. Already sensing the profits to be made, collection services have taken an interest in the matter. (The new law on debt collectors, by the way, does not extend to people in debt to utility companies.) Considering their methods, this is definitely frightening. The website of the Debt Collection Development Center features a special section on extorting utility bill debts that lists such methods of pressuring debtors as special notices in the media and leafletting, participation of debt collection specialists in general tenant meetings, legal threats, and unorthodox options [nestandartnye varianty].* The last point gives me the creeps. What exactly are these unorthodox options? A clothes iron? A soldering gun? Matchsticks under the fingernails?

Another sign of the times that did not exist in the nineties is that no one feels sorry for anybody nowadays. A young family with a child has no way of paying back its foreign currency mortgage? Parents cannot pay for their son’s eduction? People have to sell the TV, car or dacha to pay off the loan used to buy that selfsame TV, car or dacha? You shouldn’t have borrowed money from a bank! You have no money to pay your bills? Sell your flat and buy one you can afford! You cannot pay for medical treatment or pay your university fees? Get a job! There are no jobs? That is your fault!

People have no sympathy for others or sense of solidarity. Nor should we expect protests and rallies in support of these who have gone into debt, even when the whole country ends up in that pit. The police and judicial system insures our government against any disturbances.

In fact, the punitive apparatus (from the police and the courts to bank debt recovery departments) is a single sector in which the state is present in one way or other. But what does the state do for its own people? It squanders state funds, including the pension fund. It cuts spending on everything not associated with the military, abroad and domestically. It has been exiting the social sector, shutting down hospitals, schools, and kindergartens, eliminating further and supplemental educational programs, canceling benefits, and reducing welfare payments that as they were amounted to kopecks. 24,000 schools, 4,800 hospitals, and 4,800 medical clinics were closed in Russia from 2001 to 2013 alone. (There is no data on the Rosstat website after 201. Apparently, it was decided to classify the information.)

The state has disclaimed all liability for the country’s future, but it still costs a lot to its people. In the nineties, the regime attempted to spend the Soviet inheritance, which was so rich that part of it is still left over today. In the noughties, it cashed in on resource extraction.  Today, it has no choice but to shake down its own citizens for money. The entire state vertical, the entire system of power, from the government to the security forces, has focused on this. And since it often has to shake the last kopecks from people’s pockets, the process will be cruel and painful.

Translated by the Russian Reader

* In the interests of fairness, I should mention I could not find this exact wording on the Debt Collection Development Center’s website, although I did find the page where the other methods listed, above, were discussed. TRR