Putin's Unsteady Year

It's been exactly one year since his return to the presidency, and he's finding it harder the third time around.

It’s been one year since Vladimir Putin’s formal return to the Russian presidency in May 2012. What he originally envisioned as a time to cement his legacy has turned into a much messier period of seeking a new equilibrium. Most notably, thanks to an unprecedented series of public demonstrations that accompanied his return to power, Putin now confronts a less deferential—and more divided—society.

While Putin has managed to remain on top politically, he has sacrificed his broader economic and social agenda, as well as his long-touted ability to serve as a unifying force in Russian society. At the one-year mark, he faces several stark choices, most of his own making.

Consolidating Power

While Putin has talked about maintaining a dialogue with the “civilized” opposition in Russia, this term clearly does not embrace all the people who protested his reelection. As a result, Putin has been busy rewriting “the rules of the game” to prevent the opposition movement from growing and directly challenging his rule. The voting procedures for all the major elected offices—governor, senator, Duma representative—have been or are being changed, with seemingly sufficient internal safeguards to ensure the maintenance of the status quo. Putin also has signed a series of laws on NGOs, public meetings, and even treason designed to heighten both uncertainty and fear, limiting the opposition’s ability to present a united front against him.

Over the past year, Putin ensured that no one emerged as a genuine alternative to his personalized rule. This strategy extends not only to his political rivals, but also to Dmitri Medvedev, his remarkably loyal prime minister who has been subject to increasingly sharp attacks from inside the president’s camp. Recent opinion polls put Putin’s overall approval in the low sixties, a healthy number but clearly below the heights of his first two terms in office. More disconcerting for Putin is the decreasing amount of people who trust him (48 percent) and the significant number of individuals who do not believe that he will fulfill his election promises (34 percent).

Putin’s other important triumph over the past twelve months involves attracting new foreign investment to develop Russia’s vast energy reserves. One of Putin’s first tasks upon returning to power was to appoint his longtime ally Igor Sechin as head of the state-owned oil company Rosneft, thus reasserting his control over the energy sector. Rosneft, in turn, has entered into major exploratory contracts with ExxonMobil, Eni and Statoil in the Russian Artic. Throw in the fact that BP now owns almost 20 percent of Rosneft (thanks to Rosneft’s purchase of TNK-BP), and western oil companies now have massive stake in Russia’s political stability, an area where Putin has been the monopoly provider.

Falling Behind

Putin remains in charge, clearly less popular than in the past but nevertheless with sufficient reservoirs of domestic and international support to maintain his current position. By focusing so much attention on his exposed political flank, however, he has not been able to follow through on his social and economic agenda. His 2012 campaign contained numerous promises—on housing, health care, pensions, education, recreation—none of which Putin has actively taken the lead on during his first year in office. Instead, he has been reduced to blaming his cabinet for inaction, publicly wondering at times if anyone was even listening to what he said.

Putin’s economic agenda also remains largely stalled. The Skolkovo Innovation Center, Medvedev’s grandiose high-tech hub, apparently has fallen out of favor after Putin started his own innovation project (the Agency for Strategic Initiatives) and rejected Skolkovo as a possible site of the forthcoming 2014 G8 summit. Meanwhile, the most significant economic development over the past year has been state-owned Rosneft’s purchase of TNK-BP, thereby enhancing Putin’s reputation as a state capitalist rather than a free marketeer. Putin returned to office with an ambitious timetable for privatizing many state industries, but important deadlines for selling off these companies have already been missed. Indeed, the Russian government appears divided as to what to do with the proceeds of such sales, whether the money should be returned to state coffers or alternatively be reinvested in the company itself.

The Russian economy faces other headwinds as well. Russian small business suffered a crippling blow over the past year with the more than doubling of the social tax—the contributions that individual businesses pay for their employees to the pension and other social funds. From December 2012 to February 2013, the number of small businesses dropped by over three hundred thousand. Boris Titov, the Russian ombudsman for business, further lamented that many Russian entrepreneurs have picked up and moved to Kazakhstan, where the tax burdens are significantly lower. Putin belatedly has responded to this deteriorating situation; he has called for alternative approaches to setting the tax, but any fix most likely would not occur until 2014.