After President Vladimir Putin appointed his new government and issued his first decrees and orders in early May 2018, the basic outline of what we could expect from his new term in office became clear. While his inaugural address and initial decrees established specific objectives, the composition of the new government and the initial statements made by his new ministers reveal how he plans to achieve them.
In his inaugural address on May 7, President Putin set the goal of making Russia a “modern and vibrant country” that would achieve breakthroughs in all areas of life. He explained that only a “free society that is open to all new and cutting-edge advances, while rejecting injustice, ignorance, crass conservatism and bureaucratic red tape, is capable of achieving these breakthroughs.” In his decree “On national goals and strategic objectives for the development of the Russian Federation through 2025” that he signed the same day, Putin urged the government to do everything possible “to achieve breakthrough scientific, technological and socio-economic development.” This, he said, would make possible sustainable and natural population growth and an average life expectancy of seventy-eight years—and of up to eighty years by 2030. It would also ensure the sustainable growth of real incomes; an increase in pensions beyond the rate of inflation; a halving of the poverty rate; the improvement of living conditions for at least five million families annually; an acceleration of the country’s technological development; the ability of at least 50 percent of all organizations to accomplish technological innovations; the accelerated introduction of digital technologies into the economy and social sphere; the Russian economy growing to become one of the world’s five largest; an economic growth rate higher than the world average coupled with economic stability and an inflation rate of 4 percent or less; and the use of modern technologies and highly qualified personnel to create high-performance export-oriented output in the basic sectors of the economy.
Many of these objectives sound rather vague and their implementation will largely depend on how leaders define such things as the poverty level and technological innovation, among others. Overall, however, the program clearly calls for enormous capital investment. But where would such funding come from, and where would it be spent? Several development programs—put forward by various groups of economists with the support of influential politicians—addressed these questions even before the presidential elections. And because the result of those elections was a foregone conclusion, the real struggle concerned not who would be the next president, but which economic development program for the next six years would be selected.
Heading that program would be the next prime minister, thus making that post the epicenter of the struggle. The assumption was that, if Dmitry Medvedev retained his post, he would continue his policy of ensuring stability with the help of various one-time measures without implementing any cardinal reforms. Such a course largely coincided with the conservative philosophy of Vladimir Putin, who believed everything was going well in Russia and that the country needed only a long period of stability without upheavals or excessive vicissitudes.
Recently, however, the impression arose that economic difficulties had persuaded the president of the need to implement some type of reform. This seemed particularly evident from the attention he lavished on former Deputy Prime Minister and Finance Minister Alexei Kudrin. In 2016, after his appointment as Chairman of the Board of the influential Center for Strategic Research—that had developed the country’s economic program during Putin’s first term—Kudrin began actively proposing reforms.
Kudrin is a supporter of the “liberal” reforms that the then de facto head of government Yegor Gaidar designed and implemented during the Yeltsin presidency, and he supports a new version of that approach now. Essentially, he proposes pursuing a strict monetarist policy that would spur economic growth. However, he also incorporates lessons learned from the failures of the 1990s. He augments the Gaidar program with increased investment for education and science, and with effective institutions for a state governed by the rule of law—including an independent court. Kudrin proposes funding those goals by raising both income tax and the retirement age.
Presidential advisor for regional economic integration Sergey Glazyev has opposed that approach with his own isolationist program. Glazyev, who once served as the Foreign Economic Relations Minister in the Gaidar government but who has since abandoned and condemned such a “liberal” philosophy, proposes ending Russia’s dependence on foreign markets and the dollar by returning to partial convertibility of the ruble, prohibiting free capital transfers abroad to stop flight, and achieving a mobilization breakthrough at home. Business ombudsman Boris Titov and presidential economic aide Andrey Belousov have put forward a different and interesting “Keynesian” program that calls for stimulating economic growth through greater investment in individual innovation-intensive sectors and by boosting business through lower taxes and the elimination of various bureaucratic barriers—even while allowing a certain level of inflation.
The composition of the new government indicates that Vladimir Putin has chosen a middle path between Medvedev’s old course and Kudrin’s proposals. He probably saw the Glazyev and Titov plans as too radical. And, although Medvedev remains Prime Minister, people aligned with Kudrin comprise a significant part of the new Cabinet. Anton Siluanov, a former Deputy Finance Minister under Kudrin, serves as the Cabinet’s only First Deputy Prime Minister. Another former Kudrin deputy, Tatiana Golikova, serves as Deputy Prime Minister for Social Policy. Obviously, she will work to implement Kudrin’s plan for upping the retirement age.
Interestingly, Putin earlier stated publicly that he would not permit an increase in the retirement age—a move fraught with the possibility of provoking widespread discontent—but he later softened that stance and essentially came to support the idea in what amounted to a significant concession to Kudrin.
In this way, the new government will consist of groups loyal to either Dmitry Medvedev or Alexei Kudrin, along with several independent technocrats and former regional governors who will eventually side with one or the other of the two. The other major figures that did not support either camp—such as Dmitry Rogozin, Arkady Dvorkovich, Igor Shuvalov and others—were removed from the government.
Putin’s decision to retain Medvedev as Prime Minister is apparently linked to a wider agreement between the two men. Putin might have promised Medvedev the presidential post after his current term ends in 2024 in exchange for having ceded that post to him in 2012. In any case, Medvedev is obedient, dutiful, unpopular, and, unlike Kudrin, has no personal ambitions—which is extremely convenient for Putin. It was impossible to appoint Kudrin as Deputy Prime Minister under Medvedev due to the strained relations between them. Putin therefore filled the government with Kudrin supporters while offering Kudrin himself the post of Accounts Chamber Chairman, thereby enabling him to monitor expenses and thus control Medvedev’s work to some extent.
By striking a balance between these various forces, Putin has created a government that is politically safe but economically ineffective. The Medvedev and Kudrin factions will compete with each other while Putin serves as arbiter. Differences within the government itself, however, complicate that task.
Ministers of the new government have already formulated plans for solving the country’s problems at the expense of the Russian people. They propose increasing not only the retirement age, but also taxes on small and medium-sized businesses that are barely managing to stay afloat as it is – and, according to new Natural Resources and Ecology Minister Dmitry Kobylkin, to issue various domestic loans. The Kudrin camp will probably advocate stricter monetary policy while the Medvedev group will try to soften such a course to avoid popular discontent. In all likelihood, such a policy will lead not to economic growth, but to continued stagnation and greater profits for the large companies privileged with carrying out state projects. Siphoning off funds from the population without providing growth in return could spark serious discontent.
In this regard, it is enough to recall what happened in the fall of 1990, when Mikhail Gorbachev combined the radical “500 Days” program of Stanislav Shatalin and Grigory Yavlinsky with the more moderate counter-proposals of Acting Prime Minister Nikolai Ryzhkov. The result: both the economy and the country collapsed. However, since at the moment the price of oil, Russia’s most important export commodity, is much higher than in 1990, the economy could as well muddle through with a growth rate close to zero. In any case, a serious breakthrough is highly unlikely.