Courtesy Reuters Vladimir Putin stands in front of a map of Russia in his residence outside of Moscow.

Putin's Fairy Tale

Why Russia Will Try -- and Fail -- To Build a New Empire

Since returning to the Russian presidency in 2012 amid stagnant economic growth and dropping poll numbers, Vladimir Putin has been grasping for a narrative that could legitimize a second decade of his rule. That search explains, in part, why Putin seized on the crisis in Ukraine. It has allowed him to present a bold new vision for Russia, one based on a promise of a national resurgence, a promise that is hugely appealing for Russians -- in the short term, at least. But in the long term, Putin’s new national story has only set them up for disappointment and economic pain.

For most of the 2000s, Putin’s semi-authoritarian model of politics rested on a simple bargain with Russia’s population: Your political freedoms may shrink, but your incomes will rise. This was as true for ordinary Russians as it was, on a dramatically greater scale, for the oligarchs. Wealth and living standards rose faster during this period than at any other point in Russia’s history. In the first decade of the twenty-first century, per capita income went from about $2,000 to more than $10,000. Against the background of that growth, most Russians were willing to tolerate a steady constriction of political accountability and the growth of a predatory and corrupted bureaucracy.

Russia’s economy is still growing, but it is losing steam. In the years before the global economic crisis of 2008–9, Russian GDP expanded roughly seven percent every year. In the years since, that figure has fallen to just 2.5 percent, and in 2013 the economy grew only 1.3 percent -- its worst mark since the 2009 contraction and its slowest positive rate since 1999. Disposable income growth has collapsed to just 1.5 percent a year after growing an average of nearly 15 percent every year between 2004 and 2010, with the exception of the crisis year of 2009, according to Bloomberg data.

Economists say that improving Russia’s economic growth would require a range of structural reforms. But Putin, keen to protect his key political constituencies -- oligarchs on the one hand and Russia’s large population of state-dependent workers, bureaucrats, and pensioners on the other -- has avoided major policy changes. As a result, the economy has drifted further into stagnation. It was thus not surprising when Putin’s approval ratings slumped to 61 percent late last year -- an enviable mark for most Western politicians these days, but for Putin, his poorest showing in 14 years.

In response, the president has abandoned economic justifications for his rule and adopted reactionary conservatism. He has embraced the Eurasian notion of a morally exceptional and culturally distinct Russia besieged by Western immorality and materialism. State-owned media have taken up increasingly xenophobic and, in particular, homophobic themes over the past year, and independent media have come under intense pressure. After a brief, tightly controlled experiment with allowing the emergence of a true political opposition, the Kremlin has again closed the gates on democratization. The conservative resurgence has been designed chiefly to suppress the question of Putin’s legitimacy, rather than answer it.

Putin has now hit on a fresh narrative to justify his presidency. In his combative speech last week in defense of Crimea’s annexation, he defined the overthrow of former Ukrainian President Viktor Yanukovych as an act of aggression by the West against Russia. He went on to say that Russia was finally prepared to push back against decades, if not centuries, of Western hostility. He outlined a new foreign policy doctrine with an expansive definition of Russian interests. Moscow would now treat the welfare of ethnic Russians outside of Russia as more important than international law, bilateral relations with its neighbors, and rapprochement with the West. It is a vigorously revanchist message framed in terms of popular will and historical grievances. “If you compress a spring all the way to its limit,” Putin threatened, “it will spring back hard.”

Putinism is no longer underpinned by the promise of economic growth but by the vision of a resurgent Russian empire. This has played very well with the Russian public, which overwhelmingly supported the annexation of Crimea, even at the cost of Russia’s relations with the West. The percentage of Russians who think of Russia as “a great power” is higher than ever at 63 percent, whereas opinions of the European Union and the United States are at post-Soviet lows -- 56 percent of Russians view the United States negatively, and 41 percent say the same of the European Union. Even before the Crimea speech, Putin’s approval ratings had shot up to a three-year high of 72 percent, according to the independent Levada Center in Moscow. Since then, they have risen to 80 percent, the president’s highest rating in four years.  

But Putin has embarked on a risky, even self-defeating, strategy. His vision of a Russia actively advancing its interests against a hostile West will require constant reinforcement through fresh shows of force, defiance, and even territorial conquest. The trouble is that Russia’s actual room for maneuver is limited, both geopolitically and economically. In pursuing a neo-imperial idea, Putin runs the risk of raising expectations that cannot easily be met, while incurring economic damage that cannot easily be repaired.

The formal component of Russia’s new empire was supposed to be the Eurasian Customs Union, which Putin had envisioned as the centerpiece of a Eurasian political bloc set to launch in 2015. The customs union already includes a wary Kazakhstan and Belarus. But Putin’s vision has suffered a severe setback now that Ukraine -- Russia’s largest regional trade partner and the second-largest economy and population in the former Soviet Union -- has opted for European political and economic structures. It is difficult to imagine any future Ukrainian government folding itself back into Moscow’s embrace.

There are also severe constraints on Putin’s plan to use Russian or Russophone populations abroad as an instrument of empire. Russia has already backed the separatist enclaves of Transnistria, Abkhazia, and South Ossetia, but these small territories have not contributed much to Putin’s imperial project; they are not as culturally important to Russia as Crimea. Russia’s remaining diaspora populations are heavily concentrated in Estonia, Kazakhstan, Latvia, and eastern Ukraine, while Belarus has a high percentage of Russian speakers. In the Baltics, Moscow’s room for maneuver is limited by these countries’ membership in the European Union and NATO. Moscow recently raised the issue of language rights in eastern Estonia, where Russians comprise more than 70 percent of the population in the border region of Ida-Viru. But even if Russia were able to stir up secessionist sentiment -- which is surely harder in a relatively prosperous EU member state than it is in a politically and financially shattered Ukraine -- direct intervention would risk military conflict with the world’s largest military alliance. Putin may act tough, but the prospect of a war with NATO is likely enough to scare him off.

In Kazakhstan and Belarus, playing the ethnic Russian card would needlessly antagonize Russia’s largest dependable allies in the region. As Andrew Wilson of the European Council on Foreign Relations recently argued in Foreign Affairs, the mere threat of a Russian intervention to protect Russian speakers abroad has already driven a wedge between Moscow and Minsk. Astana may have similar concerns. Moreover, Kazakhstan’s deepening ties with China surely limit Russia’s willingness to destabilize the country in the name of Russian expansionism.

That leaves eastern Ukraine. Russian troops are currently massed across the border, and any outburst of serious violence between pro-Kiev and pro-Moscow groups -- stoked deliberately by Moscow or resulting from a local miscalculation -- would virtually assure a Russian incursion. But even eastern Ukraine is not an obvious or easy prize for Putin. The percentage of ethnic Russians and their appetite for annexation by Russia are both considerably lower in the eastern and southern provinces of Ukraine than they are in Crimea. In addition, any such incursion would meet at least some resistance from the Ukrainian military and nationalist paramilitaries. Russian state media would surely present a Russian invasion as a necessary mission to protect the rights of ethnic Russians under threat from Ukrainian “fascists.” But any serious, prolonged bloodshed in eastern Ukraine would have serious costs for Putin.

Russia has very few geopolitical options for realizing its vision of an imperial resurgence. At the same time, any attempt to pursue a more pugnacious and assertive foreign policy would carry high economic costs, to which Russia is increasingly vulnerable. To be fair, Russia’s economy is not yet on the edge of crisis. Moscow has nearly $500 billion in foreign currency reserves, exceptionally low sovereign debt, and continues to benefit from relatively high oil prices. But Russia also suffers from many economic vulnerabilities, including low levels of investment, increasing capital flight, and an overwhelming dependence on energy exports, which are less profitable than ever.  

To be sure, Putin’s strategy toward Ukraine extends beyond mere economic calculations, but he has to take into account that any further incursions into the country will likely trigger so-called level-three sanctions from the West, which would target broad sectors of the Russian economy. Although no Western government is willing to sanction the Russian oil industry -- which puts seven million barrels per day on the global market -- some might be willing to put crippling curbs on the Russian financial or mining sectors. Russia’s economy will already struggle to grow this year in any event. Further sanctions and sustained capital flight would lead to economic contraction.

Lastly, Putin must keep in mind that imperial expansion is expensive. Initial estimates by Russian officials put the cost of investment and subsidies in Crimea at several billion dollars annually for the next several years. That may not sound like much for a $2 trillion economy, but growing fiscal pressures have already forced the Russian government to cut federal allocations to regional budgets for the past two years. Even tiny South Ossetia, for its part, has complained that promises of Russian financial largesse after the Russia-Georgia War have failed to materialize. The financial drain of, say, supporting a separatist government in eastern Ukraine -- were it even possible -- would be substantially higher.

In his response to the Ukraine crisis, Putin has indeed crafted a new narrative to legitimize his power. For Russians tired of perceived slights and betrayals by the West, it is a seductive one. But the narrative is fundamentally unrealistic. A country with an ailing economy cannot afford dreams of revanchist grandeur. Russians seem not yet to have realized this fact. Hopefully, Putin soon will.

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