The Next Liberal Order
The Age of Contagion Demands More Internationalism, Not Less
By sending troops into Crimea, Russian President Vladimir Putin has amplified Ukraine’s turmoil and set off the most dangerous crisis Europe has seen this century. Less noted, however, is that the move portends a significant change in Russia’s domestic politics. Putin has abandoned the strategy that has underwritten his political dominance for the last 14 years. And in doing so, he has bet the throne on an approach that is likely to fail.
The secret to Putin’s past political success is simple: Presiding over years of rapid economic recovery, he could claim credit for restoring stability after Russia’s chaotic transition from communism. During his first two presidential terms, from 2000 to 2008, the country’s growth rate averaged seven percent a year. In fact, that success mostly reflected factors beyond Putin’s control, including surging oil prices and a flood of liquidity into emerging markets. But it did also require a commitment to open borders, integration into international institutions such as the World Trade Organization and the Organization for Economic Cooperation and Development, cordial relations with Western business circles, and efforts to project an image of modernity and increasing sophistication. A 13 percent flat income tax and a conservative macroeconomic policy did not hurt.
As Russians’ incomes soared, so did Putin’s popularity. His consistently high approval ratings -- since 2000, they have never fallen below 60 percent on polls conducted by the Levada Center, a Russian nongovernmental organization -- have rallied Russia’s fractious elites to the president’s side and kept naysayers at bay. The global financial crisis in 2008–9 threw Putin’s strategy into doubt. By massively boosting spending, the government managed to protect Russians’ living standards. But in the last two years, the public has recognized that the growth rates of Putin’s first two terms are not returning. Since late 2011, quarterly growth has fallen steadily from 5.1 to 1.2 percent a year.
Recharging the economy would require a serious commitment to safeguarding property rights and attacking corruption. As stagnation deepened, rumors circulated in Moscow last year that Putin would reinstate his competent and respected former finance minister, Alexei Kudrin, and allow him to introduce political and economic reforms. But that did not happen.
Instead, with the invasion of Crimea, Putin appears to have settled on a Plan B for mobilizing support. Whereas the first approach demanded integration, the second embraces isolation. It involves appealing to emotional nationalism, berating the West, and rallying the public against supposed attempts at cultural imperialism. Plan B is not entirely new. In fact, Putin has been flirting with it since the mid-2000s. Since then, the two approaches have coexisted awkwardly. He has managed to slip back and forth between aggressive rhetoric -- for instance, comparing NATO foreign policy to that of the Third Reich -- and signing deals with Wall Street executives.
But with Russian troops now in Simferopol, Putin appears to have doubled down on nationalism and given up on rapid growth. The great champion of “stability” has taken to tearing up the map of Europe. Whatever the ultimate outcome of the recent intervention, it has already done serious damage to Russia’s economic prospects.
The military operation itself will not cost much, although perhaps more if Putin extends it to other regions of eastern Ukraine. Subsidizing the Crimean economy -- and perhaps even that of Ukraine’s Russian-speaking rust belt -- is not even the main concern. Nor is the ruble’s fall, which the Central Bank slowed on Monday with a frantic raise in interest rates and the sale of $12 billion of currency reserves. That will drive up prices of imports, which will surely anger consumers, but it will help exports and ease pressure on the budget.
The real problem is the potential medium-run fall in foreign investment and acceleration of capital flight. Wars tend to elevate perceived political risk -- and that goes double when leaders’ decisions appear erratic. Western sanctions, if they materialize, will add to the discomfort. Few investors will want to tie up money in companies whose executives may be banned from travel to the West, whose accounts may be frozen, and whose board meetings may be upstaged by the home country invading another of its neighbors.
Putin may have discounted such economic consequences based on the short-lived and moderate international reaction to Russia’s 2008 war with Georgia. But that was quite different. Russian troops intervened only after Georgian artillery fired on Russian peacemakers and local South Ossetian civilians. In the Crimea, no one had shot at the locally stationed Russian troops with so much as a peashooter. The Ukrainian case looks more like unprovoked aggression. It also starts to look like a pattern -- one that already has other countries with large Russian-speaking minorities, such as Estonia, Latvia, and Kazakhstan, worried.
If Putin has decisively embraced anti-Western nationalism as his mobilizing strategy, evidence suggests that it will not work.
For one thing, Russians, in general, do not like foreign adventures. A survey one month ago by the polling firm VCIOM found that 73 percent of respondents were opposed to Russia getting involved in Ukrainian politics. Not even supporters of the ultranationalist Liberal Democratic Party or the communists favored intervention. Of course, at the time of polling, Putin’s supporters might have thought that he favored staying out as well.
No polls have yet appeared on the Crimean operation. When they do, we should expect a temporary rally. Still, after previous comparable incidents, the immediate boost has been fleeting. In late 1999, Putin, then prime minister to President Boris Yeltsin, sent troops into Chechnya and saw his approval rating leap to 79 percent. By June 2000, it had tumbled to 61 percent. In March 2000, 73 percent of Russians favored continuing the military operation that Putin had started. By January 2001, that had fallen to 38 percent, and a majority already supported negotiating with the Chechen guerrillas. Russians rallied behind Putin in 2002, when Chechen terrorists took hostages in a Moscow theater. But just two months later, the six-point jump in his rating had evaporated. Similarly, as Russian troops fought in Georgia in September 2008, Putin’s approval surged by eight percentage points. Yet by February 2009, it had fallen back below the initial level.
Second, playing the anti-Western card may also work less well than Putin imagines. Strange as it may seem, Putin is actually much less popular among Russians who are hostile toward the West than among those with pro-Western views. After 13 years of hobnobbing with former Italian Prime Minister Silvio Berlusconi and German Chancellor Angela Merkel, it is hard for him to play the anti-establishment nationalist. In a November 2012 Levada Center poll, 72 percent of those who said they felt “very positive” about the United States approved of Putin. Among those who said they felt “very negative” about the United States, his approval rate was only 42 percent.
By reaching out to Russian patriots, Putin risks splitting his elite supporters. For his friends in business, the Ukraine operation creates enormous headaches -- from potential sanctions and travel bans to market volatility and tighter Western credit. They will see the vulgar nationalism of some of Putin’s other friends costing them money and respect, and Putin’s unpredictable behavior threatening their investments. Their loyalty will become more conditional than it already was. And as economic conditions worsen, protests are likely to break out among ordinary Russians.
Putin’s Crimean adventure thus promises to accelerate the degeneration within his regime that started with the December 2011 demonstrations and the economic slowdown. Even if the Kremlin finds a quick and face-saving exit, it will have to juggle a multiplying series of challenges -- dealing with the Ukrainian aftermath, minimizing international fallout, reassuring other neighbors, managing economic turbulence -- just as differences of opinion within the inner circle make action more difficult.