New study by CEEPS: The system of power created by V.Putin prevents modernization of the russian economy


Official Russia is carrying out destructive activities in the countries of the European Union aimed at their internal divisions and public distrust of their public administration. The Kremlin is actively disseminating misinformation both in their own country and in the West. A significant part of the messages relates to lies about Russia’s economic “power” and other countries’ power failure. At the same time, the Russian elite, during Putin’s reign, have not implemented effective public administration to work for their fellow citizens. The Russian authorities have missed opportunities to reorient their economic model towards an internationally competitive alternative and to undertake the necessary reforms. This is stated in the new collection of articles “The Russian Economy: Prospects for Putin 4.0”, published by The Center for East European Policy Studies (CEEPS).

The Russian political model assumes that the interests of the state are defined by the needs of a narrow elite, which also plays a key role in the national economy. The task of Vladimir Putin’s system of power is to protect and reproduce the long-term existence of this elite, so that the welfare of the state is only an instrument to maintain the power in the hands of the rulers. Russia’s elite has no incentive to think about economic innovation and ‘technological breakthrough’ declared by Russian propagandists before the 2018 presidential elections, it’s said in the new book.

The collection of articles states, – when Putin became president, Russia experienced rapid economic growth for almost 10 years, largely due to the significant rise in oil prices This relatively successful period has not only secured an increase in Russia’s share of the global economy (from 3.1 percent to 3.9 percent), but also boosted president Putin’s popularity. However, further development was no longer so convincing. As a result of the global financial crisis, Russia’s economy fell by 7.8 percent in 2009, followed by a more moderate growth period than at the beginning of the century, explains the researchers.

The book states that Russia has a great potential for development. It has an extensive natural resource base. Russia is estimated to hold about 30 percent of the world’s natural resources. The macroeconomic performance of the Russian economy has been stable for several years: low unemployment and inflation rates, as well as the recent replenishment of gold and foreign exchange reserves, have prevented economic cataclysms, the authors of the collection of articles indicate.

The researchers explain, that the existing system hinders the economic modernization in Russia. It is characterized by a high level of corruption; public administration tends to be associated with organized crime; National security services are used to protect the interests of the elite; state influence in economy has increased, forcing out private companies; legal nihilism discourages foreign investment.

Military spending has been a very important item in Russia’s federal budget in recent years. Russian military industry limits the living standards of the people, because thus education and health care are not sufficiently funded, tells the authors of the collection of articles.

Researchers also points out that Russia’s centralized economic policy has led to a dramatic difference in living standards between regions of Russia. The main drivers of centralization in Russia have usually been linked to the desire of the authorities to concentrate their resources on militarization, aggressive foreign policy and the consolidation of their ideology.

Researchers note that Russian capital is characterized by a strong link and dependence on the Kremlin, and hence the future uses of this money abroad. To increase the Kremlin’s influence, national political parties, think tanks, universities, football clubs, charity projects are being financed. In such a way, the Kremlin is buying supporters who become Russia’s political advocates at international level. It should be noted that the transfer of funds to the West is also seriously damaging to Russia itself as the money is no longer used for internal infrastructure, economic development and the improvement of the general level of prosperity. Thus, the policy pursued by the Kremlin is very costly to the Russian people themselves, explains the new book.

Researchers points out, that by means of misinformation messages, regular efforts are underway to undermine the trust of the citizens of the Baltic states in their public institutions and to increase the pro-Moscow views on foreign policy. Russian trolls on social networks and media controlled by the Kremlin continue to spread the message that the Baltic states are ‘failed states’ whose ‘industry has only been destroyed after the collapse of the USSR’. Propagandists purposefully compare the economic performance of Latvia, Lithuania and Estonia with the richest European countries, rather than other former Soviet Republics, which are far worse off than the Baltics, whose economies are growing and the grow rates for a number of years have surpassed many other European countries. Attempts are being made to create nostalgia for the ‘good times in the USSR’, researchers say.

The collection of articles was published by CEEPS, bringing together a team of international authors – researchers from Russia, Poland, Germany, Lithuania and Latvia. The book is a compilation of two approaches; research methods of both political science and economics help to understand current events and trends in Russia.

The collection of articles has been created in cooperation with Friedrich Ebert Foundation and the Representation of the European Commission in Latvia.

The book is freely available here.