The Interpreter

A special project of Institute of Modern Russia
Dmitry Medvedev and Alexei Kudrin/AFP Getty Images

Palace Intrigue Linked to Patronage Economy

Putin’s rule in Russia is based on his careful management of an institutionalized patronage system which has allowed him to navigate the “clan” factionalism of Russian business and political elites. Through unusually high commodity prices, and a 7 percent growth rate over the past decade, Putin was able to rely on large surpluses to placate (or marginalize) rivals by more or less throwing money at them. However, the 2008 worldwide financial crisis, underlying economic inefficiencies in Russia, and an increasingly negative economic forecast indicate mounting challenges to Putin’s patronage system.

Russia’s own Finance Ministry recently lowered its GDP growth forecast to 2.4 percent from 3.6 percent, with the IMF reducing its outlook from 3.7 to 3.4 percent. Add to these projections the forecasted pension obligations (currently there are 100 workers to 87pensioners, but by 2020 it is estimated to be 100 workers to 100 pensioners), a dwindling populace (the birth rate has dropped to 1.6 children per woman), and an increasingly aging infrastructure. It all means that more money must be put into capital investments and diversification if Russia is to stay afloat.

These developments have begun to reverberate at political level, with palace intrigue doubling as kind of a market index.

-    Former Defense Minister Anatoly Serdyukov: Ousted due to his involvement in a widespread ministry corruption scandal partly led by Serdyukov’s young mistress, a fact which can’t have gone down well with the defense minister’s father-in-law, a longtime Putin friend and ally. At a more basic level, Serdyukov’s reforms of the Russian military — he wanted to empower the civilian bureaucrats at the expense of the generals — threatened the livelihoods of the top brass of the military-industrial complex.

-    Vladislav Surkov: Officially resigned over the failure of the government to implement Putin’s social welfare plans. Also, his not-so-hidden support of Dmitry Medvedev and his open disagreements with the Investigative Committee over investigations into the Skolkovo Foundation. While several other theories have been advanced for Surkov’s sacking, his downfall suggests the continued rise of the Igor Sechin clan (Sechin’s protege is said to be Investigative Committee head Alexander Bastrykin, himself the target of opposition-led investigations in foreign property holdings and assets.)

-    Skolkovo Foundation Inquiry: The attempt to create a Russian Silicon Valley has floundered and mired several political officials in scandal. Opposition Deputy Ilya Ponomarev is the focus of corruption inquiry by the Investigative Committee over a $750,000 payment from Skolkovo Vice President Alexei Beltyukov for speaking fees and research papers. Accusations of impropriety regarding the amount and connections to the opposition underpin the investigation.

-     Alexei KudrinRecent statements by the former finance minister, who resigned after an acrimonious falling out with Medvedev in 2011, give yet a further lousy prognosis on the Russian economy.  Rumors that Kudrin will return to the White House, this time as prime minister (assuming the always-on-the-chopping-block Medvedev ever gets chopped) indicate the wavering fortunes of long-term insiders. Yesterday’s exile might just be tomorrow’s right-hand man.

If the economy does indeed perform as badly as analysts suggest, then we can expect to see further reshuffles of this sort. And then the question will have to be asked: How long before Putin’s cultivated system of indulged political fiefdoms comes undone?