A Moscow investment bank recently concluded that President Vladimir Putin’s popularity has become so solid, “almost no imaginable political development can significantly affect it”
That’s quite a leap of imagination for a banker, but as the assessment is widely held in domestic, as well as foreign circles, it’s worth taking a closer look at the evidence; and also at the way the president himself is acting, to see if he feels as secure as everyone thinks he should be.
The most important indicator is non-payment of wages or wage arrears – the infamous tax invented by ex-officials Boris Yeltsin, Yegor Gaidar and Anatoly Chubais. According to the official numbers, as of January 1, this fell 14 percent compared to the month earlier. The arrears total was Rb29.9 billion (US$1 billion). In absolute terms, this is the lowest level since 1996, when the International Monetary Fund, the Clinton administration and Chancellor Helmut Kohl were pumping cash into the Russian treasury to help Yeltsin win reelection that year. In terms of comparative purchasing power, the current arrears total is much lower than then.
The composition of the wage arrears is also worth noticing. Wage arrears due to shortfalls of budget spending by federal, regional and other government authorities fell 22 percent in the month of December. Wage arrears due from enterprises also fell, but less steeply by 13 percent. Most of the wage debt now owed to Russia’s workers is concentrated in the military-industrial complex that is administered by Deputy Prime Minister Ilya Klebanov. This is one reason why he should be feeling more nervous than his colleague in charge of making up budget arrears, Deputy Prime Minister Valentina Makviyenko. Watch their body language and count their eye-blinks when they speak to Putin, and you can tell. According to the Helmer theory of Russian political economy, people who haven’t been paid, spend their time blaming the Kremlin for their pain. When arrears rise, the president’s rating falls. The only time this has happened over a sustained period since Putin took office as president, was between May and August of 2000. The Kursk disaster compounded the fall in Putin’s popularity.
Recently, as wage arrears dwindled, Putin’s rating has moved in the predicted direction. Between December and January, public approval of his performance rose from 73 percent to 75 percent. It’s hard for any politician to do better than that; it’s harder to sustain that level of approval for a lengthy period. Other opinion polls show that the vast majority of Russians believe that shortage of cash is their most pressing problem, followed by shortage of adequate health care, which amounts to the same thing. The visible Soviet lines in front of physical resources have been transformed into invisible lines in front of cash that hasn’t been paid. So long as Putin keeps convincing the electorate that the end of the line is coming up soon, he won’t be blamed for the wait.
If Putin translates the wage arrears data into political action, then it’s obvious he must do more to stimulate the military-industrial complex, and the related heavy machinery manufacturers, into producing and selling more of their goods, generating the cashflow that turns into wages paid on time. And so when the Bush administration tries to block Russian arms exports, as well as nuclear reactors, US officials are striking at one of the foundations of Putin’s domestic support. The same can be said of American, as well as European efforts to shut out Russian metal imports.
It is easier for President George W Bush. As he tries the same budget financing of the military to support his political rating, Bush doesn’t have to export arms in the conventional way. He can simply launch, fire, or drop the weapons, in order to fuel the procurement process at home. Putin’s approach is more peaceable, and, ironically, more vulnerable to opposition. But Bush can hardly expect to succeed in pressuring Putin to accept both the sacrifice and the blame.
Nor can Putin be reassured by the sign that in the last quarter of 2001, capital outflow from Russia more than tripled, compared to the third quarter. This suggests that under pressure of falling world prices, lower sales volumes, and rising domestic costs, the owners and managers of Russian enterprises increased the volume of the dividends they paid themselves offshore. According to the Helmer theory of Russian cashflow, the more insecure enterprise owners are, the more they pay themselves, and the less they pay everyone else – their workers in wages, their companies in invested earnings, the government in taxes.
So here we have something of a paradox. Wage-earners seem to have been feeling more secure, so Putin’s rating has risen, and he feels more secure. On the other hand, the captains of industry appear to be feeling less secure, so they have been cutting expenditure inside the economy, and exporting cash abroad.
Another way of looking at this replaces the paradox with a clock. If enterprise cashflow doesn’t improve this quarter, then wage arrears will start to rise, and Putin’s rating is sure to follow downwards. So the question to be asked is not whether Putin is as invulnerable as last month’s statistics suggest. Rather, the question is what is being done to reverse the direction of the cash flow? This is the cutting edge of Russian politics. It is the answer to this question Putin asks himself every day that determines which enterprise, which oligarch, which government minister or underling will feel the brunt of the next attack. Of course, the more uncertain the targets are about their future, the faster they spirit their cash away. And the faster they do that, the harder Putin must pursue them. In this race no one can afford to feel invulnerable.