TO THE CORONAVIRUS
Politics, Economics, and the Pandemic
Commentators were quick to predict that the pandemic would accelerate the decay of Vladimir Putin’s regime. Others expected a crackdown; public fears are often a pretext for power grabs. Examples of extraordinary powers and the suspension of normal legal protections abound in countries such as Israel, Hungary, the Philippines, and Thailand.
Yet on April 2, the Russian leader did not announce a state of emergency or impose economic regulations. Instead, he delegated the country-wide decisions to the government (led by the prime minister,) while assigning specific decisions on business closures and movement restrictions to regional leaders.
If local leaders mismanage the response to the coronavirus pandemic, voters will punish them. If they succeed, Putin will receive credit for wisely delegating decision-making. That is one of his core political principles — Putin habitually distances himself from unpopular decisions, concentrating power but decentralizing responsibilities. Putin’s regime has a legacy of delegating unpopular decisions to the regional level.
Since the 2002-2004 tax reform, many revenues that previously been retained at the regional level were transferred to the federal center, while a growing number of responsibilities were transferred in the other direction. As a result, the regions became more and more dependent on the federal center. For example, when Putin was (re)elected president in 2012, he announced populist social spending policies known as “May decrees” whose implementation was largely pushed on the regional budgets, putting some of them into deficit as a result.
Instead of introducing a country-wide emergency situation or a quarantine, he announced a month-long paid national holiday. This means that the companies cannot fire employees under force-majeure legislation, but will have to keep paying salaries to their workers. This reflects a structural peculiarity of the economy — the workforce is largely immobile. Unlike in the United States, people are not used to moving to another city to find a job. About a tenth of the population still lives in monotowns, where a single industry or company dominates the economy. Tiny unemployment benefits exacerbate the lack of options for these workers if fired. Russia’s policymakers have historically been reluctant to introduce measures that increase unemployment. Instead they prefer measures that disguise joblessness, such as part-time work or lowering real wages.
Moreover, as a result of the renationalization of the economy under Putin, up to 40% of the population is employed today at state-linked or state-owned enterprises. Fully 2.6 million people work in the bloated law enforcement, security, military, and intelligence structures. These groups constitute the core of Putin’s support and typically are main recipients of state perks. For example, since 2012 the Kremlin almost doubled salaries of all federal security officials. Under the coronavirus-imposed “monthly holiday” announced by Putin, state-owned or state-linked companies in Russia will continue paying salaries to their employees.
By contrast, the social groups that are among the most hurt by the measures imposed by the Kremlin are Putin’s political opponents: independent business owners (typically small and medium) who are not dependent on state payments, and opposition-minded Russians in big cities, who receive independent news over the internet, as opposed to state-controlled mass media. The entrepreneurs will receive almost no state support and will have to continue paying salaries to their employees in the upcoming month with no revenues and no ability to fire their workers. Many face ruin. The authorities in big cities are developing new aggressive surveillance methods through internet apps that would monitor lockdown violations by individuals. That will particularly affect active internet users who are among the most opposition-minded social groups in Russia. Controlling their movements allows the Kremlin to kill two birds with one stone. Opposing Putin is a risky business. So is making predictions.
Common Crisis is a CEPA analytical series on the implications of COVID-19 for the transatlantic relationship. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
Photo: “Appeal to the citizens of Russia” by the Kremlin under CC BY 4.0.
09 April 2020