Russia Up Close -2: The End of Dark Stereotypes for the Wealthy

Not long ago, when talking about Russia, old Ladas, news of food shortages, and long lines for cheap milk in the frozen winters of Moscow were the first images that came to mind. 27 years ago, the Iron Curtain of the Eastern Bloc had fallen, and as the doors of various Eastern European countries opened to the cameras of the world's media, a difficult transition period began in which these countries were to shift from decades of command economies to free market economies. Among them, Russia, due to its exceptional size, was one of the most attractive examples for those trying to study this transition up close. During this time, the image of a Russian child holding a Coca-Cola bottle or the thousands of Muscovites lining up to enter a McDonald's and buy hamburgers became iconic in newspapers. However, today's Russia, showcasing its grand and equipped stadiums and beautiful airports during the World Cup, bears no resemblance to that dusty past filled with gray and sorrowful images. On the contrary, the image that Russia presented to the world during the World Cup was one of a happy country whose citizens excitedly welcomed World Cup guests in the brightly lit streets of bustling cities like Moscow, St. Petersburg, and Kazan, proudly shouting 'Rossiya' during their national team's games. The transition of Russia from an economy that could not supply enough meat to supermarkets to a time when many of its citizens live luxurious and expensive lives in large cities did not happen overnight. After the collapse of the Soviet Union, with the help of American economists and generous loans from the IMF and World Bank, Russia implemented one of the largest privatization projects in the world in the 1990s, which ultimately led to the formation of a class of very powerful capitalists known as Russian oligarchs. This group grew so powerful that by the end of the 1990s, their decisions and their general refusal to pay taxes brought the Russian government to the brink of bankruptcy, forcing then-President Boris Yeltsin to resign. Yeltsin was succeeded by his deputy, Vladimir Putin, a former KGB officer who was 47 years old and seemingly ready for an impossible mission: dismantling the power of these major capitalists and developing the country's economy. From this point until 2008 and the end of Putin's second presidential term, Russia experienced a historic period of economic growth: about seven percent annually; which, according to Kirill Martinov, political editor of Novaya Gazeta and a professor of political science and philosophy, was also reflected in the lives of ordinary people. However, in his view, this economic growth was not due to Putin's initiative but rather to his luck. Mr. Martinov states, 'For a while, Putin was just a lucky president. Oil prices were very high. And it is true that Russians had a very good life during this time. In fact, they had never lived as well economically as they did during Putin's first two presidential terms. The highest growth in consumption occurred during this period. People were buying cars, houses, and apartments every day.' During this time, Russia's face changed rapidly, and as skyscrapers were built one after another in the business center of Moscow, the GDP and purchasing power of the Russian people soared. Until 2008, when the global economic crisis hit, putting the brakes on Russia's economic growth and simultaneously reducing its income due to falling oil prices. According to Mikhail Krutykhin, a Russia expert and energy and oil consultant in Moscow, the problems of the Russian economy are not only due to falling oil prices but also due to structural weaknesses in a system that, according to him, never became a transparent and free economy in the Western sense and remained trapped in a powerful web of corruption and monopoly: 'People hoped that the previous system, or the state economy, would give way to a free market economy and that the private sector would have the opportunity to establish small, medium, and large companies. In reality, this did not happen. A good example to explain the state of the oil industry is that in 1995, seven and a half percent of oil was produced by government-affiliated companies. This figure has now reached 63 percent. What has happened is that over the years, government-affiliated companies like Gazprom or Rosneft have gradually monopolized this sector of the economy, and all small private companies have disappeared. This trend is also seen in other sectors of the Russian economy and is by no means suitable for economic efficiency. Private companies seek risk and innovation. Large state-owned companies only think about huge profits for senior officials. This is a corrupt system.' In this system, critics like Mr. Krutykhin insist that the oligarchs or very large capitalists still completely control the Russian economy, with the difference that Vladimir Putin, the powerful leader of Russia for the past 20 years, only allows those who are loyal to him to engage in extensive economic activities. 'Meanwhile, the heavy dependence of the Russian economy on raw material exports has created inherent flaws in the country's economic model, which, according to this economist, has been unsuitable for continuous development: 'If you look at Russia's exports, you will see that 85 percent of these exports are raw materials. Oil, gas, wood, diamonds, and coal along with steel and aluminum, which are also exported after a very primitive production process. The dimensions of exports of advanced technologies are very small. Just this past week, the Chinese also announced that they do not import advanced technology from Russia. This strategy of China, Russia's closest neighbor and one of its most important economic partners, creates a situation alongside an economy managed by the state that has created a model unsuitable for economic development.' In addition to all these problems that have practically slowed Russia's economic growth since the early years of this decade, political decisions from the Kremlin since 2015 have also become a new stone in the path of Russia's economic dynamism. Following internal protests in Ukraine and the shift of that country's government towards the European Union, the Kremlin changed its strategy towards its old brother, and ultimately developments such as the annexation of Crimea to Russia led to sanctions from the EU and the US. The sanctions ultimately led to a free fall in the value of the ruble, Russia's currency, as if it were a bullet Putin shot into his own foot. The result? A situation almost similar to Iran. As Mikhail Krutykhin states, Russians have had to tighten their belts: 'People are now buying cheaper goods. This is even seen in a place like Moscow, where the standard of living is higher than in the rest of the country. And of course, since Moscow is an expensive city, the government is currently taking measures and some subsidies are being provided. Additionally, I should add that due to the exceptional situation in Moscow, the average income of the citizens of this city is not a meaningful figure, as it is similar to the average body temperature of people in a hospital. Because in a hospital, the body temperature of some is very high. Here too, the income of a small group is astronomically high, which makes the figures meaningless. They say the average is 60,000 rubles, which I do not believe.' Furthermore, Kirill Martinov states that what is seen in the chic streets of Moscow is one side of the reality of the Russian economy. The other side of this coin is a place outside this city. This journalist says: 'If you take a train and go 100 kilometers beyond Moscow, you will see another Russia. A place that has a completely different economy. You will see people who never find stable jobs in their lifetime. And if you go to some regions like Eastern Siberia, you will see a situation that is economically very backward and resembles the Middle Ages. Alongside these, there are cities that were created during the Soviet era for specific industrial production. Now, there is no news of that industrial production, and the remaining residents in these cities struggle with severe poverty.' According to Mr. Martinov, based on official statistics, up to 20 percent of the Russian population lives below the poverty line, and in his view, this part of the reality of Russian society reflects a significant part of the problems of its current governance, as it is a clear sign of a considerable class gap in a country that was once supposed to be an ideal model of economic and social justice. He says, 'When we talk about the beautiful centers of cities like St. Petersburg and Kazan, we must also pay attention to the class gap. Currently, the class gap is the main problem of Russia. If you pay attention, the most important thing that Alexei Navalny, the main opposition leader, is doing is showing this class gap to ordinary people.' According to World Bank statistics, the level of income inequality in Russia has increased in the past 10 years, and the country is currently on par with underdeveloped countries such as Djibouti, Morocco, and Turkmenistan; a reality that ultimately probably did not catch the eyes of World Cup travelers who cheered for their teams on the warm summer nights of 2018 in the heart of cities like Moscow. Because although Russia still has a long way to go to reach the level of prosperity and economic growth of developed Western countries, it has currently succeeded in distancing itself from the dark stereotype of a former communist country.