Suddenly, Russian President Vladimir Putin has seen his people’s trust in him falling from an already low 59 percent in November 2017 to 39 percent in September, according to the independent pollster Levada Center. This might be too low for an authoritarian leader to be sustainable. The cause is his pension reform. During his 19 years in power, Putin has faced three significant crises. In 2005, pensioners protested against his cut of social benefits, and Putin retreated. In 2011-12, Russia’s wealthy middle class lamented election fraud, and Putin steamrolled them. Since June, Putin is facing his third major crisis over increased retirement age, but now he has broken his social contract with the Russian people. When Putin came to power in 2000, he promised stability and economic growth, while he told people to keep quiet and stay out of politics. He arrived at a laid table with rising oil prices, giving Russia eminent economic growth of 7 percent a year until 2008, so people consented. Alas, Putin did not develop Russia’s weak institutions. On the contrary, he gradually ground them down. Russian businessmen saw what was happening and exported their capital to safer lands. Poor institutions and large capital flight have kept Russia’s investment persistently low, rendering Russia’s economy stagnant since 2009. Thus, Putin has violated his implicit social contract with the Russian people. He no longer delivers economic growth or rising standards of living. Instead, he has delivered increased repression and lawlessness.
Putin needs another source of legitimacy. He has chosen to hark back on the old tsarist idea of useful “small, victorious wars.” His five-day war in Georgia in August 2008 was a great domestic success and so was his annexation of Crimea in 2014. Even small wars are costly, especially if they unleash substantial foreign sanctions, as Putin’s war in Ukraine has done. I have estimated that the combined cost of Russia’s wars and the Western sanctions is 3-4 percent of GDP every year since 2014. These wars condemn Russia to economic stagnation for as long as they last, and the West is persistently ratcheting up its sanctions on Russia. Putin has promised to make his friends whole. In 2017, he signed a law that guarantees full compensation to individuals that suffer losses from hostile foreign sanctions. Curiously, Putin wants to take the money from the poor and give it to the billionaires, putting this financial burden squarely on the Russian people. During the four years of 2014-17, real disposable incomes fell by a total of no less than 17 percent, and investment slumped by 12 percent. Putin has cold nerves and he has resolved prior storms. He is meeting one regional governor after another to regroup his troops. On Sep. 26, the Duma adopted the revised pension reform, though still with support only from United Russia. Putin may benefit from some foreign destabilization once again, but more U.S. sanctions are likely in November.
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