Last week Vladimir Putin addressed his subjects on the global COVID-19 pandemic. Among measures he unveiled was a week-long “vacation” for everyone in the country — for which employers, including owners of restaurants, stores and a variety of other businesses, will have to pay out of their own pocket while staying closed — perhaps indefinitely so. Needless to say, they will not be compensated.
At least a vacation has some relevance to fighting the spread of the disease. His other proposal, to tax interest on bank deposits, had nothing to do with the pandemic.
However, the two measures do have something in common: they will take money away from ordinary Russians and that, as far as Putin is concerned, is a good thing..
There is a common misconception that people rebel when they are impoverished and have nothing to lose but their chains, as Karl Marx put it. In fact, the opposite is true. Poverty makes people discouraged and downtrodden. Look at Venezuela, where the population is starving but President Nicolas Maduro, an ex-bus driver, is still at the wheel.
It is financial security, not poverty, that makes people brave enough to stand up to authority. When America was a prosperous land of opportunity in the 1960s, American students protested the war abroad and injustice at home. Now that the middle class has disintegrated and ordinary Americans have to work multiple low-paying jobs with no health insurance, unemployment benefits or pensions, the inhabitants of “home of the brave” are too scared to say boo to a goose, much less seriously protest anything.
On the other hand, the French, who are enjoying a remarkable level of cradle-to-grave social protection, are out in the street at the slightest provocation.
Whether or not Soviet leaders and their modern Russian heirs understood this, they always made sure that their people lived hand to mouth, unable to enjoy any financial cushion for long.
To start with, the Bolshevik government expropriated and outlawed all private property, and then Stalin introduced a 20th-century version of slavery. Labor camp inmates worked for a bowl of watery cabbage soup but free workers in the workers’ paradise didn’t live much better. Peasants were herded into collective farms, a kind of throwback to early Medieval serfdom. Reduced to abject poverty, the Soviet people had no thought of rebellion.
While elites lived relatively well, they entirely depended on the state for their high wages and nice apartments, which were offered only to the loyal servants of the state.
After Stalin’s death, Khrushchev relaxed the most draconian policies. His haw was not only political but economic, allowing all kinds of black market activities to flourish. A small group of relatively prosperous underground entrepreneurs emerged, who didn’t depend on the state. Sure enough, in 1961 the government sprung the trap, issuing new currency and leaving those shadowy millionaires holding reams of worthless paper.
Brezhnev’s “developed socialism” provided a measure of stability and the population started to accumulate legitimate savings. Everyone still worked for the state, but a cooperative apartment, a summer house and a Zhiguli car made Soviet people feel more secure and independent. In the 1980s, protests became widespread and marches against the government drew hundreds of thousands.
The collapse of communism and the introduction of free enterprise created opportunities for ordinary Russians to make some money — and to do so independently, on their own, without currying favor with the state. Yet, since Putin came to power and the Russian state began tightening its grip on society once more, private businesses have been hounded and harassed. They are weighted down by huge taxes and numerous regulations, and navigate the labyrinth of bribery and corruption. In Putin’s kleptocracy, any business owner can be clapped in jail at any time so that their business can be stolen by some relative of the governor, the mayor or the police chief..
Large swathes of the economy have been renationalized, coming under the sway of state-owned enterprises. Opportunities for making money are diminishing and people become dependent on the state once more.
And then there is the ever-weakening ruble. Let’s say that at the start of perestroika in 1985 you had 100,000 rubles at the Soviet savings bank, the precursor of the current Sberbank. By Soviet standards this would make you exceptionally wealthy, even though at the official exchange rate your money was worth only around $115,000. Using the black market rate, you would have even less, or no more than $20,000. Still, it was a decent sum at the time even in the United States.
The black market rate doubled promptly once Gorbachev began instituting his reforms. Borders were opening and early entrepreneurs began making money. Demand for hard currency spiked.
Then came the collapse of communism. Unlike East Germans, who had the luxury of exchanging their worthless currency for Deutschmarks at parity, Russians were exposed to the bracing winds of the market. Prices spiked and by the time the smoke cleared in the late 1990s the ruble traded at 6,000 per dollar before the redenomination which removed three zeros from the currency. Your account was now worth only $15.
It got much worse. In 1998 the ruble went down from 6 to 30 per dollar and your account, accordingly, to $3.30. Thanks to a massive increase in oil prices in the early 2000s the ruble firmed, but only modestly, and your old 100,000 Soviet rubles came to be worth more than $4.
But then came the 2008 financial crisis. Curiously, even though that crisis was severe and prolonged, it was global in nature and the fall of the ruble was limited. It didn’t impoverish the Russian population after a relatively prosperous decade. A much more painful blow came in 2014. The negative impact of falling oil prices on the ruble was exacerbated by Putin’s annexation of Crimea, the wars in Eastern Ukraine and Syria and the resultant international sanctions. Putin’s ban on food imports from the EU didn’t improve the quality of life in Russia, either.
Be that as it may, your putative savings were now down to $1.50.
Over the past month, the ruble has weakened further, to nearly 80 per dollar. The coronavirus pandemic has brought the world economy to a standstill, but at the same time, Putin began a costly oil price war with Saudi Arabia, a powerful player in the oil market.
After 20 years of Putin’s misrule, the Russian state is in shambles — including most poignantly its health care system and social services. Russia is among the least well-prepared countries to deal with challenges posed by the disease and the COVID 19 epidemic has the potential of turning into a national disaster of major proportions.
Furthermore, Russia’s near-complete dependence on the production and export of oil makes it highly vulnerable in an environment when oil production is rising and demand for oil is falling. Finally, the conflict with the Saudis is not purely economic; since Putin is now entangled in the Middle-Eastern wasp’s nest, it has a strong underlying political component.
All this suggests that the ruble exchange rate is headed for 100 per dollar, or even higher, which will reduce your putative bank account to less than $1. Russian tourists, who have been mobbing resorts and duty-free stores around the world over the past two decades, are about to disappear. Russians will become much poorer once again and, as always, submissive to authority — which is exactly where Putin wants them.
