Sergei Guriev
Thirty years after the failed August 1991 coup in the Soviet Union and the dissolution of the country four months later, it is hard to avoid asking: What led to the demise of that superpower and are the same factors relevant for its successor, today’s Russia? The final years of the USSR have been the subject of many studies, including post-Soviet reformer Yegor Gaidar’s “Collapse of an Empire: Lessons for Modern Russia.” Five years ago, Russia Matters’ Simon Saradzhyan carried out a thoughtful analysis of the factors identified by Gaidar and found that some do apply to Russia still. Rather than retrace their steps, this article will consider what we have learned since then. The main takeaway is very simple.
Despite certain important differences in the overall circumstances, the key dynamic for today’s Russia is similar to that faced by the late-Soviet-era leadership: Rapid economic growth requires reforms; reforms frighten entrenched elites; lack of economic growth will eventually force the regime to change—though whether this means more democratization or more repressiveness remains to be seen.
In recent years, we have seen the crystallization—or ossification—of Putin’s political and economic model. There are certainly some similarities between this model and the Soviet one, but there are also major differences. Like its Soviet predecessor, the Russian government believes in controlling “the commanding heights” of the economy rather than relying on private entrepreneurship; since 2014, its geopolitical stance has also resulted in major isolation from the global economy. As in the 1970s-1980s, this has given rise to economic stagnation.
On the other hand, Russia’s macroeconomic policymaking is much more competent that the USSR’s. In the last years of the Soviet Union, the government did not understand the unsustainability of fixed prices (which resulted in unprecedented shortages and multi-hour lines); it ran enormous budget deficits and eventually went bankrupt. Today, Russia has very low debt, maintains a large sovereign wealth fund and runs a conservative fiscal policy. The Central Bank of Russia has switched to a monetary policy based on inflation targeting and a flexible exchange rate, which allows it to keep inflation under control. Therefore, even though the Russian economy is certainly stagnating, it is unlikely to go through a macroeconomic crisis in any foreseeable future.
Putin’s political model is also different from the Soviet one. The Soviet regime was an ideological party-based dictatorship; modern Russia is a personalistic and kleptocratic autocracy. Like many nondemocratic regimes around the world today, Russia is an “informational autocracy”: It pretends to be democratic, uses targeted rather than mass repressions, denies complicity in killing its political opponents in Russia and abroad and allows independent media and opposition parties. In the last couple of years, Russia has certainly become much more repressive; yet, even now, the level of repression (proxied, e.g., by the number of political prisoners) is not comparable to that of the pre-Gorbachev Soviet Union. This is also an important advantage relative to the Soviet model: As Daniel Treisman and I argue in our research on informational autocracies, such shapeshifting regimes are better suited for the modern age of cross-border information flows, global media and an educated workforce.
While Putin’s political system is more flexible than the Soviet one, they share an important disadvantage: They both reject necessary reforms. In his recent book “The Struggle to Save the Soviet Economy,” the Fletcher School’s Chris Miller argues that Mikhail Gorbachev’s attempts to reform the Soviet economy were doomed as he could not overcome powerful interest groups. Miller shows that Gorbachev and his advisors understood the need for reforms and examined various reform models, including those of post-Mao China. However, as defense, energy and agricultural lobbies held substantial economic and political power, all Gorbachev’s economic reform efforts stalled or failed. Putin’s government also sees that the current political and economic model cannot deliver faster income growth. But the Russian government understands that reforms would undermine the political control of the ruling elite: In order to accelerate economic growth, Russia needs rule of law, better protection of property rights, re-integration into the global economy and effective ways to fight both corruption and the state’s domination of the economy. Such reforms would result in the emergence of a large independent middle class of entrepreneurs and professionals who would demand political representation.
In keeping with the famous adage that “you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time,” mine and Treisman’s theory of informational autocracy implies that eventually a majority of voters will figure out that the leadership is failing to deliver prosperity, which will result in declining popularity and ultimately changes to the regime. This is certainly a likely outcome for Russia in the long run: Without income growth Russia will either democratize or go back to being a traditional fear-based dictatorship (as we saw in Venezuela after the decline of oil prices and the death of the charismatic Hugo Chávez).
There is of course another difference between Russia and the Soviet Union: In the last 30 years, information technology has made enormous progress. Some economists have speculated that modern artificial intelligence (AI) can help build a functioning version of the central planning system that failed so badly in the 1980s. So far neither Russia nor China—which possesses much more advanced AI technology—has tried to use AI to create a digital Gosplan. Probably both Russian and Chinese elites remember that fixing prices, even with the most powerful computers, is much riskier than letting markets balance supply and demand. Shortages are not only bad for economic efficiency; they also create lines, which is a perfect way to mobilize a large number of unhappy citizens.
However, the new technology may be a game changer for a different reason: There is a natural symbiosis between dictatorial governments and AI firms. Dictators do not respect privacy and therefore can provide unprecedented arrays of data to AI firms, which in turn can use these to earn additional profits. Meanwhile, a world-class AI sector helps dictators create a perfect surveillance state.
Evolving into such a digital dictatorship is a plausible trajectory for the Chinese regime but much less likely for Russia where rampant corruption, a relatively small domestic economy and isolation from the global economy prevent AI firms from scaling up—and AI is an industry where scale is the most important driver of productivity. Whatever happens with AI in China, it is unlikely to accelerate economic growth in Russia. Which brings us back to square one: There will be no fast economic growth without reforms; there will be no reforms; without economic growth, the regime will eventually have to change.
Will this change result in Russia’s falling apart like the Soviet Union did 30 years ago? The likely answer is no. Whether Russia will become freer or more repressive, it will still be much more homogenous than the Soviet Union. The demographic differences are huge: In the Soviet Union ethnic Russians accounted for about half the population; in modern Russia their share exceeds 80 percent. The USSR included 14 non-Russian republics with strong national identities and national elites; these comprised one-third of its territory and half the population. Out of modern Russia’s 85 constituent territories, 27 are so-called ethnic republics, autonomous districts and autonomous oblasts, but they are small and very poor or landlocked or both. It may well be the case that one or a handful of these regions will try to secede, but it is highly unlikely that Russia will disintegrate.
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