Streetwise Professor illustrates the neo-Soviet nationalization of Russia's economy. So much for capitalism!

Recent weeks have seen the continuation of the methodical march of Putinism and Russian resource nationalism. BP surrenders Kovytka. Gazprom and the Russian government (is there a difference?) begin making noises about elbowing their way into ExxonMobil’s Sakhalin I project (heretofore largely thought immune to predation). And in today’s Eurasian Daily Monitor, Vlad Socor reports that Transneft–Russia’s oil pipeline monopoly–is squeezing the Caspian Pipeline Consortium through demands for renegotiation of existing deals and demands for new capital, with demands backed up by the old standby–outrageous bills for back taxes.

The craven behavior of BP and Shell in the face of Putin’s predations at their expense has undoubtedly emboldened the Russians to take additional steps. Similarly, the sotto voce responses of the Eurowimps are also music to Putin’s ears. When will Europe awaken to the tightening grip of the Russian python?

The losers here are not just the shareholders of integrated oil majors, or American or European consumers of gasoline and natural gas. Though they may not realize it now, it will soon become apparent to the Russian people that they will be the biggest losers. I have been reading every political economy book that discusses the role of a nation’s resource endowment on its political structure that I can get my hands on. This research emphasizes a theme that I have explored before on SWP, namely that rent intensive economies (notably those with outsized endowments of natural resources) are prone to authoritarianism and dictatorship, and that increasing economic inequality and the suppression of commercial and political activity go hand in hand with growing state control over the natural resource sector. Thus, though the energy boom (and the nickel boom and the copper boom and the aluminum boom and the gold boom) will enrich the “elite” (though referring in that way to the thuggish siloviki who rule Russia sounds discordant) with access to the rents, it will condemn most Russians to a penurious economic future and a deprivation of their civil and political liberties.

To follow Putinism is to watch these theories in action. They describe Russian political developments post-2000 to a “T.” The most depressing thing is that inasmuch as these models characterize stable equilibria as a function of underlying endowments, it is unlikely that Russia will leave this trajectory. Revolution and violence are possible, but the likely results of such an explosion would mainly be (a) much death and destruction, and (b) a replacement of the old set of rent parasites with a new set. So, it is well to wish the destruction of Putinism, it is far harder even to imagine how that can be accomplished.

This is particularly true because Putin is doing the basic blocking and tackling needed to secure an authoritarian regime. The moves to revise the history textbooks provided to Russian primary and secondary students and Putin’s historical revisionism (e.g., his assertions that Russia and the USSR have a pristine record as compared to those blood-stained Americans) represent classical authoritarian moves to control the future by controlling the past. Presenting a unifying historical narrative congenial to the regime and suppressing the voicing of any alternative, more discordant, narrative reduces the costs of maintaining control. Similarly, the harassment and sometimes suppression of any non-state organization that could serve as a focal point for collective action directed against the regime is a traditional means of retaining and strengthening control. The atomization of Russian society, and the replacement of myriad spontaneous and organic links of individuals and groups across society with managed vertical relations intermediated by the state and its creatures (a wheel and spoke vs. a network model of society) cripple the formation of alternative sources of power and influence that can challenge the regime.

Not a happy vision, indeed. But Western nations need to develop a Russian policy based on a sober assessment of current realities, and likely future developments. Happy talk in Kennebunkport, or pitiful plaints about the desire for normal relations with Russia, or craven energy executives opening their wallets just after Putin took their watches, are all manifestations of denial. A denial of the reality of “modern” Russia (which is oh-so-much like not-so-modern Russia, and pre-modern Russia). Until the scales drop from European and American eyes, and they devise policies that deal with realities rather than deny them, Putin will march from triumph to triumph. It is unlikely that Putinsim–which is just a latter-day Russian version of natural resource sustained authoritarianism–can be quashed completely, and Russia transformed into a liberal (in the classical sense) modern state and civil society. However, unified resistance can mitigate its more deleterious consequences (at least for non-Russians.) As long as short sighted, commercial interests drive European policy in particular, however, such resistance is unlikely to arise.

Collective action is needed, but collective action is always difficult due to free riding and rent seeking. The entire justification for a European Union is its purported ability to facilitate collective action on matters of common interest and concern. Insofar as Russia policy is concerned, it has failed miserably in this task. The “interests” of individual states, and more shockingly, individual companies within these states (most notably German and Italian), have precluded any robust collective response to Putin’s march. Until that changes, Putin wins, and Russians (and myriad others) lose.