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Russian society is waking up and pushing back against Putin’s brand of authoritarianism, which it had generally accepted in the previous decade. This awakening has the potential to bring about a transformation of the system into one based on the rule of law. But continued pressure for change from below, an inclusive political process, and responsible behavior at the top are needed before Russia can truly cross into modernity. In the end, a transformed Russia will not be pro-Western or necessarily liberal, but it may become a solid and equal partner of the United States and the European Union.

Russia’s Crisis

• The political regime built by President Vladimir Putin has lost legitimacy in the eyes of the more dynamic, modernizing, and now politically active segments of society.
   
• In response, the Kremlin has made token concessions and resorted to targeted repression and restrictive and punitive legislation.
   
• The issue of values—from the role of religion to government accountability—is at the core of the tensions between the modernizers and the more conservative groups that accept the state’s complete domination of society.
   
• Opposition parties in parliament have largely failed to increase their impact. The opposition outside parliament, which includes leftists, liberals, and nationalists, has begun to coordinate its actions but still lacks credible leadership and a realistic strategy.
   
• Russia’s socioeconomic system of rent-based capitalism is cracking. Stagnant and possibly falling world oil prices put the Russian economy at risk, and the government struggles to meet its massive social obligations.
   
• The vertical of power with the elite promising fealty toward the Kremlin in exchange for a license to grow superrich is crumbling as Russia’s leaders are seeking to discipline the elite in order to save the system.

What Western Policymakers Can Do to Help Russia’s Transformation

Strengthen economic relations with Russia. Permanent normal trade relations between the United States and Russia should be expanded to create a common economic space between Russia and the European Union and to lead to Moscow’s accession to the Organization for Economic Cooperation and Development. These steps would bolster Russian economic and social evolution.

Cooperate with Moscow on regional issues. Working together on issues related to the Arctic and the North Pacific would benefit the United States and the European Union economically and geopolitically, accelerate Russia’s development, and help create a genuine security community across the Euro-Atlantic space.

Reach an agreement on U.S.-NATO-Russian cooperation in the area of missile defense. Such cooperation would help transform U.S.-Russian strategic relations by finally overcoming residual Cold War animosity.

The Three-Tiered Crisis

In a world beset by financial crisis, economic recession, and major geopolitical shifts, Russia, affected by all of these, is going through a crisis of its own. It is of a fundamental nature, affecting the country as a whole.

That Russia is in crisis is becoming apparent. What is less apparent is the exact nature and the stakes and options involved. The current crisis seems to be occurring in three areas: the political regime of personalized power, the socioeconomic system of rent-based capitalism wrapped in great-power garb on which this power rests, and the predominantly paternalistic pattern of societal behavior that has allowed this system to function in post-Communist Russia over the past two decades. In essence, the crisis reflects the emergence of new social elements within the country and the accumulation of external economic, technological, and social challenges to Russia, both of which the system cannot properly accommodate.

Since it surfaced toward the end of 2011, this crisis has deepened, and its associated conflicts have sharpened, with the choices for all players becoming starker. In the future, the crisis may again slip underground to suddenly resurface later, with a vengeance. Essentially, this multifaceted crisis is a sign of Russia’s continuing evolution. The crisis will take time to play out; its trajectory is uneven and the outcome is wide open. But it will progressively change Russia, impact the country’s direct neighbors, and, to a certain degree, affect the global environment.

On the surface, the mildly authoritarian political regime that was built by current President Vladimir Putin during the previous decade is now being challenged more massively than ever before. It has lost legitimacy in the eyes of more dynamic, potentially trend-setting segments of society and thus its long-time pretense to rule on behalf of all Russians, except for a handful of dissenters. As it struggles for its survival, it creates more divisions in society than it can manage. Having adopted a defensive posture, Russian authoritarianism is growing harsher and losing its modernization credentials. The leadership finds it difficult to set a realistic agenda for national development not to mention spearheading its implementation.

Beneath the surface, the socioeconomic system of rent-based capitalism is developing cracks. World oil prices are still reasonably high but stagnant and possibly falling, putting the Russian economy at risk. With the economic pie shrinking, there is no more property to redistribute among new members of the elite. The government’s massive social obligations create economic tensions if they are honored and threaten a mass popular backlash if they cannot be met. The Kremlin’s attempt to reconsolidate the elite on the basis of “patriotic self-limitation” changes the rules of the game for those on whom the “vertical of power”—the structural hallmark of the Putin presidency—rests.

At the very foundation of society, tectonic shifts are occurring, producing a civic awakening. The modernized segment of society has entered the formerly no-go area of political activism. To counter that, the authorities have mobilized socially conservative forces that adhere to the traditional paternalistic attitudes that allow the authorities to govern unchecked in return for providing social favors to those dependent on the state. Even more fundamentally, a debate is beginning within Russian society on the issue of values, which pits the modernist and modernizing segments against the more conservative and even fundamentalist groups that accept and even assert the state’s complete domination of society. Eventually, the outcome of this debate will determine whether Russia is ready to leave social paternalism behind.

The challenge to the domestic status quo has forced the Kremlin to look for a new balance in the international arena in order to protect and support the existing system. Moscow’s political “decoupling” from the West, which occurred in the mid-2000s, is being followed by a more fundamental separation on the issue of values. The pretense of sharing liberal ideals, such as democracy, human rights, and tolerance, and interpreting them differently according to Russia’s special conditions has been dropped. For the first time since the end of Communism, the notion of a “special Russian way” based on the conservative elements in the national tradition is gaining official support.

Geopolitically, Russia “pivoted” away from Europe toward a more familiar Eurasian vector and further in the direction of the Asia-Pacific. Relations with the West have grown more acerbic. Yet, this “pivot,” which of course does not make Russia any less European, does nothing to address the issue that Moscow formulated but failed to resolve during the presidency of Dmitry Medvedev: how to use Russia’s foreign policy, above all, as a modernization resource.

The Political Regime

The political status quo in Russia that has existed since the early 2000s is history. It used to be “authoritarianism with the consent of the governed,” in which people focused on their own agendas, while the authorities presided over rapidly improving standards of living, fueled by soaring oil prices. In that atmosphere, the private trumped the public every step of the way.

The political status quo in Russia that has existed since the early 2000s is history.

Russia has now entered uncharted waters. The ways and means that the authorities have been using to stay in power no longer work, because society has matured and grown more demanding. Even the elite increasingly realize that the present system is obsolete and does not guarantee them security in the long term. Yet, there is no clear and structured alternative in sight.

The Russian political regime has already had to reform. Yet imitation democratic institutions cannot work when elements of society have already begun to take democracy seriously, and the leadership cannot guarantee the outcome of elections if they are genuinely free and fair.

The authorities have dropped their policies of pseudo-liberal imitation that were most pronounced during the Medvedev presidency, such as extolling the virtues of freedom over “unfreedom.” Instead, they have adopted a more traditional approach that offers some openness and certainly more repression with a measure of institutionalization. Gubernatorial elections are back, albeit with important qualifications that make it virtually impossible for a non-Kremlin candidate to succeed. The process of registering political parties is dramatically easier, though one result has been the emergence of a plethora of very small groups of limited or no significance, diluting the Kremlin’s opponents. Mass antigovernment rallies are tolerated, and the figureheads of the protest movement are allowed to operate, even if they face harassment. The Kremlin has also allowed its opponents to appear occasionally on state-run television, thus demystifying them and simultaneously denouncing their views and the motives behind them.

Imitation democratic institutions cannot work when elements of society have already begun to take democracy seriously, and the leadership cannot guarantee the outcome of elections if they are genuinely free and fair.

More repressive measures include a set of legislation passed by the Duma that imposes restrictions on rallies and heavy penalties for violating the rules. Some websites can be “blacklisted” for carrying offensive content, and libel has been reinstated as a criminal offense. Opposition leaders have been either charged with common crimes or periodically detained or discredited and otherwise deterred.

The notion of an “enemy within” is again floated in pro-government quarters. The definition of “extremism” is being broadened to include criticism of the established political parties, while the official definition of what constitutes “high treason” was broadened to include threats to the constitutional order. Claiming that the protests had been inspired and instigated, as well as financed, by the United States, the Kremlin had the State Duma pass a law requiring nongovernmental organizations that receive foreign funding to register as “foreign agents.” The U.S. Agency for International Development (USAID), the provider of much of this funding, was told to stop its operations in Russia. Thus, the “enemy within” was cast as an accomplice of a powerful state seeking to weaken Russia.

In structural terms, the authorities are seeking to transform the clannish nature of the ruling elite into a more institutionalized framework. Power is becoming more centralized at the top, with the president concentrating more and more of it in his own hands, while it is becoming more diffuse at the lower rungs of the hierarchy. The cabinet, the power ministries, and the oil and gas complex are all losing their recent corporate autonomy, with their members directly subordinate to the president. Even at the lower levels, cabinet ministers, regional governors, and parliamentary deputies are being held accountable for meeting certain administrative and personal benchmarks, such as performance standards in the key areas of healthcare, education, communal services, and economic growth.

Arguing that the relatively affluent protesters, mainly in Moscow and St. Petersburg, represent only a small minority of Russia’s population, the authorities have sought to rebuild popular support for Vladimir Putin and his party, United Russia, and shore up their legitimacy. Thus, the reincarnated “Putin majority” has been cast in the role of the nation’s savior from the more cosmopolitan—and “decadent”—crowds in the capitals. United Russia was told to reenergize itself, revamp its leadership through a more competitive selection process, and be prepared to actively defend the authorities’ power monopoly. And as a fail-safe, United Russia, technically the ruling party, is being flanked by its double, the People’s Front, which appears to be an element of the corporatist state. The change of semantics is symbolic: building a “front” instead of “unity” probably means the advent of more combative politics in Russia.

There are a number of problems for the authorities in choosing a path forward, which has led to this mixed reaction of granting token concessions, engaging in targeted repression, and consolidating the leadership’s position. Any genuine liberalization of the regime would lead to the dismantlement of the ruling elite’s monopoly on power and is thus out of the question. Alternatively, ratcheting up repression is hard to stop beyond a certain point. Repression has a tendency to get out of hand and logically paves the way to a qualitatively harsher political regime. This, in turn, is likely to radicalize protesters and dramatically increase the number of those who bear a grudge against the authorities.

Both paths are extremely risky, and either could ultimately lead to the Kremlin’s loss of control of the political situation—exactly what the authorities are now trying to prevent. So far, Putin has typically avoided a clear choice, trying instead to find the safe limits of openness, repression, and consolidation. The balancing act, however, has its own limits.

The Kremlin’s failure to fully open the political system presents Russia’s rulers with a situation in which they will be seen as solely responsible for everything that goes on in the country. The elite are calculating whether they should stick with Putin or start looking for a replacement, so their consolidation may prove illusory. The more pragmatic or opportunist members may even reach out to the opposition should it grow stronger. But cobbling together a new “Putin majority” may be hazardous as well; paying for the loyalty of the current constituent elements is already weighing heavily on the budget. Moreover, quite a few ultranationalists and archconservatives within the elite are deeply unhappy about some members of the present regime’s too-close personal connections with the West. They demand a foreign policy of genuine isolationism and a regime of harsh authoritarianism at home.

The Kremlin’s failure to fully open the political system presents Russia’s rulers with a situation in which they will be seen as solely responsible for everything that goes on in the country.

The leadership now finds itself in a zugzwang, with each possible move by the authorities only exacerbating the overall situation. The authorities’ embrace of a more traditionalist approach has led to the further narrowing of their political base. Their attempts to mobilize those sections of Russian society that look to the state to solve their problems against the “cosmopolitan Muscovites” alienate the more modernist groups, not just in Moscow, that have already learned to rely on their own forces and achievements. The authorities cannot look to clerical circles for moral and political support without running the risk of turning off not only freethinkers but also the more moderate and secularly minded. Moves to consolidate the elite could lead, beyond a certain point, to serious fissures at the top of the hierarchy. Mass repression would hold the entire ruling elite hostage to those in charge of carrying out the repressive policies.

Russia’s Political Economy

The socioeconomic system that has supported the regime is also undergoing a crisis. Up until now, the fundamental principle of fealty toward the Kremlin in exchange for a license to grow superrich in whatever way has been a mainstay of the “vertical of power” and of the Russian socioeconomic system. This principle has resulted in unprecedented levels of corruption, which breed massive resentment in society and threaten to delegitimize the authorities not just in the eyes of the advanced groups but with the population as a whole, indeed among those who form the power base of the regime.

The Russian economy is still growing at around 4 percent, but the growth is slowing down, in part because of the global recession, in part because of the increasing inefficiency of Russia’s economy. Slow growth will ensure both that Russia falls even further behind in the world and that it will increasingly lack resources for dealing with its pressing socioeconomic issues. Meanwhile, capital flight from Russia, amounting to $330 billion over the past four years, has continued even after the presidential elections.

The current economic model has exhausted itself. True, Russia has a very small sovereign debt (10 percent of its GDP) and its federal budget is nearly balanced, but the economic system is based in large part on oil—a fickle commodity. For the budget to break even in 2000, the price of oil had to be $20 per barrel and before the financial crisis, that price was $40. In 2012, the breakeven price went as high as $115. The possibility that the oil price, which is now stagnating, could go down makes the country’s short- and medium-term economic situation uncertain—and that has serious social and political implications.

Putin’s two main constituencies are, on the one hand, pensioners and workers dependent on the state and, on the other, military personnel and defense industry employees. He has promised rising pensions and no increase in the pension age to the retired as well as low levels of unemployment to the workers. Simultaneously, he has embarked on a major rearmament program to benefit the military and the defense sector. Those promises are in conflict with one another.

Now, the system is being overhauled. The widespread agreement with the opposition’s accusation that the ruling party is a corrupt and cynical assembly of “thieves and crooks” combined with the fact that resentment in society, even social hatred, can lead to a revolution has concerned the authorities. The Kremlin is considering moves that would ask for much more from those who serve it in exchange for less—self-limitation in the name of the system’s survival.

In particular, the Kremlin is demanding the repatriation of officials’ assets from abroad and their legalization in Russia. This measure kills two birds with one stone: the authorities are portrayed as corruption fighters and the move enables them to impose stricter discipline on officials as the political and social situation in the country becomes tenser. These moves, however, could provoke anger from those who are not ready to isolate themselves personally from the West. They could also destabilize the elite if its upper crust was exempted from the new “repatriation” model. Given these potential repercussions, whether the new deal is accepted remains to be seen.

Exacerbating the issue, the United States and Europe are also taking steps that potentially deny Russian officials accused of human rights and other violations access to the countries where many of them keep their assets. These efforts create new tensions within the ruling elite. They push the elite, seeking protection, ever more closely toward the Kremlin, but when the elite realize their interests in the West are no longer effectively protected by the Kremlin, they may turn against Putin and label him an ineffectual protector.

Another step is aimed at the separation of business and politics. The Kremlin has proposed making businessmen politicians cease actively participating in the operations of their assets while sitting in parliament. This measure goes against an underlying principle of newly capitalist Russia that stipulates that owners and their money should never part. Businessmen politicians face the hard choice of continuing to do business without the immunity from prosecution that a seat in parliament provides or focusing on politics but delegating operational control of their assets to someone else—a risky proposition in present-day Russia. Given this, the proposed measure is likely to fail. The principle of fusing power and property lies at the heart of Russia’s socioeconomic and political system, and any meaningful attempt to dilute that link would dangerously rock the boat in which the entire elite sit.

With fewer handouts to distribute from above, the government is also publicly taking on low- and mid-level official corruption to appease the electorate and address the situation. A number of senior police officers have been replaced, and a few government bureaucrats, from the Federal Customs Service to the Ministry of Defense, have gone on trial. This does away with the various mid-level clans in order to satisfy the younger—and hungrier—elite groups while avoiding serious intra-elite conflicts.

Corruption is not a bug in the existing system but its most salient feature.

However, corruption is not a bug in the existing system but its most salient feature. A true crackdown in this area, in the fashion of Stalin or Mao, is unthinkable for Putin. However, dealing with corruption by means of opening up the political system—for instance, by introducing competitive elections, empowering the courts, and setting the electronic media free—would undermine the system itself. What remains are targeted operations against selected groups of mid-level officials undertaken by the law-enforcement agencies, who themselves are widely believed to be deeply corrupt. In the long term, this is a losing proposition.

The “federal power vertical” has evidently run its course. The danger of political separatism, which the “vertical” had been built to protect against in the first place, is no longer considered relevant, and so the system’s existence no longer necessary. Regional elites that make up the top levels of the power vertical, from Kaliningrad to Vladivostok, have become well established and do not want to be too tightly controlled from the capital. Moreover, horizontal inter-regional ties, primarily in the business sector, are growing across Russia in addition to, and sometimes in lieu of, the vertical connections. The pendulum, which turned the formal federation into a de facto unitary state, is swinging back. The “federation of corporations” centered on the capital, where all power used to reside, must now live side-by-side with a “federation of the regions.”

This, however, produces a curious phenomenon. Russia is a unitary state when it comes to issues such as the budget, privatization, and control over law-enforcement agencies. At the same time, it is a collection of clan-rul