Photographer: Klimentyev Mikhail/ITAR-TASS/Corbis

Rust Belt Russians Lash Out as Putin's Economy Sputters

The oil boom fueled consumer spending and raised living standards, while the industrial base languished. Now Russians are paying the price—and protesting.

Vladimir Putin's economic model has relied on abundant oil and gas revenue to fuel consumer spending and raise living standards. Modernizing Russia's outdated industrial base hasn't been a priority.

Now that model is tottering, as depressed oil prices and Western sanctions send the economy into recession. And Russians are increasingly unhappy about it.

Look at what's happening in Vologda, a region in northwestern Russia that's home to scores of factories producing everything from textiles to steel. Employees at bus and trolley car manufacturer Trans-Alfa Electro walked off the job this month, saying they hadn't been paid in nearly six months. Workers from the nearby Vologda Machine Building factory, a producer of milk-storage tanks, burst into the regional governor's office last month to protest layoffs and unpaid wages and ask him to renationalize the company. They followed up with an open letter to President Putin on April 3.

"You can't go back to Soviet times, everyone understands that," Sergei Guzhev, a leader of the protest, said in an interview. But, he added, "Putin is completely useless. The economy is in an utter mess."

When oil prices were high, as they mostly were for more than 15 years, tax revenue flowed from Moscow to pay for social benefits, government jobs, and employment-creating public-works projects. Not much money reached industry privatized after the fall of communism. For much of the past decade, fixed capital investment in the Vologda region hasn't been much higher, in inflation-adjusted terms, than it was in 1991, the year the Soviet Union dissolved.

"They don't invest in the factories—they just bleed them dry," said Guzhev. He said many enterprises in the region once owned by the state are now at risk of closure. Some, such as Trans-Alfa Electro and Vologda Machine Building, have fallen months behind in paying their employees, according to Guzhev and other protesters.

A 46 percent slump in the ruble against the U.S. dollar last year only compounded the problem. Textile factories in Vologda, for example, rely on imported cotton and other raw materials whose prices have soared.   

Although the ruble has strengthened in recent weeks as oil prices have stabilized, the relative prosperity of the past 15 years is starting to crumble. Inflation-adjusted wages in March were down 9.3 percent year on year. Nearly half of Russians say they have reduced spending on food and other basics, according to an April 17 report by market-research group Nielsen. The World Bank warned on April 1 that the poverty rate could rise to 14.2 percent, the highest in more than 15 years. Unemployment, though still relatively low at 5.9 percent, is rising, and the jobless figure doesn't include people who still have jobs but aren't being paid.

Public employees also are starting to protest, as Moscow slashes subsidies that used to help pay their wages. Teachers in the Zabaikalsk region of Siberia staged a five-day work stoppage in March to protest months of salary delays. They returned to their classrooms after the regional government promised to make up the arrears. But the local tax base in Zabaikalsk and many other regions simply isn't enough to sustain their spending.

As aid from Moscow dwindles,"the entire country has found itself in dire socioeconomic and geopolitical straits," Zabaikalsk education minister Anatoly Chumin said in a statement on the regional government website.

Although the economic crisis also affects people in Moscow, those in smaller cities and towns face special problems. "In many regions, in one-company towns, if you lose a job you simply cannot find another," said Nikolay Petrov, a professor at the Higher School of Economics in Moscow. "You cannot move to a different region, because you won't be able to sell your apartment, so you won't have money to buy or rent an apartment."

So far the worker protests involve only small groups of people in isolated locales. And they haven't dented Putin's approval rating, which stands at a near record 73 percent, according to a mid-March poll by the independent Levada-Center survey group in Moscow.

Now protesters are taking more-drastic measures. Construction workers at the Vostochny Cosmodrome, a space-launch center being built near the Chinese border in eastern Russia, have staged hunger strikes this spring over unpaid wages. Deputy Prime Minister Dmitry Rogozin said on April 6 that the government had resolved the dispute at Vostochny, a high-priority Kremlin project aimed at ending Russia's reliance on foreign space-launch sites. On April 19, the protesters announced they were resuming the hunger strike.

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