Don't mention the war.

Photographer: Kirill Kudryavtsev/AFP/Getty Images

Putin Looks Homeward, Hates What He Sees

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Russian President Vladimir Putin's twelfth state of the nation address Thursday showed that he understands the need to refocus on domestic issues after two years of grandiose and traumatic external expansion. It also showed that he still has no idea what to do to pull Russia out of its economic quagmire.

Last year's annual address was heavy on biting remarks about Ukraine's attempts to leave the Russian sphere of influence, revisionist history to justify Russia's annexation of Crimea and sarcastic anti-Western rhetoric. This time around, Putin cut his mentions of foreign policy in half. Ukraine was not mentioned once. Criticism of the U.S. was limited to a couple of contemptuous sentences about its role in the Middle East. Even Turkey, the latest enemy of the many Putin has made since his return to the presidency in 2012, got just three minutes of Putin's time, out of a total of exactly an hour.

Turkey was the only foreign country Putin chose to threaten, saying the weak economic sanctions Russia is introducing now won't be the full extent of its revenge for the downing of a Russian bomber near the Syrian border last month. "We will remind them more than once about what they did," Putin said, without specifying what he intends. "They will be sorry more than once for having done it. We know what to do."

The rest of the missive was dedicated to domestic affairs. To an optimist, this is a good sign. "It was a rather balanced address," former finance minister Alexei Kudrin, an economic liberal who is reportedly about to make a political comeback as a senior member of Putin's staff, tweeted. "It mentioned a transition to means testing and some easing of conditions for business. It stressed the importance of free enterprise and admitted the excessive power of law enforcers."

Indeed, Putin did mention that in 2014, Russian law enforcement agencies investigated almost 200,000 business-related criminal cases, of which only 15 percent ended in convictions -- yet 83 percent of businesspeople who were investigated lost their businesses. "That means they were pressured, expropriated and allowed to go," Putin said. "That, of course, is not what we need in terms of business climate."

Putin didn't say what he planned to do about the systematic expropriation of private business in his country. He chose to ignore direct evidence, published in recent days, that the prosecutor general's office and the Investigations Committee, two key structures in the Russian law enforcement system, are corrupt from top to bottom. 

Anti-corruption activist Alexei Navalny this week published the results of an investigation into the business interests of Prosecutor General Yuri Chaika's family and the families of other top prosecutors. Navalny and his co-workers provided documents they said show mob connections, episodes of extortion and blatant self-enrichment on government contracts, the proceeds of which they said went into Greek and Swiss real estate. Almost simultaneously, anti-Putin opposition media published Spanish prosecutors' case against a group of Russian mobsters, which alleges that the group had been instrumental in advancing the career of Investigative Committee chief Alexander Bastrykin. 

The statistics Putin cited in his speech show that he knows how his law enforcers operate: Their goal is often to take over businesses rather than to stop crimes. Yet for years, he has tolerated this because they helped him keep Russia in check. He's not about to attack them now with several international adventures underway.

Putin admitted that the two main proposals to improve conditions for private business, made in his 2014 speech, have failed. These were a promise that business would face fewer inspections by government agencies and an amnesty for capital that has fled the country in recent years. The extortionist inspections, Putin admitted, had continued unabated ("we cut them in one place, but they spring up in another," Putin said of the "army of controlling bureaucrats"). As for the amnesty, "business hasn't rushed to use this opportunity." Again, the president showed he was not uninformed -- just unable or, more likely, unwilling to do anything for private business in a system that redistributes resources to those with administrative power. It was he, after all, who built the system, calling it the "power vertical."

Putin has a pretty good idea that Russia's commodity-based economy is in for a rough time. "We must be ready," he said, "that the period of low commodity prices and, possibly, external sanctions may stretch out for an extended period. If we change nothing, we will just eat through our reserves as economic growth hovers near the zero mark." Yet nothing he suggested in the speech is likely to change that: He wasted most of the hour discussing social and infrastructure projects that were on the agenda before the recession. 

Kudrin's optimism is probably misplaced. Even if he and other so-called "system liberals" are called back to government jobs, they won't be able to do much within the framework of a rotten system. Putin gave them false hope by showing a certain willingness to look homeward -- but the external aggressiveness is all that sustains Putin's rule as it keeps failing domestically.

At the end of his speech, the Russian leader quoted Dmitri Mendeleev, the Russian chemist who came up with the periodic system of elements in 1869: "Dispersed, we will immediately be destroyed. Our power is in unity, in warriorship, in the good-hearted family spirit that increases the population, and in the natural growth of domestic wealth and amity." The audience of legislators and luminaries applauded, but few of them were likely to have read the source of the quote, Mendeleev's "Сherished Notes" -- his only political economic statement, published in 1905. Here's another quote from it:

As a very realistic people, Russians cannot live by self-deception for long, and in their czar, they see first and foremost the autocratic leader of Russian troops which defend the lands necessary for the quick growth of the Russian population. No matter how much we're told by outsiders and no matter how much we ourselves feel that our future mainly depends on the quality of the domestic way of life, our vital, purely realistic instinct always tells us that what's really most important is the country's defense and the organization of its military forces.

Within this framework, a non-militant state of the nation speech was a bizarre misstep, a temporary weakness. Soon, saber-rattling will be back: There's nothing else Putin can do to keep Russians' support in the face of a weak economy and a corrupt state.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net