A forecast of the development of the main processes that will influence the situation in Russia in 2015

TND Guest Contributor:  Mikhail Khazin 

I have not written a forecast for Russia for years. Mainly, because there was not much point – nothing had changed, the basic trends were simply continuing and there were no changes to describe. Today, the situation is changing. This requires a new forecast.

There will be no analysis of previous forecasts as too much time has passed. This projection starts from scratch (as opposed to the forecast of the world economy). I will, however, reference certain aspects of previous forecasts as it is now difficult to lay hands on these older sources.

We begin with a description of the Russian elite. The Russian elites emerged during the process of disintegration of the late-period socialist society and represented the resolution of two basic tasks, which were set by fairly powerful groups of the population, from organized crime to the lower and middle-ranked Soviet elite. These tasks were 1) to achieve the complete elimination of the state’s responsibility to society and 2) to ensure the dynastic transfer of their status and wealth. The second task was achieved by the introduction of private property and the first – by eliminating all more or less functioning institutions of the state.

From the late 90s, when it became clear that the state could not exist without institutions (which raises the problem of the maintenance of wealth obtained in the process of privatization), the policy elite underwent change. In particular, certain general rules were adopted (for example there was agreement not to appeal to the public in dealing with intra-elite disputes). In order to adopt these rules it was necessary to find an arbiter, who could not only resolve problems between the different members of the elite, but would explain how the elites’ assets could be managed in their own collective interest, and prevent those assets are being managed against those interests.

The search for this arbiter took some time, which, however, was effectively utilised – The process of introducing the security forces into the elite was initiated. This not only stabilized the structure of the elite, but the security forces “silovki” also became a tool allowing the tracking and implementation of arbitration. Finally, an arbiter was chosen, one who had already solved similar problems in the criminal capital of Russia ’90s – the city of St. Petersburg.

He did not simply take up the reins of power. He brought to it the concept of Russia’s place in the world with which he grew up. This concept is located in history, around the end of the 50s, if not earlier. This concept is likely to have been introduced into the Soviet leadership by Otto Kuusinen and in the main articulates a concept of ‘convergence’. The convergence of the elites of the West and the Soviet Union. Before Putin came to power the Russian elite did not consider the fate of Russia – to the most best charitable reading, they saw themselves in the position of Gauleiters for the West- the focus was to steal more, spirit those stolen assets to the West for safe keeping and repeat the process for as long as possible. The current elite of Ukraine epitomise this. Putin changed this (in Russia).

It should be noted that the disappearance of certain members of the elite Berezovsky, Gusinsky and Khodorkovsky was not Putin’s personal decision – it was an elite consensus. Those who flatly refused to accept any rules were expelled from the elite. In general this refers to those who, having eliminated the oppression of the state, categorically refused to subordinate themselves to new codes, which were albeit voluntary and had a very restricted ambit. The other elite members actively disliked this insubordination, especially those without such significant means of self-defense, as the three (troika) listed above. Thus elite consensus was achieved.

Moreover, Putin even managed to give the “Khodorkovsky Affair” additional subtext – he was used as a tool to force the 90s oligarchs to pay taxes. In Ukraine, there was no analogue to the “Khodorkovsky case”. Oligarchs there do not pay taxes. The results are obvious. But, now we need to digress:

Putin’s rise to power coincided with the arrival in to power in the US of the hard-line Imperialist Republican Bush Jr. In short order, we then see the crisis of September 11 2001. From the point of view of the internal American politics this was the beginning of the economic crisis. (I have stated repeatedly and warned on September 10, 2001 in http://worldcrisis.ru/crisis/86502 that the US government was unable to acknowledge the extremely poor economic results of that summer. They had to identify external reasons to explain the situation) Bush really needed allies, because he had implemented a policy (the war in Iraq) that would not be approved by the world community.

If Clinton considered his contemporary Russian elite as ignorant savages who would accept beads and stones in exchange for signing any treaty. (“Sakhalin-2″ is an example), Bush was ready for a period to grant some rights to Putin and Russia – He had other priorities. His and Putin’s understanding of the world’s energy problems were similar. Khodorkovsky and his Chinese intrigues also irritated Bush. Thus Putin received for a period received “carte blanche” not only within, but also, relatively speaking, outside Russia. However, his foreign policy activity was strictly limited – As US Secretary of State Condoleezza Rice once said: “The interests of Russia end at its borders.”

For two terms, Putin presided over a Russian elite consensus based around the idea of convergence and then happily resigned from his post. “I worked like a galley slave” – is not poetic license, but a real understanding of the situation: the hired manager, who has worked for two terms, has decided to retire. He held auditions within the elite who chose from the security services a liberal, Medvedev, who assumed the presidency. Then the problems started.

These problems were related to the economy. The crisis of 2008 turned out to be extremely unpleasant for the elite. The elite was unable to initially deal with it (without management responsibility is impossible, and responsibility was swept aside with an iron hand). Financial flows declined sharply, and correspondingly, the role of arbitration increased dramatically- Medvedev was clearly not up to the task. The improvement observed between 2009 and 2011 was, insufficient and, as a result, the elite appealed to Putin with a request to return. More precisely, part of the elite.

They were the most zealously collaborationist part (led and coordinated by Voloshin and Yumashev). Even the idea of ​​convergence seemed too independent for them and they flatly refused to take any responsibility for anything in the country. (In particular, they were quite satisfied with the execution of instructions of the IMF determining the economic policy of the government). They did not want to return. They arranged the so-called “swamp” process, which aimed to cast doubt on the results of the presidential elections.

As we know, the “swamp” process was not successful. Putin was not simply returned to the presidency but was returned with a completely different mandate from 2000. Then he had a mandate from the elite, of a hired manager unable fundamentally change the rules. I note here that I say nothing about his personal desires – only about the possibilities. After 2012, the situation changed radically – Putin received a mandate from the people and now has the right to make fundamental changes.

The need for such changes is urgent. I refer to an analysis by Andrei Fursov published a few years ago. The fact is that Russia in its history has found itself, several times, in a very difficult situation when an urgent need to modernize conflicted with a categorical unwillingness of some of the ruling group to carry out modernization. The Russian state structure inherited from Roman Empire, the Byzantine Empire (see http://worldcrisis.ru/crisis/1817898), is one where the head of state acts as protector of the people against the ruling elite. It follows that a legitimate ruler has to, at any price, implement modernization. Over the centuries such experience has been accumulated.

The first modernization was in the 16th century. Western Europe has already made a choice. Lending is legalised which begins the construction of capitalism, the era of scientific and technological progress. We have the same conservative oligarchy, who we shall refer to generically here as Rurikites severely limit any attempts at modernization. This is the cause of Ivan the Terrible and his purges pressuring on the elite. I note that to the people he remains a progressive figure. This is in line with the Byzantine standard.

The reforms of Ivan the Terrible were not completed. Boris Godunov almost completed them (He was, according to many historians, the most outstanding administrator to lead Russia), His death interrupted reforms and Rurik took revenge. Incidentally, I do not rule out that the choice of Mikhail Romanov to the throne was the result of a common position in Russian society after a short reign of Basil Shumsky: anyone will do, just not Rurikovich.

The reforms of Ivan the Terrible were finally though partially completed by Peter I. The process itself was delayed and completed in great haste. The conditions were so severe that the population of Russia decreased. Peter, himself, entered the national memory as the Antichrist.

The next time problems arose was during the second half of the XIX century. There again the main opponent of change was the feudal ruling group (conventional “grand dukes”), which led to the revolutions of February and October 1917. The revolution was unable to complete modernisation so the issue reappeared in the early 20s of the last century. Here, the conservative opposition reforms were “Old Bolsheviks” who wanted to enjoy life and not sacrifice themselves for the country. Stalin appears here as leader (it is in the process of reform, that he became one of our outstanding leaders) and his modernisation was a complete success. I remark here, the same Byzantine style, a leader with the people against the elite.

In the 80s the problem reappeared. Theoretically, modernisation should have been carried out according to Byzantine tradition, that is to nominate a leader who, leaning against the people, would have fought the forces of conservatism and defeated the nomenklatura and trade mafia. The resources were available, if we see the experience of Belarus during the last 20 years. Instead there was a revolution where the nomenklatura came to power. The first secretary of the union republics agreed onthe division of the country and we know the rest.

If the elite “Western” global project was able to implement its plans as they were written in the 80s – 90s, there would be no issue. Sooner or later Russia would be subordinated. But the crisis began (the reasons of which is described according to our theory: http://worldcrisis.ru/crisis/1060229, which you can read on the website) and as a result we inherit a fairly complex geopolitical configuration, which is not easy to understand. I’ll start here with the actual forecast of the main Russian domestic conflict.

The modern Russian elite consists of three main groups. The first group liberal-family, whose leaders, conventionally, are Voloshin, Yumashev, Chubais and Kudrin. They constitute the oligarchs of the first generation, reaping the benefits of privatization, tax evasion, corruption and raiding. They are known as – “liberals”. Their main problem is that their businesses are lossmaking and their ability to leverage the state budget to obtain preferential treatment is decreasing. Alongside this, the scramble for the resources that have remained in the country is getting tougher and money is constantly getting harder to launder in the West. They seem to have the following options a) have a conflict with Putin tp return the situation in the 90s. In this case Russia reverts to a Western “Gauleiter” project; b) try to “squeeze” alternative groups; c) Abandon Russia and flee to the West. The probability of the latter option is falling all the time, as the west has repeatedly explained that the oligarchs cannot be significant figures in the west. With few exceptions they are incompetent business men and any emigration will probably end in poverty.

This group is almost completely controls the economic and financial policies of the country, with its bureaucratic component almost directly “under the pastoral care” of the world financial elite (through the IMF). I note that the global financial elite – is only part of the elite of the “Western” global project, but this part of the last 100 years (after the creation of the Federal Reserve) has played a dominant role in determining the financial and economic policy. “Liberals” in Russia are principled opponents of any development (as contrary to the interests of the elite “West” project and almost certainly lead to the marginalisation of this group of managerial elite), and have long ceased to have a political agenda. This is obvious when we look at the next Krasnoyarsk Economic Forum: http://worldcrisis.ru/crisis/1839439.

The second group – the security services and the oligarchs of the second generation of the 2000s. They don’t have open leaders, as such, rather, there seems to be a complex collective leadership. They also have several options. Firstly, they can pressure the “liberal” oligarchs and businessmen, transforming them into political refugees, seeking protection in the West. This protection tends to be limited and dependent on political activity (Khodorkovsky). This would not be a long-term strategy.

The second variant would be the establishment of a rigid self-sufficiency and transforming Russia into a totalitarian state. In a way, this is the intensification of the first version. The idea here is that if the West expects total crisis, the most important thing must be to survive until it happens. The “liberals” are quite reasonably suspected of representing the interests of the West. Thus the liberals need to be removed from power as quickly as possible because they weaken Russia as the liberals support programs to support the dollar and IMF hegemony.

This program is progressive insofar as it intercepts financial flows from the “liberals” (which roughly doubles its resources) as part of group interests and the intensification of economic modernization under pre-war industrialization. Where these resources will come from and who will implement appropriate programs is not clear. However, one thing is clear – The “siloviki” cannot, on their own, implement the appropriate programs. They need more support. They will have to create, from scratch, managerial elite of the country at all levels. This was done in the 30s.

The third group, who should not be underestimated, is the regional elites, primarily national. They no longer want to implement an 80s style program to partition of the country (as they see the results of the reforms in the former Soviet republics), and in this sense are ready to support any strong power in Moscow. Theoretically, they are more inclined to support the “siloviki” (because “liberals” threaten to collapse of the country and create instability), but conversely they will be desperate fight for privileges and access to public funds. In any case, this is group a serious player of a country undergoing the process of building a system of checks and balances.

All other forces in Russia (“left”, monarchists, nationalists Russian and so on.) are strongly marginalized and are unable to strengthen their position. The only exception are the patriotic forces, which have gained in strength after the events in Ukraine. They have not yet nominated recognized leaders, but at the secondary level “siloviki” (and in the youth of the “liberals”) have they have become much stronger. If the economic situation in the country strongly and quickly deteriorates, this group could produce a new discourse, which could influence the political configuration in the country.

The situation is even more complicated in the wider world. The “case of Strauss-Kahn” split the world’s financial elite and has compromised the whole fate of the “Western” global project. The fact is that, according to our theory of capitalist development, resources for development are exhausted. As a result, “the West” project is no longer supported by a positive political program. This leads to a sharp rise in anti-American sentiment globally and we see coming to power, in different countries, a counter-elite explicitly opposed to the US. Although they are, in theory, not intending to destroy the existing system, as resources for redistribution of financial flows from the United States are no longer available, they will find it difficult going, especially given the acceleration of the economic crisis.

In reality, the elite of the “Western” project is divided into a few groups, which are in pretty tough competition with each other, as in the aftermath of the crisis, a place on the “gravy train” is no longer guaranteed for all. There are basically three groups. The first group are that part of the elite who cannot forsake the current financial system, based on money supply. These are the largest banks and financial institutions, global bureaucracy, both financial and political, of the national state elites (but not the US). Their situation is very bad, especially since it proved impossible to place their man (Larry Summers) at the head of the Federal Reserve. I note that this group controls the Russian “liberal” management group, all officials of the government, the Central Bank, expert groups close to the Higher School of Economics, Russian Economic School and the Gaidar Institute – are representatives of this group. It would seem that they do not have much heft.

The second group is the one connected to the US national elite. We can say that they have two positive projects, “the maximalist program” and “minimalist program”. The maximalist attempts to implement to create a free trade zone between the United States and the European Union, bringing down the rest of the world in total chaos. This program (conventionally it can be referred to as “the city on the hill”). In theory, this will maintain the standard of living of the “golden” half-billion (US and several countries in Western Europe) and the domination of the world’s elite “Western” Project.

The main advantage of this scenario – at the expense of the rather wealthy residents of the EU, the “middle class” in the United States will be maintained, which in turn maintains the socio-political model of the United States. If that doesn’t work, there is a fallback.

If this project is not realized (I have my own opinion on this, but this is not the place to discuss it), the option remains to collapse of the world’s currency areas, including the dollar, led by the US, and the EURO, including Western Europe. This will inevitably result in serious technological degradation and huge drop in living standards. This scenario should be avoided.

The third group is that part of the world financial elite (I reiterate, the largest and richest part of the elite “Western” global project), which is not directly related to the United States. Its basis – the financial part of the former British Empire, which is usually associated with the name Rothschild. Indirect evidence suggests that the main aim of this group – is simply to collapse the world into trade blocs, with this group becoming the settlement system between the. This group does not support the “city on the hill” option, as its position would be dramatically weakened. It is for this reason that this group is seeking contacts among the “siloviki” in Russia and actively supporting actions aimed at the creation of the ruble financial system and Eurasian integration – that is, the creation of ruble as a reserve currency.

On the basis of the alignment described above we have covered almost all the trends taking place in Russia. “Liberals” have led the Russian economy into crisis. The recession really began in late 2012. However, the global financial system needs resources. (The flow of liquidity from the American bureaucrats has reduced gradually to a trickle). This is why the Central Bank and the Russian government (The Finance Ministry, in the first place) continue to actively encourage the withdrawal of capital, increasing dollar denominated reserves (despite being aware of the fact that there is a good chance not to get the money back). However, they are terribly afraid of being ousted from power as they have no other alternative budgetary and administrative resources. In this case, they will lose all of their assets in Russia for a year or two, but in the West, in the absence of support from Russia, they would be marginalised for several years.

From the point of view the national interests (and the position of the man with the popular mandate), Putin should have purged the liberals long ago. Their attitude to the “May” decrees made this clear! However, there is an element political expediency here in that there are only two active power centres. Thus, the elimination of the “liberals” automatically makes Putin completely dependent on the “siloviki”. That, automatically, deprives him of freedom of movement, which will likely conflict with the fulfilment of his popular mandate.

I think this why Putin has not purged the “liberal” officials for their outright sabotage. The dismissal of the “liberals” would actually indicate sharp escalation of the anti-American line, the coming to power of the counter-elite and open confrontation with the United States. We are clearly not ready for this – especially economically. There is a real threat of serious sanctions and we have terrible weaknesses in our economy. We even have no seed grain, no breeding farms, even no eggs to renew our hatching stocks. In such a situation any sudden movements can lead to crisis.

For the last few years the situation we have described, where “liberals” and “siloviki” fought for administrative supremacy, winning minor victories, was in general, stable. The level of conflict continually escalated, for reasons of external pressure (Ukraine), and because the size of the communal elite trough kept reducing. I note that this consensus created in the 90s by in the process of privatization and the destruction of the Soviet system (including judicial and military) included only the liberals. However the “siloviki” perfectly fit into the system and support it. Actually, in this sense, the task of modernization, in front of society (and perhaps Putin) is not very different at all from the problems that Ivan the Terrible, Peter I or Stalin had.

Ukraine’s problems last year sharply exacerbated these contradictions – and transformed the situation from the sluggish process witnessed over the last few years (which is why I no longer wrote forecasts for Russia). Today, there are a few scenarios, which would be wise to enumerate.

Firstly, The Ukrainian events have seriously impacted the political position of the “siloviki”. Previously they adopted no firm position with respect to the outside world. They, in general, agreed on the discourse of the “liberals”. The disagreement was only on what positions to negotiate with the elite of the “West” project. Now we see several different clearly defined “parties”. This gives rise to the opportunity that instead of a “siloviki”, “liberal” balanced by the “regionals”, that another system of checks and balances can be constructed. Within the security forces we can now distinguish the patriot-monarchists, somewhat less clearly the “new liberals” and finally, emerging, there is a party of socialist renewal. The last is barely formed organization, but against the background of the Monarchists who would seriously attempt to restore the monarchy (and even bring back the Romanovs), Socialist renewal as a tendency can seriously increase its traction.

As is often the case, consolidation within these against political parties comes about due to external factors. The “Patriot-monarchists” are guided by the old elite of continental Western Europe, which is clearly trying to take revenge on the “West” project for defeat in World Wars I & II. In some places, they even enjoy local political success (Hungary) and the behaviour of this country clearly indicates who they see as a strategic ally. At the same time the “patriot-monarchists,” contemplate a strictly autarkic Russian economic model. They do not always support strong integration with non-Slavic countries. The Russian Nationalists play an important role here, which, changes, depending on who is seen as a partner in Western Europe.

The “new liberals” who whose formation is even more diffuse than the “patriots” have as their main partner – the very “Rothschilds”, mentioned earlier. Their policy is extensive Eurasian integration (A full currency union, a self-contained system of division of labor with a minimum of 500 million consumers), the creation of a ruble currency zone, working closely with the leaders of other currency zones, including with the American “isolationists” which may come to power in the United States in the 2016 elections. We note that the first and second groups both oppose the “Western” global project of the “city on the hill.”

There are also important differences between them. The first group support the role Orthodox religion, limiting (but not ending!) Eurasian integration beyond the purely Slavic countries and limiting, to a degree, coordination with the current leaders of the “Western” project with similar limits to interaction with China. The second group are much more pragmatic, actively cooperating with the elite part of the “Western” project, and with China as (currently, with greater profit). They do not “love” the Russian Orthodox Church, seeing it as too conservative and inflexible, without denying its consolidating role. They clearly emphasize the role of non-Slavic countries within Eurasian integration (Turkey, Central Asia). They seriously consider the possibility of working with a number of Islamic countries.

But both of these groups have a critical problem that in the near future, as they adapt and the form their political positions, will become fundamental. They have constructive vision of society to oppose the social model, built in Russia during the 90s. Society clearly does not accept it, which explains Stalin’s stratospheric ratings (who is associated with the idea of power being subordinate to Society) and Putin’s. Moreover, in the latter’s case there have been a series of serious miscalculations by the West. They constructed the dichotomy of Khodorkovsky & Navalny as “fathers of Russian democracy” Vs “bloodstained executioner” Putin, which resulted in 90 percent of the population fleeing gladly to Putin.

In addition, economic problems are not restricted to Russia but are also present in other countries that should be included in the “Eurasian zone”. New slogans are required that can compensate for economic competition implicit in the integration processes. It seems to me that the key element here could be the ideas of socialism. Moreover, living standards fall, these ideas will inevitably manifest themselves more. So far there is virtually no political group which is capable of articulating such a program.

All that remains now is to complete a general description of those groups that will interact with each other in 2015. It seems to me that the consolidation of these groups will be the main factor determining the situation in the country in the coming year. Here I will cover some of the most important points.

First of all, Putin will not remove the “liberal” government and the Central Bank leadership as long as the divisions mentioned among the “siloviki” remain unformed as distinct parties. The first has already been established. if the Ministry of Defence will be further strengthened, then it will become a focal point of the group which will include representatives of other law enforcement agencies. The second group should form as a purely political project. Its electoral potential should materialise as harsh criticism of privatization and the corruption of liberal policies. They should seek cooperation with the notorious “Rothschilds” and the American isolationists. There are serious grounds that their efforts will be supported by these groups in the global elite, which, incidentally, could become the basis for lifting the sanctions against Russia.

Let me repeat: I believe that the ability to remove the “liberal” government will only appear after a party, the “new liberals” is established and able to present its economic vision to the country.

As for the socialist course, it must be presented to society by Putin himself. I believe that to abandon the Byzantine tradition of political between the head of state and the people would be stupid. (Historically no other tradition has enjoyed success). Actually, the “May” decrees may have been moving in this direction. However, having taking the first step, Putin did not make the second. However, this direction allows him to get real support from society, not in the surveys, but in the implementation of development programs. Regional elites will support this course (in some limited way). The main thing here is that only this direction will allow Russia’s authority in the world, including the Islamic world to increase. I note that the current processes to improve the credibility of Russia and Putin personally (which causes wild jubilation in our controlled media) are viewed the reborn spectre of the USSR as an alternative to “Western” project of globalisation.

As I wrote earlier, the “Western” project today has no progressive program, but there is also no progressive program in our country. And without such a program, the alternative is a banal struggle for resources, in which we have virtually no chance of success. But there is a narrative of progressive values and positive policy agenda then they have no chance. The role of resources will falls sharply … And in this case we have not only a serious but a very serious chance.

I’ll finish here. The forecast turned out rather relative: the key points I believe are the emergence of a “new liberal” party followed by the elimination of the “liberal” party in Russia, I do not know when it will happen. There is no certainty that it will even happen this year. While the “liberals” are in power the crisis will continue as will the sanctions against us. Besides, is not very clear when Putin will begin to build abstractions of socialist governance (at least partially). It seems to me that if he does not do this, his very fragile consensus will at some point be rapidly destroyed and he will have to leave. In this case, the prediction is naive enough to say this – the situation will go racing, potentially out of control.

Generally, I apologise to those who wanted accurate data on budget expenditure, the ruble, and so on. The degree of uncertainty is too high. One can only talk about the basic processes and groupings. I have tried to describe these.

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M.Khazin, January-March 2015, Moscow

Translated from the Russian by Gideon

This work was published at The Saker blog and is reprinted with permission.