6 min read

Empire of Austerity

In a turn of events that rather surprised me, I'm now in the process of signing a contract to write a book for Hurst. It's a project that I've been grappling with since the summer of 2020 when, in the haze of pandemic unemployment and in limbo waiting to get married, I figured "what the hell do I have to lose?" At that point, I had yet to start writing OGs and OFZs and was swallowing the fact that I no longer had any plans to return to the rat race in D.C. There was, however, an immediate two-fold problem: how could I justify the project in the middle of a pandemic touching just about everybody's life in a substantial way and if I wanted to write about contemporary events, what exactly was the story to tell?

Since moving back to D.C. in 2016 and joining the ranks of entitled yuppies-in-waiting, idlers, and outsiders breaking onto the internship circuit, one persistent frustration underscored my work as an analyst and the foreign policy Discourse around the town regarding Russia. The notion of Russia's 'resurgence' has proven impossible to shake among pundits and policymakers and poor sodding fools like myself. Books played on it, established scholars and grey policy eminences would parrot the line, Chevy Chase Men of Always slotted it into their tales of the Cold War, and more. What was so striking about the aftermath of the annexation of Crimea and intervention in Syria seen from Washington was the degree to which analyses of Russia reflected a full on moral panic about the durability of American hegemony or primacy. At the time Crimea was annexed, Republicans lazily bandied language about how Benghazi and the red line incident in Syria had created a crisis of credibility and encouraged aggression. Suddenly the coin of the realm was to think in terms of the threat no matter how remote or misguided. These pressures only intensified over the course of the 2016 presidential election campaign and in its wake where, for all intents and purposes, being a Russianist with a master's degree from a Russian university (even if an overtly western one founded with western grant money) made you suspect and difficult to hire.

By the fall of 2016, however, I was facing down the reality that there would be no policy jobs available and I'd better make a move into political risk. Underemployment led me to get involved with Bear Market Brief, which Aaron Schwartzbaum had started up during his master's at SAIS. In fits and starts, that eventually led to me taking it over after FPRI bought the rights as editor-in-chief for about 15 months from May 2018 to August 2019. Covering business, foreign policy, and domestic politics news from more of an economic perspective over those three years made something apparent: things were getting worse for the regime in terms of its basic capacities of governance and for a long time, it was my assumption that these were primarily driven by the more generic factors analyses often rest on. Corruption, institutional weakness, etc. explained most of it. Only during the pandemic and a return to covering the beat on a daily basis in the middle of a completely novel global crisis and reevaluation of my own frankly lazy priors made something more apparent: that the very macroeconomic framework structuring a wide range of policies long considered to be "sound" by most standard accounts of contemporary Russia had made it impossible for the regime to solve the problems issues like informality and corruption create. Russia is a kleptocracy, yes, but that alone doesn't explain why the economy visibly slowed after 2008 and had failed to generate real growth since 2012, even under conditions of comparatively light sanctions.

The invasion then ripped open the prejudices of those committed to the idea that Russia is a power far beyond economic measures of its status. It turns out stagnation affects decision-making, institutional capacities to learn on the fly, and sustain success even acknowledging the bizarre manner in which the initial invasion was attempted at odds with standing doctrine. Whereas my original intentions coming up with a book idea watching the Russian government utterly fail the public during COVID was largely inside baseball for wannabe policy wonks and political appointees, Ukraine clarified the painful truth I had begun stumbling upon in 2020-2021 that Russia's stagnation had not only weakened it, but actually created the conditions for the war with Ukraine as well as made it impossible to advance efforts to resolve conflicts such as Nagorno-Karabakh in a more sustainable fashion. Materiality is not everything. Ideas matter. Identities do not conform to the logic of accounting and balance sheets. However, the absence of growth makes political questions of distribution zero-sum and equally Russia's economic stagnation threatened its capacity to remain the preeminent Eurasian power as China rose in influence across the region. Few questioned the idea that Russia remained preeminently powerful until 2020 exposed just how fragile its grasp on its traditional European periphery proved to be. That these tests came amid COVID only strengthened my conviction that too many had gotten Russia wrong chasing descriptions of "Putinism" or "Putinomics" by uncritically regurgitating the rhetoric of regime officials regarding the soundness of their economic choices or otherwise the soundness of orthodox macroeconomic prescriptions for an economy that never neatly fit into the traditional categories of developed and developing markets.

It's my hope to tell a very different version of the stories of the past quarter century than we're accustomed to seeing, whether it be Russianists who rarely engage in broader international political economy and treat Russia as if it exists in isolation or generalists who fail to understand the nuances of the country. After some 'pre-history' it begins with the 1998 financial crisis as the formative "Lehman moment" that generates a new, broadly shared consensus and experience among Russian elites about how to ensure economic stability. These lessons reflect the country's fiscal and institutional chaos in the 1990s and the macroeconomic response of many Asian exporters after their own currency crises to maintain persistently large current account surpluses. In the Russian case, this was further complicated by pressure to sterilize FX earnings and avoid an overly strong ruble. Kudrin's system ultimately failed to avoid symptoms of Dutch disease, but equally importantly headed off a stronger ruble that might have been able to suck in all the exports from the post-Soviet space to act as a growth engine for the region, much as was originally intended through the disastrous creation of the ruble zone in the early 90s.

From there, it turns to how this consensus then interacted with a combination of chance on energy markets, basic institutional gains from successful reforms, and eventually the invasion of Iraq. The foreign policy context of ostensible rapprochement with the West over the War on Terror turned into a profound sense of existential anxiety about Russia's status. It also coincided with the regime's most overt moves to quash any potential political threats from major business owners, consolidate state control over prime assets (particularly in the energy sector), and exert more control over investment and other areas of economic activity as the country's first true steps to "pivot eastwards" took shape. After 2003, we then see how the oil & gas windfall and early growth gains were steadily wasted such that by the time the system made way for Medvedev's rise to power, it had hit a deadend in terms of economic policy. The 2008 crises of the war with Georgia and Lehman Brothers' collapse (and ensuing mayhem) were dealt with in a wholly inadequate manner. Spending was too restrained, FX reserves were used instead of issuing more ruble-denominated debt to domestic borrowers that would have deepened the market, and the ruble was not floated (which would have addressed Kudrin's concerns about currency strength, exports, and the complexity of the economy).

From there, we see Medvedev's proposed economic reform efforts reveal just how disinterested elites were in revisiting their macroeconomic priors as they jettisoned the middle class as a major source of political support. The choice to prioritize spending on military modernization in 2011 and aftermath of the infamous abstention at the UN regarding Libya dovetail with this development, paving the way for stagnation to take deep root. Just as the political system was in the process of figuring out how to generate new rents in 2013, the crisis with Ukraine and eventual annexation of Crimea created new conditions for rent-seeking. There would be no domestic growth and the old asset owners would fight to consolidate their power yet further, meanwhile wily political entrepreneurs realized that pursuing foreign policy objectives or otherwise operating within the permission structure the regime created about "taking on the West" was the way to mine money out of the state. Austerity would become a de facto wealth transfer from the public to the state, with power over credit a political tool of control as much as a default preference for policymaking. As stagnation and dysfunction deepened, the regime de-institutionalized, and the economic consequences of no-growth prevented older forms of elite competition and checks and balances, the system zombified. COVID cracked open how incapable the state was of doing difficult things or updating its economic priors in response to a shock. Prior to February 2022, there was already evidence of another round of austerity on the way and an emerging new political economy driven by a surge in new home ownership. The war shattered all illusions on that front. The invasion of Ukraine would break what was already broken, leaving the regime fewer and fewer options as it eventually opted for all out escalation in order to secure itself.

There's far more to this story than what I've laid out, but that's a sketch of what I'm hoping to work with. There's not really been much in the way of contemporary histories of Russia in English that focus on the material aspects of the construction of the economy and state and how they relate to deep-seated policy preferences held by elites and structural problems facing the Russian economy. Russia is, ultimately, an Empire of Austerity, a massive polity held together through the intentional absence of federal fiscal support, underspending and underconsumption by design, and equally a power policing its periphery through the weaponization of its own economic enfeeblement. Hopefully you won't mind coming along for the ride.