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  • Writer's pictureThe Paladins

The political economy of the Russian Federation

Before reading this article, watch the following NBC interview (NBC is a left-leaning but mostly relatively neutral US news channel) between the then NBC anchor Megyn Kelly and Vladimir Putin in June 2017.


Political economy, a discipline invented at the University of Chicago, is the application of the norms and laws of economics to politicians, public servants and administrators. In other words, it tries to understand the behaviour of public officials by thinking of them as rational actors each of which is seeking to accumulate something: possibly money, or possibly something else.

The method used by political economists is to look at the formal or informal rules that public officials work to in any given society; derive theories of their incentives given the rules they work to; and then create hypotheses about how they ought to act if they are to maximise their desired outcomes given they incentives they have.

To the best of our knowledge, nobody has attempted a comprehensive political economy analysis of the Russian political system; and this short essay only hopes to scratch the surface and stimulate further work in this fascinating subject. But we hope, in this short piece, at least to help the reader begin to understand that it is structurally impossible that Russia become a western liberal democracy. It is not about the personality of Mr Putin (although that is important to the country's success with so idiosyncratic a system of politics). It is more because the way that politics and business are intertwined and governed from above means that genuine democracy in Russia would cause the country to collapse - in much the same way as in the 1990's.

The reader will note that little has changed since the Communist period; this article could have been written 50 years ago and would have been approximately accurate then.

So here are some of the more or less informal rules of the political system of the Russian Federation.

  1. Nobody believes that capitalist economics delivers economic growth or welfare for the Russian people.

  2. Instead capitalism is a sort of institutionalised system of theft that has allowed a small minority to become wealthy at the expense of the vast majority of Russia's citizens.

  3. Moreover capitalism is anti-meritocratic; it has enabled a group of poorly educated thuggish violent criminals to become wealthy, in contrast with Communism's emphasis on the meritocracy of the individual: the cleverest students would be plucked out of schools to attend the best Russian universities, join the Communist Party (now United Russia), and occupy high positions in society.

  4. Much as Marx predicted, democracy is a sham, because it has permitted the obscenely wealthy oligarch class to use the massive quantities of money they stole during the botched privatisation process of the 1990's to buy votes and hence political influence.

  5. Hence a wise leader is necessary to crush the oligarchs' system of combined wealth and political influence: and that leader has been found in Mr Vladimir Putin.

  6. Henceforth, all Russian assets have been implicitly nationalised and are now controlled by him. The Oligarchs, and anyone else who got rich off their backs, are now mere custodians of Russia's national wealth the use of which will be determined, wherever that is necessary in the national interest, by Mr Vladimir Putin.

  7. Mr Putin may not interfere in every aspect of economic activity, every day; but he reserves the right to, as he is the trustee of the Russian national wealth and national pride. Hence his powers of intervention are in principle unlimited.

  8. If anyone crosses him in the use of these powers in the national interest, he will warn them; and then he will kill them. In this he has a vast state security structure behind him, the Nomenklatura, in both the Russian Federation and all the post-Soviet states.

  9. Mr Putin is a very hard worker and the capacity of his in tray is virtually limitless. He has a trusted coterie of advisors who bring issues that appear to warrant his intervention to his desk, in much the same way as other political leaders: they write him recommendation memoranda with background documents. One distinguishing feature of the Russian President however is his aversion to electronic media. He does not use the internet and he does not read emails. His view is that the constant transmission of information causes decision makers to make panic or knee jerk responses; therefore he only permits his advisors to bring information on the internet to his attention in the course of reasoned information, advice or decision memoranda. In the case of difficult decisions, he is known to cut himself off even from his advisors for several days in order to undertake the decision in question without distractions. Undoubtedly Mr Putin takes his job very seriously.

  10. Mr Putin has no legal advisors; he is the law and he can do anything he considers appropriate to advance the interests of the Russian Federation. It is genuinely unclear how much international law he understands (very few world leaders do understand it) but he does not consider himself or Russia bound by international law in acting in the best interests of the Russian Federation.

  11. Nor does he have PR advisors per se. The Russian media will do whatever he instructs them to do. He has little to no interest in what the foreign media say, so he simply ignores them. If he wants to know what is going on in another country, he relies exclusively upon his Foreign Minister Mr Lavrov and the Russian intelligence agencies to inform him and advise him.

  12. By all accounts, he does not suffer fools gladly.

A number of conclusions follow from this analysis of Mr Putin's working methods and his total domination of the economy and senior political system of the Russian Federation.

  1. If you are a wealthy Russian, you spend a large amount of your time trying to get your money, assets and even family out of Russia, in case Mr Putin decides to nationalise them.

  2. Hence many senior level business activities are coordinated around removal of wealth from the country, rather than increasing wealth.

  3. For senior and even junior politicians, much the same logic applies: you try to use your de facto authorities to amass wealth through theft, extortion and bribes, and then secrete your money out of the country.

  4. However even this may be dangerous, because if you steal too much then Mr Putin may find out and he may kill you.

  5. Naturally this perpetuates in people a permanent sense of paranoia, that their conversations about running their political / business roles (and there is little difference between politicians and businessmen in Russia) might lead to evidence presented to Mr Putin that they have overstepped the mark.

  6. As a result, Russians strongly prefer to stay away from all aspects of the legal and law enforcement system; accounting professionals; and anyone else who might be able to collect incriminating data against them about what they are really doing.

  7. Most Russian businesses keep two sets of legal and financial books / records: one for the authorities and the outside world more generally; and one, entirely private, so that they may understand exactly what they are doing. The latter is often written by hand using a pen.

  8. Junior company staff, and under-politicians, also adopt this habit, so there are fake books within fake books.

  9. As a result of all this, it is very hard to undertake any objective assessments of how successful a particular business is; what any specific public body is doing with the government funding it receives; how much additional income it is making from bribery and extortion (large parts of the Russian public sector are profit making); or to make assessments about the Russian economy as a whole.

  10. To give an example, the Russian military is expected to make a profit by selling weaponry, not by using it in wars; but nobody really knows how much money it makes because the true revenues will all be recorded in private books that nobody has access to.

  11. The Russian political system is capable of enormous feats of command economy reorientation if the President so demands it. If he wants to change the rules on military conscription to conscript one million more troops, he will just sign a decree ushering this arrangement into existence. The same goes if he decides to convert the entire nation's auto factories into missile factories.

  12. The local politicians whose constituents' sons have been conscripted will not complain, because they do not answer to their electorate (the elections are 'managed'); they answer to the United Russia Party and ultimately to Mr Putin.

  13. The owners of the auto plants have no grounds for complaint either, as their assets are held in trust for the Russian state (the embodiment of which is Mr Putin) and they have been stealing, so they are compromised.

  14. Hence Russia's political and economic system is designed for crisis management; the entire public and private institutional capacity of the world's largest country can be enabled and concentrated to achieve a single goal, simply by the flick of a switch in the form of a decree by Mr Putin.

  15. The Russians go along with this because they are all implicated in the corrupt practices; and they always have been.

  16. The conclusion is that Russia has at her disposal immense resources to fight the war in Ukraine, including a far greater proportion of her total economic and personnel resources than any western country might be able to raise to fight war.

  17. Hence this war has the potential to go on for many years; and western foreign policy has no levers to disrupt the structure described above.

  18. Interestingly, Mr Putin does have an understanding of humanitarian considerations, i.e. the obligation to take decisions that minimise the wastage of human lives. However he considers those goals to be subordinate to the overriding imperative to win a war, because the best way of stopping the loss of life is to win the war. So he will take into account humanitarian considerations ceteris paribus; but if doing so weakens the position of the Russian Armed Forces, he will demote the relevance of humanitarian issues.

  19. Mr Putin is a man out to win this war, and one should not underestimate him personally. He is perfectly well aware of what we in the west know: that the Russian army is underperforming. It always did, in every war it ever fought. It is a complex, unwieldy monster.

The concentrated activity which had begun at the Emperor's headquarters in the morning and had started the whole movement that followed was like the first movement of the main wheel of a large tower clock. One wheel slowly moved, another was set in motion, and a third, and wheels began to revolve faster and faster, levers and cogwheels to work, chimes to play, figures to pop out, and the hands to advance with regular motion as a result of all that activity.
As in the mechanism of a clock, so in the mechanism of the military machine, an impulse once given leads to the final result; and just as indifferently quiescent till the moment when motion is transmitted to them are the parts of the mechanism which the impulse has not yet reached. Wheels creak on their axles as the cogs engage one another and the revolving pulleys whirr with the rapidity of their movement, but a neighboring wheel is as quiet and motionless as though it were prepared to remain so for a hundred years; but the moment comes when the lever catches it and obeying the impulse that wheel begins to creak and joins in the common motion the result and aim of which are beyond its ken.
Just as in a clock, the result of the complicated motion of innumerable wheels and pulleys is merely a slow and regular movement of the hands which show the time, so the result of all the complicated human activities of 160,000 Russians and French- all their passions, desires, remorse, humiliations, sufferings, outbursts of pride, fear, and enthusiasm- was only the loss of the battle of Austerlitz, the so-called battle of the three Emperors- that is to say, a slow movement of the hand on the dial of human history.

Leo Tolstoy, War and Peace

A battle is won by the side that is absolutely determined to win. Why did we lose the battle of Austerlitz? Our casualties were about the same as those of the French, but we had told ourselves early in the day that the battle was lost, so it was lost.

Leo Tolstoy, War and Peace


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