How did Putin become a classic petro-state autocrat?

By: Ruchir Sharma / Financial Times
Translated by: Agron Shala / Telegrafi.com

During a visit to New York in 2003, Vladimir Putin presented himself to investors as an economic reformer ready to engage Western capitalists, telling us that Russia was more than just another petro-state and that it has the values ​​of a "normal European nation".

Those words ring hollow today as Putin invades Ukraine, but they sounded sincere at the time. After taking control of the nation, which in the late 1990s was badly affected by the financial crisis and bankruptcy, he promoted privatization and deregulation. It imposed a flat tax of 13 percent on income. Buoyed by rising oil prices, the reforms helped boost Russia's per capita income — from $2,000 at the start of his tenure in 2000 to a peak of $16,000 in the early 2010s.

But power and success changed Putin. Unlike his colleagues in other emerging markets, he quickly cut off meetings with foreign fund managers. One of his aides told me that such meetings were for "medium and small powers" and not for big powers like the US and Russia.

In 2010, I was invited to Moscow to give an "honest" assessment of the Russian economy, where Putin was present. Not knowing that the session was televised, I understood the invitation literally as above, so I declared that it is difficult to resist Russia's success. To advance as a middle-income country, Russia must move beyond oil, reduce dependence on large state-owned companies, and deal with widespread corruption. The next morning I saw my name in pro-Putin state media, attacking me as a rude guest and that Russia can do without analysis and without foreign capital.

A few months later I interviewed former US President George W Bush, who described Putin's change similarly – from a pragmatist at first to a braggart in the late 2000s. At their last meeting in Moscow , Putin introduced the retriever to Bush as "bigger, stronger and faster" than Barney, Bush's terrier.

Putin is now often described as Russia's unique leader, eager to reclaim his former sphere of imperial influence. From an economic point of view, however, it is a universal type.

My research shows that economic performance tends to be much more erratic under autocratic than democratic leaders, that it worsens the longer a leader stays in power, and that this is especially true for oil states. Putin reflects all three: autocrat, long in power, in an oil-producing country.

By the late 2000s, Putin was complacent and stopped pushing for reforms. After his annexation of Crimea in 2014 prompted Western sanctions, a new shift began — not to boost growth, but to create Fortress Russia, impervious to foreign capital flows.

This protection worked for a while, but the country is now being hit by tougher new sanctions. From a peak of $16,000, per capita income in Russia – before the invasion of Ukraine – fell to $12,000. Despite rising oil prices, the trend is on track to fall below $10,000 by the end of 2022.

Wall Street has often supported autocrats as they sometimes create economic booms, but for every success there are three or four that cause stagnation, even conditions of perpetual crisis. These range from Castro in Cuba, to the Kim family in North Korea and many of Africa's giants – including Robert Mugabe in Zimbabwe, Haile Selassie in Ethiopia and Yoweri Museveni in Uganda.

Analyzing the 150 countries in 1950, autocracies accounted for 35 of the 43 cases in which a nation sustained gross domestic product growth of more than seven percent for a decade. However, autocracies also account for 100 of the 138 cases in which a country grew for a full decade by less than three percent—a rate considered a recession in a developing country.

In extreme cases, 36 countries have for decades been affected by fluctuations between years of rapid growth and years of negative growth: 75 percent of them were autocracies, many of them petro-states such as Nigeria, Iran, Syria and Iraq.

Putin risks placing Russia in this extreme class. Markets are now signaling a 99 percent chance that the country will default on its debt, the very fate that the previous Putin worked hard to prevent.

Once a reformer, he now seems like the archetype of the recumbent autocrat. Similar economic crises are unfolding under long-standing strongmen, from Alexander Lukashenko in Belarus, Recep Tayyip Erdogan in Turkey and Mahinda Rajapaksa in Sri Lanka.

These cases are a reminder that, successful or not, autocracy is not stable. Western leaders who are hoping that Putin will buckle under the weight of the recession should be aware of this narrative. Autocrats can sever the link between politics and the economy and stay in power indefinitely. /Telegraph/