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. Last Updated: 07/27/2016

Putin's Own Brand of Discipline

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President Vladimir Putin's attitude toward the oligarchs remains a subject for speculation. Many oligarchs are uneasy now that Boris Berezovsky and Vladimir Gusinsky have lost their media positions and Rem Vyakhirev was ousted as Gazprom CEO. Even the loyal Roman Abramovich, the current boss of Chukotka, was summoned to the prosecutor's office for questioning recently, although no charges have been brought against him. This case is pretty old and has been largely suppressed, but still Abramovich must be at least a little uncomfortable.

However, the oligarchs are not just irritating individuals who have used the country's social reconfiguration in their own interests. Rather, they represent a specific economic system.

The oligarchs were politically marginalized during Putin's first year, but they did receive several economically important gifts. First, the progressive tax was repealed, forcing the government to plug its budget gaps by reforming municipal housing. The public will be forced to pay the full cost of maintaining their apartments and restructuring the municipal economy, thereby providing the government an estimated $3 billion annually — about the same sum that tax reform handed to society's wealthiest. Thus, the public is essentially subsidizing the state and the oligarchs.

The official explanation is that since the oligarchs were not fully paying their taxes anyway, the reform simply eliminated their debts. But the government is less generous with ordinary citizens who cannot pay for communal services. Instead of writing off these debts, the state is thinking of repealing Soviet-era laws that hampers eviction of habitual nonpayers. This is in line with the authorities' view that "totalitarian" Soviet procedures were actually too humanitarian, an attitude also reflected in Kremlin policies on the labor and administrative codes.

Liberalization of hard-currency regulations was another, even more valuable gift to the oligarchs. Again the state highlighted its own impotence, asserting that since capital flight continues, it might as well be legalized. They claim that capital will more likely return if it can legally flee.

Only people who know nothing about international markets believe such tales. Money becomes anonymous once it enters a major stock exchange; it may be sent to Russia or any other country through investment funds. This is how the offshore companies that received Russia's assets managed to buy up the country's production complexes and real estate. Capital moves to seek advantage. If Russia lacks investors, that's not because the money that fled is afraid to return, but because our economy is less attractive to capital than the Finnish or Chinese economies. Hard-currency liberalization gives the oligarchs assurances that in the future no one can accuse them of illegal business activities.

The state's apparently contradictory political and economic decisions are comprehensible in light of the shared logic behind them. Putin came to power in order to safeguard the existing system — although not necessarily individuals within it. That is the difference between Yeltsin's "Family" and Putin's "dictatorship of the law." To ensure a functional system, discipline must be maintained.

Putin must support, strengthen and defend the system created in the oligarchs' interests. But he also needs to discipline the oligarchs for destabilizing the system with irresponsible intrigues and squabbling. He is a teacher who punishes the children for their own good. Will Putin's pupils turn out to be quick studies? Probably. Meanwhile, the Kremlin is already training new recruits from among Putin's former Leningrad colleagues. They know the new rules of the game, and they understand what discipline is.

Boris Kagarlitsky is a Moscow-based sociologist.