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. Last Updated: 07/27/2016

Method to Putin's Madness

The current regime's economic policy appears rather strange at first glance. On the one hand, the Kremlin is openly and aggressively taking property away from the oligarchs in an attempt to create large state-owned companies. This attempt would likely gladden the hearts of the left, if the Kremlin had not adopted such a backhanded strategy. Rather than pass a law on nationalization -- an obedient majority controls the State Duma, and the opposition wouldn't object -- the Kremlin holds dishonest auctions, resorts to involving mysterious private intermediaries and talks up market mechanisms.

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But on the other hand, the same regime simultaneously undertakes social policy reforms so radically market-oriented that even sensible liberals are shocked: Healthcare, education and housing are slated for extensive commercialization and privatization. Even Yegor Gaidar's ultraliberal Cabinet didn't go this far.

The resultant economic policy has few fans on either left or right. Until recently many political analysts identified two rival clans within the Putin administration, the siloviki and the liberals, pulling in opposite directions. The Kremlin is far from harmonious -- rivalries and intrigues abound -- but it is not riven by ideological differences. In fact, there's method to the madness. When you recall the history of Russian capitalism, you can't help seeing that the Putin regime is moving in the same direction as past governments by following a singular logic that combines a strong state with the free market.

Property is gradually reverting to the state, but the state has no intention of assuming social obligations in the spirit of social democracy. Nor does the state intend to serve as the engine of development, as it did in the Soviet era. The economy remains under the sway of the market. Property is concentrated in the hands of the government, as the state becomes an aggressive, irresponsible capitalist that employs the mechanisms of political control and its natural monopoly on force as a form of competitive advantage. In this situation, the bureaucracy cannot be honest or effective because corruption becomes the goal of its existence. The regime cannot afford to compromise or show weakness, as this would amount to economic collapse. Governance amounts to little more than the control of financial flows -- the acquisition of state property is the reward for loyal service.

The state itself is becoming the collective property of the top echelons of the bureaucracy. Democracy is being rolled back because it hampers the realization of the regime's main goal: converting political power into a closed joint-stock company. But it doesn't follow that the ruling elite is prepared to give up bourgeois law or other attributes of market capitalism to which they've become accustomed. Quite the opposite, all of these mechanisms are indispensable to the functioning of any joint-stock company, including a state that has become a closed joint-stock company. Access to the market depends on an entrepreneur's ability to reach an agreement with those who control the market. Businessmen might complain about this situation, but it in no way violates the laws of capitalism. If an equally powerful corporation were in charge of the Russian economy, it would behave in much the same way.

Putin's liberal empire looks very much like a malicious caricature of the Romanov empire. Restored by former party bosses and go-getters from the security services, the empire has only gotten worse.

But proponents of a state-controlled so-called free market would do well to study history. The collapse of the tsarist regime was brought about by simultaneous attacks from the right and the left -- by the unexpected but inevitable combination of liberal plots and spontaneous mass protests. This parallel has undoubtedly occurred to those in the Kremlin as well, hence their irritability and hysterical pronouncements about the threat of revolution. But no matter how much money you spend on spin doctors, and no matter how you beef up the security agencies with new powers and more agents, you won't be able to solve this problem, because the chief source of instability lies within the Kremlin itself.

Our leaders may understand this as well. That's why the bureaucracy has been gripped by an epidemic of stealing. Louis XV could joke cynically about the flood that would occur after his death. But Russia's current rulers can triumphantly promise the people that the flood will occur during their lifetime.

Boris Kagarlitsky is director of the Institute for Globalization Studies.