stories

A crisis of trust Economist Maxim Ananyev on the subtle consequences of war and sanctions for Russia

Source: Meduza

Since the beginning of the war in Ukraine, the United States and European countries have imposed harsh sanctions against Russia in an attempt to force the country to halt its attacks and withdraw its troops. Russian citizens are already experiencing economic difficulties, including losing their jobs and businesses. Supporters of the sanctions contend that President Vladimir Putin is to blame for this. Could economic losses impact Russian politics and compel the government to reconsider its course? Research Fellow Maxim Ananyev from the Melbourne Institute of Applied Economic and Social Research explains.

Please note. This interview as first published in Russian on March 17, 2022.

Could Vladimir Putin’s approval rating drop due to a sharp economic downturn? 

It’s difficult to say. Judging by the history of the last thirty years, it’s precisely the economy that determines the Russian president’s approval rating over an extended period. There have been episodes connected in one way or another with military affairs — for example, Putin’s approval rating shot up during the second Chechen campaign, when he was still prime minister. We saw this again in 2014, in connection with [the annexation of] Crimea. But ultimately, in the long run, the economy wins.

In the case of the “Crimean Consensus,” [a drop in the approval rating due to economic repercussions] took four years. So this was a relatively long-lasting effect. How long this will continue in the current situation is unknown.

It’s even difficult to say what’s happening right now. Data from [state-controlled pollsters] FOM and VTsIOM shows Putin’s approval rating has risen ten percentage points — from 60–65 percent to 70–75 percent, depending on whose data is under consideration and how the question is formulated. To what extent this data can be trusted is unclear. For example, the economist Konstantin Sonin suspects all this data to be more or less “fudged.” And the political scientist Kirill Rogov, our chief expert on the dynamics of public opinion with respect to the presidential approval rating, thinks that this increase is connected to the fact that fewer people in general are willing to answer questions.

Today, if a person receives a call from someone asking questions about politics, most often that person hangs up or refuses to answer. We see this in a recent publication by the guys at the independent organization Russian Field. They put together a collection of statements made by respondents when called and asked about politics. People reply: “They’ll put me in jail for 15 years if I answer something the wrong way.” In general, the situation has changed a lot: far fewer people agree to answer questions, everyone has become more aggressive.

In my opinion, to speak theoretically, the economy always wins in the medium term. To speak practically, right now we likely don’t know what the real approval rating is, and we won’t be able to determine it anytime soon.

What do we mean when we say “the economy wins”? What accounts for this “win”?

When talking about institutional changes, it’s necessary to understand how these arise in different regimes. There are three types of undemocratic regimes: military dictatorship, personalistic dictatorship, and party dictatorship. According to political scientists, in Russia today there is a personalistic regime. This means that even inside the elite there is no means of influence. There isn’t any kind of Politburo that can influence decisions.

From this point of view, if the economic situation worsens—or even in the case of a military defeat — it’s still difficult to imagine any kind of intra-elite mechanisms for change.

When it comes to social mobilization, it can sometimes make an impact — if, for example, we recall the Orange Revolution, the Arab Spring, and so on. But we also know that even relatively large protests — such as those in Hong Kong — against a relatively rich regime with more resources can end in nothing.

Do protests influence the leader personally or the elite?

That depends. Of course, situations do arise where there are protests and the regime listens. Russia has experienced this: for example, the monetization of social benefits was scaled back in response to protests.

There are occasions when the leader is replaced. Nothing can be ruled out. One can, of course, say that there needs to be [certain preconditions in place] — a suitable democratic structure, or a lot of young people, or an economic situation that has become completely devastating — and then something can get started. But the Velvet Revolution in Czechoslovakia, and then the collapse of the USSR, the Orange Revolution, the “color revolutions,” and the Arab Spring all took analysts by surprise. One can say that the preconditions aren’t there yet, but this is absolutely unpredictable.

Many economists compare the current situation with the 1990s. But back then, the transformational shock happened against the background of a normalization of relations with the West and political liberalization within the country. Given that now everything is reversed, could it be said that the current economic shock will be deeper and more severe?

This is a tough question. Here there are several different parameters by which we can attempt such a comparison [between the current situation and the 1990s]. Firstly, in terms of the depth of the economic crisis, if there is no oil and gas embargo, then a complete collapse will likely be averted, since the regime will have money to make certain payments and to support the population. Moreover, Russia is still an economy with a large domestic market. To be cut off from the world economy and technology will of course hit hard, and we shouldn’t expect further technological progress. But a kind of stagnant standard of living and consumption will probably endure.

Furthermore, I wouldn’t expect the collapse of state institutions. It’s what we call “state capacity” — the strength of the state. I wouldn’t expect the same kind of decline in “state capacity” as that which happened during the nineties. The regime likely has enough money to maintain the police, the National Guard (Rosgvardiya), and to collect taxes.

And what happens if there’s actually an oil and gas embargo?

Yes, this scenario can’t be ruled out. Right now, as far as I understand it, the electorates and politicians in many European countries are against the ban on oil and gas supplies, especially in Germany. But if the war continues and an embargo is imposed, then, in my opinion, the 1990s scenario will materialize. And possibly, it could even be worse. In this case, the regime will not have money for even basic things, and we’ll find ourselves in completely uncharted territory.

It seems the word “wild” is appropriate…

Yes, “wild.” A fragile state, lawlessness. The principal achievement of Putin’s first and second terms was to bring regional legislatures in line with the Russian Constitution. It’s possible we’ll see the reverse happen.

[You mean] a kind of unraveling or de facto de-centralization?

I think it’s impossible to rule this out. This is, of course, an undesirable outcome, but for the past twenty years we’ve never found ourselves in a situation where the regime has no money — there’s always been money. Thanks to this, it’s been possible to maintain order in every respect. 

If there’s much less money or no money at all, then we’ll find ourselves in a very difficult situation. If there’s no economic growth, if the economy wins and not some kind of mobilization driven by foreign policy threats, then the regime must rely on the security apparatus. And if there’s no money to maintain the security apparatus and somehow reward it, then who knows how this will play out.

I remember you quoted political scientist Adam Przeworski, who wrote, “authoritarian equilibrium rests mainly on lies, fear, and economic prosperity.” It turns out that when there is neither economic prosperity nor money to fund fear, all that remains are lies—that is, propaganda. But even propaganda requires money.

Of course. Propaganda — especially high-quality propaganda that makes people forget they have nothing to eat — is complicated and expensive. All the more so as it’s incredibly unlikely that Russia will be technologically cut off from the flow of information. We remember how Roskomnadzor [Russia's communications and censorship watchdog] attempted to block Telegram.

I also wouldn’t rely on propaganda. But again, this would be in the case of an oil and gas embargo. If the embargo doesn’t happen, then, it seems to me, the most likely scenario would resemble a late-Soviet existence. There’s something to eat, it’s possible to live, there’s more or less order — and not a scenario where there’s “wild” people running around.

In your collaborative work with Sergei Guriev, you showed that in the Russian regions that suffered the most from the 2008 crisis, trust in society also decreased the most, which takes a toll on economic wellbeing. How much will the war and the economic crisis it triggers impact trust?

I must say it was not Sergei and I who came up with the idea that social capital depends on economic conditions. We simply endeavored, using great precision, to test this idea on Russian material.

Social capital is a general category that includes several things. First, there is the quantity and strength of your social connections. Why is this important for economic development? Because if you, for example, are an entrepreneur and want to raise money for your project, then the more people you know, the faster and more efficiently you’ll secure financing. If you’re looking for work and know a lot of people, then your chances of finding a job are much higher. If we project this onto society as a whole, then the greater the number of social connections, the higher the cumulative effect on the economy’s overall efficiency.

Sometimes social capital is understood to be the general level of trust in society. Trust is important because it’s impossible to write the perfect contract and then seamlessly execute it. Whether you’re buying milk or an apartment, lending money, or investing in something — in any transaction it’s always possible that the other party could behave badly and yet go unpunished. If all people in society behave in the expected, socially approved way, this increases the quantity of transactions, the space for transactions in general, and consequently, the economy’s overall efficiency. All this ends up affecting economic growth.

There is yet another mechanism — already a political one. For example, a greater level of trust and a higher density of social connections allow people to organize themselves and better control their government, so that there isn’t corruption or rot in general. This raises the quality of public administration, which also affects economic development. In a well-known example from Italy, where the cities with higher social capital are more developed, the mechanism that scientists have detected is precisely this: the quality of public administration.

Now it’s evident that the war and sanctions will increase poverty — and poverty is very bad for social capital. This is because poor people are far less inclined to take risks. For example, I buy milk, and I need to make sure it hasn’t soured. If I have more than zero money, then in the event it’s sour, I’ll go buy milk elsewhere. But if I spent my last bit of money on that spoiled milk, for me this is very bad.

Consequently, in all spheres of life, more suspicion is to be expected. This is, of course, not very good, because even if the economy eventually improves, social capital takes longer to recover.

Why does social capital take more time to recover and what enables its recovery?

In general, everything related to culture and values doesn’t change quickly. Social capital in a time of crisis is demolished by means of shocks. For example, you were sacked from your job, treated unfairly, and you make a mental note of this. This memory will then affect all your future relationships with people, with employers, and so on. It’s really a long process.

What factors enable the recovery of social capital? The literature on this subject says some experience of self-management, of self-organization, is necessary. For example, during a crisis you organized a group on WhatsApp whose members help find where it’s cheaper to buy or exchange something. This is also an experience of self-organization, and your social capital has increased. Literally, the number of your social connections has multiplied, and what’s more, you’ll find it’s possible to trust more people. If there’s a serious crisis, we’ll probably see something like this, and it will offset the destructive processes. 

How does social media affect social capital? And how, in this sense, does blocking social networks in Russia affect society (even if we factor in the availability of VPNs)?

We know for sure that when people coordinate and organize, there’s a positive impact on social capital. We also know that social networks help people self-organize. From this point of view, it’s reasonable to assume that social networks likewise have a positive impact on social capital. Therefore, the blocking of social networks probably reduces their influence.

Then again, I don’t expect Russia to be completely cut off from technological means of self-organization. [Messenger apps like] WhatsApp, Telegram, and Viber will likely remain. People will continue to self-organize even without Facebook.

Perhaps it will even be better. WhatsApp, Telegram, and Viber don’t have algorithmically generated feeds that can be scrolled through endlessly. In this respect, these methods for self-organization in chats might be even better for social capital than Facebook or Twitter.

How does propaganda affect social capital? Now it seems that propaganda atomizes people even more. Bonds are beginning to deteriorate even within families.

I’m not familiar with the research on this matter, but there’s Hannah Arendt’s well-known statement that a totalitarian society strives to atomize people.

This is not to say I regard totalitarianism to be a very important political category for the analysis of contemporary Russian affairs. But it’s hard to imagine how such an intense level of propaganda as that which exists in Russia today could raise trust between people. This propaganda is simply not equipped to do so. Yet how this propaganda degrades trust is quite clear: those who don’t believe the propaganda argue with those who do. But again, this is an empirical question and I don’t know the exact answer to it.

What was the state of Russia’s social capital leading up to February 24, 2022?

2017 was the last time the World Values Survey — which, among other things, asks about the level of trust — was conducted in Russia. At that time 23 percent of respondents answered that most people in society can be trusted. We don’t have more recent accurate data.

Is 23 percent a lot or a little in comparison with other countries?

It’s [about] average. For example, in the Scandinavian countries and in Germany, it’s 40–50 percent. In some countries in Latin America and Sub-Saharan Africa, it’s 8–10 percnet.

Our 22–23 percent is generally similar to [the numbers in other] post-Soviet countries, and this basically reflects the level of Russia’s economic development. In my article on trust after crisis, co-authored with Sergei Guriev, there’s a graph at the end where one axis plots GDP per capita and the other plots the level of trust. This graph shows a very strong correlation. Here it should be noted that the 23 percent we observed in Russia in 2017 has decreased significantly from the level in 2014, when it was 28 percent.

Is this a consequence of the decline in economic wellbeing?

I think so.

And how does this work? Is it like in your example about the spoiled milk?

Yes, this is one of the mechanisms. Another mechanism is the experience of justice and injustice. Since the beginning of the 2000s, people’s standard of living has increased every year. They’ve gotten used to this. And then suddenly, this stops! They wait and wait, but in vain. This is also a mechanism that decreases the overall level of trust.

Of course, everything can’t be reduced to the economy. If we, for instance, take a look at Ukraine, during these exact years the situation there was the opposite: in 2014, 23 percent were ready to trust people in society, and by 2017 this number had become 28 percent. [The level of trust increased] even though the Ukrainian economy experienced a prolonged period of stagnation. It’s possible that there, this dynamic reflects the level of national mobilization in the wake of the Euromaidan [Revolution], the level of national unity.

This is the data for 2017, but after this Russia had the retirement age increase in 2018 and then the pandemic.

Yes, I wouldn’t expect anything good to come from the pandemic, and absolutely nothing good can come of recent events. If people hang up and are afraid to talk about certain topics, then what kind of level of trust can we speak of? Right now I’m reading a book about everyday life during the Stalin era, when people were generally afraid to even open their mouths — can we even speak of a level of trust here?