Russia on the cusp of political turmoil?

Many factories have closed down in rural Russia, causing widespread unemployment

The United States has scrapped, at least for now, the plan to base missile defence sites in Poland and the Czech Republic. Germany and Russia seem to have overcome opposition in Europe to their Nord Stream pipeline, despite fears that it will solidify Russia’s dominance of the European natural gas supplies.

Oil prices have recovered from the disastrously low levels of last winter. And, far from buckling under pressure from the US over sanctions against Iran, Russian leaders felt confident enough to concede almost nothing to Secretary of State Hillary Clinton during her visit to Moscow last week.

Yet on the inside the country remains dangerously close to a serious breakdown of authority. In addition to the Muslim north Caucasus, which is already barely governable, the most vulnerable places are the ‘company towns,’ which could catalyse a nationwide explosion of political turmoil.

Products of Stalinist industrialisation, an estimated 460 company towns grew around a single plant or factory. Hence their Russian designation: ‘monotowns’. Most were erected, often by prison labour, in the middle of nowhere and in complete disregard for long-term urban viability, not to mention the needs and conveniences of the workers and their families. In addition to being the single employer, these ‘town-forming enterprises’ are responsible for providing all social services and amenities, from clinics and schools to heat, water and electricity, for populations of 5,000 to 7,00,000.

These crumbling monotowns seem frozen in the 1930s or ’50s; the fat years of 2000 to 2008 have passed them by. Worse yet, many of these places were among the first victims of the plunge in industrial output last year, when production fell by almost 20 per cent — a rate of decrease unseen since 1941 and 1942, the years of the Nazi onslaught. As a result, the town-forming enterprises have begun laying off or furloughing workers, and salaries have been cut, delayed or unpaid for months.

For most Russian workers, there are unemployment benefits from 850 rubles to 4,900 rubles per month. As many as two-thirds of the unemployed seem to be unaware they are even eligible for these payments, so of the estimated 6.5 million unemployed in Russia in July, only 2.194 million registered for benefits.

The local administrations in many regions have been of little help, having been bled dry by recentralisation efforts during the presidency of Vladimir Putin that redirected 70 per cent of local revenues to Moscow. As a result, some grocery stores have been forced to stop offering credit to customers who have not been paid for months.

In Pikalevo, a monotown of 22,000 near St Petersburg, citizens grew desperate after the shuttering of their plant, which produced cement, aluminum and potash. There were no prospects for work; people were without assistance of any kind. A resident told a reporter over the summer: “We are eating grass. It’s shameful.” But when the town’s heat and hot water were shut off in May it was the last straw. After an occupation of the mayor’s office brought no relief, angry Pikalevians blocked a major highway.

A few days later, Prime Minister Putin travelled by helicopter to Pikalevo. With national television cameras rolling, Putin berated the local administration, plant managers and the plant’s owner, Oleg Deripaska, formerly Russia’s richest man, whose BaselCement conglomerate is now almost $30 billion in debt. He then ordered them to sign a pledge to reopen the plant.

Publicity and protests
Of course, neither Deripaska nor the local government will be able to keep an all-but-bankrupt enterprise open for long. And while the Kremlin’s iron grip on the national news media has helped keep the monotowns out of the spotlight, Putin’s very public intervention in Pikalevo is likely to encourage more protests across the country.

This could be catastrophic: after all, a quarter of the urban population — 25 million people — live in monotowns and produce up to 40 per cent of Russia’s GDP. And these struggling workers embody Russia’s work force: largely immobile, because the lack of affordable housing makes it impossible to seek employment elsewhere, and sadly inflexible, thanks to their overdependence on these paternalistic, enterprise-based social services, part of what President Medvedev has denounced as the “Soviet-style social sphere.”

According to the World Bank, this year the number of Russians below the poverty level has grown by 7.5 million to 24.6 million, or 17 per cent of the population. An additional 21 per cent, or almost 30 million, have incomes less than 50 per cent over the poverty level. Together, that’s 4 out of 10 Russians.

Moscow has only one obvious option: increase its financial assistance to the monotowns many times over. But there are numerous impediments to making this happen. First, with the memories of the hyperinflationary 1990s still fresh in everyone’s mind, the Kremlin is wisely reluctant to print money and will instead try to stretch its remaining hard currency reserves to plug the growing budget deficit.

Second, though Russia already plans to raise $17 billion by issuing Eurobonds and to borrow billions more from the World Bank, the money will not materialise until next summer at the earliest.

Finally, even if the needed money was miraculously available today, it would take some time to disperse such enormous amounts among the hundreds of monotowns. Which is why the government’s mid-August decision to appropriate 10 billion rubles for assistance to just half of the communities was not only too little but is too late.

There may, in fact, be nothing that can be done to prevent these ticking time bombs from exploding. And as the Iranian protests recently proved, in an age of cellphone cameras and the internet, one demonstration in one monotown could ignite a wave of nationwide protests that Russia’s news media could not cover up, its riot police could not properly contain and its government may not be able to survive.

Certainly, this crisis sends a message of utmost urgency to a country still groggy from the oil-boom intoxication of the past eight years: go back to the decentralisation and democratisation reforms of the 1990s and early 2000s — or face the political, economic and social calamity of the monotowns on a national scale.

In fact, Medvedev recently outlined a strategic reform agenda to break Russia of its ‘humiliating dependence’ on oil and gas exports and transform an economy incapable of invention and innovation into a world leader in new technologies.

Just as helpful for the country’s stability and progress would be the next item on Medvedev’s agenda: developing a political system that is “open, flexible and internally complex.” This would be a Russia far different from the one that Vladimir Putin bequeathed to Medvedev — a nation stripped of the much-needed shock absorbers of democracy, including an uncensored news media, a responsible and viable political opposition in the national parliament and genuine local self-governance.

Medvedev should act on these plans decisively, now, or else no foreign policy advances or new gas pipelines will prevent the disaster of the monotowns from consuming all of Russia.

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