Putin’s show of strength overseas is masking a pressing domestic crisis

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Donald Trump Sergey Lavrov Sergey KislyakU.S. President Donald Trump meets with Russian Foreign Minister Sergey Lavrov, left, next to Russian Ambassador to the U.S. Sergei Kislyak at the White House in Washington, Wednesday, May 10, 2017. Russian Foreign Ministry Photo via AP

In the last three years, Russia has invaded one of its neighbors, entered a military conflict to support a long-time ally in the Middle East, and — quite credibly — been accused of hacking election campaigns from the U.S. and France.

It’s all helping to create an impression of Russian President Vladimir Putin as some kind of puppet master on the world stage. But this outward projection of military and cybernetic strength masks a major economic concern back home.

Russia just exited a two-year recession and its economy looks like it has hit a period of stagnation. The central bank just cut interest rates, in a step to boost growth, but the biggest challenge the Russian economy faces is the possibility of oil prices continuing to slip.

And as a Pew Research report published this week found, over the last two years, there has been a deterioration in Russian voters’ approval of Putin’s domestic economic management.

Being a strongman globally helps offset this. 

“Putin is not nearly as powerful on the world stage as he often seems,” Chris Miller, associate director of the Brady-Johnson Program in Grand Strategy at Yale University, told Business Insider.

“Russia lacks soft power — most of its neighbors are desperately trying to become less like Russia — and its economy is stagnant. But there’s a paradox here: precisely because it has few other mechanisms for influencing other countries, it turns to the military tool more often.”

Russia’s most salient act of foreign aggression was the 2014 invasion of Crimea in Ukraine, which led Western nations including the United States to impose crippling sanctions that helped deepen the Russian downturn. Though the recent Pew Research study found that a majority of Russians approve of Putin’s handling of relations with Ukraine — that support has dipped significantly over two years.

Pew found that 63% of those surveyed approved of the handling of relations with Ukraine today, down from 83% in 2015.

Russia GDP Chart capital economicsCapital Economics

A look at the shifts in Russia’s economy undertaken during Putin’s 17-year rule help explain why domestic weaknesses continue to haunt him.

A 2015 study from Simeon Djankov, the former finance minister of Bulgaria, found that Putin had played a big role in re-nationalizing industries that had been previously, and corruptly, privatized.

“By mid-2015, about 55% of the Russian economy was in state hands, with 20 million workers directly employed by the government, equal to 28% of the workforce. This is the highest share in 20 years, after the two privatization waves in the early and mid-1990s,” Djankov wrote. 

simeon1Peterson Institute for International Economics

Greater nationalization in a largely monolithic state has led to decreased efficiency and a long-term stagnation in the economy, he argued. “In 2009–14, growth averaged 1.5%—the lowest rate since the collapse of the Soviet Union.”

Things only got bleaker from there as the country slid into recession. 

“At home, Putin is genuinely popular, but he fears that this popularity is fragile, which it is,” said Miller at Yale, though he notes it’s “easy to be popular when you have no opposition.”

Put another way, it’s not so much Putin’s strength but Western nations’ own domestic political chaos that has allowed the Russian leader’s influence to appear so mighty.

“Putin has a relatively weak hand but has played it very well from his perspective, whereas Western leaders have been distinctly inept,” said Mark Kramer, program director at Harvard University’s Davis Center for Russian and Eurasian Studies. “Putin has achieved a lot more than he should have.”