Vladimir Putin has dominated international headlines as anti-war activists all over the globe take to the streets in protest against Russia’s invasion of Ukraine. The European Union and the United States have led efforts to economically and politically blacklist Russia to pressure Putin into withdrawing, cutting the country from the SWIFT banking system, and imposing several economic sanctions, which has seen Russia’s currency, the Rouble, go into freefall.
As Europe’s fears of Putin taking military action in response to decades-long tension with NATO’s expansion become a reality, many have compared him with Hitler and Joseph Stalin, former Chairmen of the Soviet Union. While Putin has had a long and little-discussed relationship with a particular strain of Russian fascism, boiling down the historical and political factors behind his rise to caricatures of authoritarians past is to ignore the role that international organizations and Western governments played in facilitating it. Understanding this history can help us understand what gave Putin his authoritative powers that saw his decision to invade Ukraine possible in the first place.
While Putin’s back and forth tenure as president and prime minister of Russia began in 1999 after being appointed by a resigning Boris Yeltsin, the groundwork that led to his rise to power was laid in the aftermath of the division of the Soviet Union and the formation of the Russian Federation in 1991.
Shock Therapy & Russia’s Post-Soviet Trajectory
Boris Yeltsin was elected President of the Russian Federation in 1991 prior to the collapse of the USSR later that year in December, campaigning on a loosely defined program of market reforms and economic transformation. In the wake of the USSR’s collapse, Yeltsin had the enormous task of reconstituting the newly formed Russian Federation’s economy from a planned Soviet one to a free market economy participating in the globalized stock market emerging in the 1990s.
The United States and the International Monetary Fund (IMF) sought to ensure this. Several foreign advisors from the United States government and the IMF were sent to help Yeltsin in this transition, including a group of economists named the “Harvard Boys”. They advised him that the most effective way for a planned economy to transition to a free-market one was to “shock” it swiftly, implementing immediate large-scale privatization of decades-long public services through neoliberal policies that rapidly deregulate the economy. According to neoliberal economic theory, focusing on constitutional and democratic transitions first would only curtail financial advancement and harm Russia in the long term. The IMF, alongside other international lenders such as the Paris Club and the London Club of international commercial banks, agreed to provide substantial aid to Russia to prop up the Rouble’s value on the condition that the economic conditions they suggested were met.
This prescription of economic policies would later be termed “Shock Therapy”. The term was coined in 1985 by international media reporting on its application in Bolivia but popularized by Canadian author Naomi Klein in her 2007 book The Shock Doctrine. Klein describes the (coerced) implementation of these economic policies in developing countries and their detrimental consequences to standards of living and democratic institutions, pointing to the policies implemented by US-backed Chilean dictator Augusto Pinochet in 1975 as the first instance of shock therapy.
Yeltsin seizes Power
The newly formed Russian Federation would enter a 3-year political deadlock as the dual power government – where the president and the former-Soviet-now-Russian parliament held equal authority in the final passage of policy – constantly clashed. Yeltsin sought to implement the shock therapy prescribed to him by his foreign advisors immediately and liberalize the economy to foreign and domestic private investors, while parliament preferred a state-facilitated gradual transition to a market economy.
Unable to fully enact his economic policies, the deadlock came to a boiling point with the Constitutional Crisis of 1993. On September 21, 1993, Yeltsin declared the 1977 Soviet Russian constitution – and thereby the dual power system – illegitimate. As expected, the parliament went on to reject this decree and anti-Yeltsin protestors would take to the streets of Moscow, barricading the parliament and the politicians inside in support. In response, Yeltsin ordered the military to shell the parliament building and arrest the barricaded legislatures in what became the deadliest episode of domestic political violence in Moscow’s history, with disputed official numbers tallying 147 dead and 437 wounded.
The 1993 crisis would be the watershed moment that set Russia on its post-Soviet trajectory of an authoritarian Petrostate. In its wake, Yeltsin drafted a new constitution approved by a referendum in December 1993, found to be rigged less than a year later. In this constitution, the top-down powers of the president were enshrined, including the authority to dismiss the entire cabinet (including the prime minister) and, particularly, the use of force to resolve political conflict – now playing out before us.
Russia’s Turbulent 1990s
The Yeltsin years would see the colossal transfer of wealth to a select few, resulting in sharp increases in poverty, unemployment, domestic abuse, and organized crime. Life expectancy in Russia declined substantially in the 1990s, seeing the return of chronic diseases and the collapse of public health infrastructure. In 1999, the International Labour Organization classified 50% of the Russian population below poverty. The sudden and abrasive economic shift Yeltsin brought is best reflected in the rapid increase of income to the top 1% in Russia in the early 1990s seen below, especially compared to decades prior and to other countries.
The Crash of ’98 and Yeltsin’s Downfall
Yeltsin’s process of liberalizing the Russian economy was done behind closed doors, with ownership over resources being declared by direct presidential decree, therefore corruption in these business deals could not be accounted for easily. By implementing the shock therapy advised to him, Yeltsin created an oligarchy – a government dictated by the interests of a number of individuals in the private sector – and enshrined the office of the president with the sole powers to maintain it, whether forcefully or diplomatically.
In 1996, Yeltsin was incredibly unpopular and was forecasted to lose the upcoming presidential elections if not for the interference of the CIA at his request. Dodging democratic accountability, the disastrous consequences of shock therapy would catch up to Yeltsin sooner rather than later with the 1998 Russian Financial Crisis. With the sharp and rapid decline of the Russian economy throughout the 1990s, the Yeltsin administration attempted to keep the Rouble’s value afloat by pouring its own funds through the Russian Central Bank into maintaining its exchange rate with the US dollar within a specific bracket.
A $22.6 billion financial package from the IMF was approved in July 1998 to aid the Yeltsin government in this endeavor to stabilize the Russian economy artificially. On August 16, 1998, $5 billion of the financial package was discovered to have been stolen, which the IMF had knowingly turned a blind eye to. The next day, the Russian government defaulted on its debt, and Russian financial markets crashed.
With the rampant poverty and unemployment only getting worse, discontent towards Yeltsin reached its highest point. The newly constituted parliament he founded in 1993, previously docile due to the events that led to its foundation, began to express its concerns regarding his leadership. Fearing that he may be prosecuted upon the end of his term, under the advice of his inner circle, Yeltsin resigned and appointed Vladimir Putin as his successor, who immediately granted him immunity.
Putin Inherits the Oligarchy
Where Yeltsin created the interdependent relationship between the oligarchical businessmen of Russia’s market and the state, Putin ensured the government – and therefore the office of the president – would remain in the driver seat of this nonetheless interdependent relationship. On July 28, 2000, Putin held a meeting with 21 of Russia’s richest oligarchs to strike an informal agreement, maintaining Yeltsin’s deregulations in exchange for their promise not to interfere politically. “You built this state yourself… through the political or semi-political structures under your control,” Putin said in the meeting “…so let us get down to the point and be open and do what is necessary to do to make our relationship in this field civilized and transparent”.
Most infamously, in 2003, oil oligarch Mikhail Khodorkovsky was arrested, whose company was then broken up and absorbed by the state-owned oil company, Rosneft. However, unlike the planned economy of the USSR, these state-owned companies operated similarly to private companies – looking to increase profits for shareholders, of which the state was one of many and often held a minority stake. The commitment to private industry remained.
Despite the increased authoritative danger Putin posed to those oligarchs that threatened his political interest, the number of billionaires in Russia massively increased under Putin, with Russia holding the highest number of billionaires in the world prior to the 2008 global financial crisis, above the United States. Putin’s further extension of the state into the market economy Yeltsin tried to build secured strategic sectors in oil and gas, ensuring relations with majority stakeholders remained cordial and they stood to benefit economically from the continued stability of Putin’s authority.
The Yeltsin years created a top-down authoritative presidential system to force through the implementation of shock therapy in Russia. Putin would inherit this authoritative political infrastructure and further consolidate it, thanks to favorable economic conditions that saw the increase of oil and gas prices in the early 2000s and the subsequent increase in the Rouble’s value. This would result in (relative) increases in standards of living and higher domestic support for Putin compared to his predecessor, allowing him to further consolidate the central authority of the president. Putin would subsequently ramp up censorship, restrict the number of parties admitted into parliament, and strengthen the bureaucratic authority of Moscow, reigning in local governments with the increased financial and political capacity the boom in oil and gas provided.
A Legacy of Foreign Interference
The post-Soviet trajectory of Russia into an oligarchic petrostate dictated by the authority of Vladimir Putin is, in part, the consequence of US and IMF interference in the democratic will of the Russian people in the 1990s. Russian citizens have borne the brunt of its consequences ever since and will continue to shoulder the burden of the current sanctions on the Russian economy that conveniently omitted oil and gas. Not only are Russians bearing the consequence of this legacy, but so have Chechnya, Moldova, Georgia, and now Ukraine – countries subjected to Putin’s nostalgic vision of what he sees as Russia’s rightful pre-Soviet sphere of influence.
As these sanctions send Russia into another financial crisis akin to the one in 1998 that saw Putin’s rise to power, the international community must be wary of recreating those same conditions. While sanctions have certainly hit the private interests propping up Putin’s regime and increased the economic burden of the war effort, there must be serious discussion of the effectiveness of sanctions. Which sanctions stand to improve the political reality in Russia (and Eastern Europe) in the future, if at all? Which sanctions will only serve to determinately affect ordinary Russians and potentially enable a new strongman to take over from Putin?
