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The Road to Superpowerdom is Paved with Oil

Apparently Vladimir Putin is not just President of Russia. He’s not just a karate expert. Or just a lover of blondes. He’s also Vladimir Putin, PhD. According to a REN TV report on February 2, Putin wrote a dissertation, “Strategic Planning of Regional Raw Material Operations in a Market Economy,” in 1997 as a student of the St. Petersburg Mining Academy. Anyone can go read it. It’s stored at the Leninka. REN TV took a trip to the Leninka to see if the dissertation was in fact there. Apparently the work has seen some heavy traffic. “Last year the thesis was lent for reading eight times,” reported REN TV’s Aleksandr Zhestkov. “Librarians say it is a lot: some theses remain without anybody’s attention for years, whereas here there is a clear interest.” So much interest that it is rumored that it is required reading by Kremlin staff.

It seems that Putin’s PhD is not simply a thesis on raw material; it is a object that lends to his emerging cult. “You are holding in your hands something that was typed by the person who wrote it,” said Aleksandr Soshnin, the Leninka’s head librarian after handing the text to Zhestkov. “It is like an old manuscript. You are touching something that Vladimir Vladimirovich [Putin] also touched.” Such an experience is bound give you the chills.

But the cult of personality goes beyond that. Putin’s thesis is also characterized as a “prophecy of the gas war with Ukraine, obviously expressed in a coded fashion.” Or so thinks Vladimir Litvinenko, Vice Chancellor of the St. Petersburg Mining Academy:

One can indeed find if not a direct answer to those processes that are today taking place with Russian gas which passes through Ukraine, then general views on the state’s presence in the system of regulating the activities of large companies.

Prophecy or not, one thing is for sure. The thesis gives some idea of what Putin thinks about the relationship between energy, the state, and the market. One part of the text reads, “Irrespectively of who owns natural, namely mineral, resources, the state has the right to regulate their development and use.” This is enough to make the free marketers at the G-8 meetings quiver.

Perhaps Putin was on to something. Or so thinks Professor Vladimir Shlapentokh of Michigan State University. Energy exports and exerting influence over the global energy market is one way for Russia to reemerge as a superpower.

“In the last few years,” writes Shlapentokh,

The Kremlin has realized that Russia, with its expansive oil and gas resources, can reclaim its superpower status. A few of the president’s myrmidons have recently suggested that Putin had actually predicted this turn of events as early as 1997 when he worked as Petersburg’s deputy mayor and wrote a doctoral dissertation entitled, “The strategic planning of the natural resources in the region.” In any case, on December 22, 2005, at the meeting of the Russian Security Council, Putin proclaimed that the country was back on top and playing a key role on the world stage. A few days later, Moscow decided to settle the score with Ukraine for choosing the West as an ally after the Orange Revolution in 2004. The Kremlin sent an ultimatum to Kiev, forcing it to accept a five-fold increase in the price of gas. One month later, the Kremlin sponsored a rather primitive spy scandal against Britain in the style of the Cold War. It accused the British special services of helping human rights organizations destabilize Russia.

To do this, the Putin government had to overcome a series of “dogmas.” First if the economy was going to rely on energy exports, it had to create a reserve of hard currency to prevent default if oil prices dipped. Putin succeeded in this by creating the “Stabilization Fund” which contains over $35 billion, almost 10 percent of Russia’s GNP. With energy prices on the rise due to the combination of possible “peak oil” and increasing demand from emerging industrial giants of China and India, there is no indication that Russia will have to dip into that fund to stave off a default.

The second dogma concerns “backwardness” or Russia’s reliance on energy exports like other Third World countries as a negative refection on its potential to join “civilized nations.” The fear was that this “backwardness” would prevent the development of alternative export sectors in the economy like manufacturing like so many industrial economies had. The dangers of backwardness have since been rejected by the Putin Administration:

Though strong in the past, the dogma of backwardness is now being rejected by the Kremlin. Putin’s team sees its enormous oil and gas reserves as a blessing that will allow them to solve many of the country’s problems without increasing the production of manufactured goods for export (an unrealistic goal for a country that is unable to make structural economic reforms). However, the high export revenues have allowed Moscow to forget about the times when it had to scrounge for money from world financial organizations. Moscow can now boost military expenditures, pay salaries and pensions regularly, increase social benefits, make some improvements in infrastructure and refurbish not only Moscow and Petersburg, but all major cities in the country.

I hesitate to embrace Shlapentokh’s optimism that capital from energy exports will be redirected to improving Russia’s infrastructure. It’s a possibility, though not without consequences. When Stalin used grain exports to generate capital for industrialization, it increased domestic grain prices and as a result discontent among the population. It also drove the regime to collectivize agriculture to avoid the fluctuations of grain supply the Politburo perceived was a result of peasants withholding grain to get a better price. I should state that I am in no way saying Putin is Stalin-like. I know that placing anyone next to Stalin invites all sorts of political enmity. My point is that Stalin’s move required the centralization of grain production. Such seems to be the case with the energy sector in Russia. The trick seems that the Russian government has to balance exports with domestic consumption. That is, dependence on energy exports requires high energy prices on the global market, but at the same time the state must somehow keep the domestic prices low. Russians have already seen a steady rise in energy costs. The question is how high they can go before cutting into the increased standard of living Shlapentokh hopes an energy export based economy can produce.

It seems that to get out of this bind there needs to be a concerted effort by the state to reinvest the income from energy exports back into the domestic economy. Given the general increase in the gap between rich and poor, the increasing concentration of wealth in the hands of a thin layer of the Russian middle class, and the geographical concentration of wealth first around Moscow, and then urban centers, one wonders how Russia will break this cycle and redistribute its vast capital more evenly. My guess would be increased state intervention. But if Andrei Illarionov’s charges that the Russian economy and politics is based on “nashism” are correct then how will this redistribution happen?

But does it need to? A lot of the ill effects caused by robber barons can be quelled with ideology. If Russians imagine themselves and their country as a “superpower” then the increased concentration of wealth might not matter. On this, Shlapentokh is right to note the importance of the fact that “the price of oil itself has become a sort of national symbol in Russia, a country that has been searching for a national idea for twenty years.” Oil is the road in which all former glories can rise again: Russia’s military strength, the sanctity of its cultural institutions and traditions, its modern role as a global player. The belief in oil might return the national confidence lost after the collapse of the Soviet Union and the instability of the Yeltsin years. If Putin’s gamble pays Russia will continue on its steady path of regaining its international footing. But, a sole reliance on energy is not a feasible long term strategy. Energy prices will certainly rise in the coming decades. But what will happen if they rise so high they create a scissors crisis with the costs of living? What will sustain the Russian economy then?

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