This is still the case, but I find I saw it much less, heard it talked about much less, towards the decade’s end. Then it was common, it was unsurprising, to see the elderly, with their forlorn medals, selling their possessions at little hard-scrabble sales within the glint of the red ruby stars of the Kremlin towers. The desperate sold these insignia; the utterly desperate sold everything. Under weak February light I turned the pages of a black-and-white Soviet family photo album that a deeply wrinkled, grey-faced woman in a peasant’s kerchief was selling on the steps of the Lenin Library. The story the pictures told: a burly man smiling at various Soviet civil ceremonies, with a new baby girl, getting married, an earlier shot of young men in uniform in front of a tank: ‘That’s my husband.’ They cost $1 each. As I passed her a note, I saw her gloves were threadbare, her fingers blue.
Putin’s Boom
In 1996 a former Economist Moscow correspondent along with a professor at the London School of Economics co-authored a book called The Coming Russian Boom. Two years later Russia went bankrupt, the book disappeared, the authors were humiliated and foreign investors rushed for the airport. Then the boom happened anyway – remaking Russia’s economy and society, transforming even its ethnicity.
Russia, in 2000, was the world’s tenth largest economy by average value of GDP measured by purchasing power parity, smaller than Brazil, but surged back along with living standards under Putin.5 By 2005 it was bigger than Brazil and Italy, as the eighth largest.6 In 2010 it was sixth, having overtaken Britain. Restoring it to its 1990 position of fourth, ahead of France, seemed likely.7
The upward cycle during Putin’s first presidency was dramatic even by the standards of Russian history. Everything that could have gone right for Putin had done just that. Thanks to the efficiency gains pioneered by Khodorkovsky, by 2008 oil production had jumped by two-thirds since the 1998 crash.8 More was being produced and it was also worth more as the oil price had risen thirteen times over.9 In 2007 annual oil export earnings were over $173 billion, up from $36 billion in 2000.10 Having eliminated Khodorkovsky, the government had been able to increase oil taxes tenfold to feed the state.11
The Kremlin was taking its handsome cut. The consumer boom meant a tax boom; the oil boom meant a direct revenue boom. The result was a better-fed state, as oil and gas account for almost two-thirds of Russia’s export revenue and almost half of federal budget revenues. The state was also a market player in its own right. The crown jewels of the hydrocarbons industry were in the hands of the state monopoly Gazprom and the expanded Rosneft, the devourer of Yukos.
The critical oligarch Alexander Lebedev was half right when he described what had happened with this gigantic windfalclass="underline" ‘One third was pocketed by 200 individuals. One third was spent on improving wages and salaries in the budget sector but they were eaten up by rising prices, and one third was thrown out the window for, say, the [2014] Olympics.’12 Yet the boom was so huge that most tycoons, investors and citizens looked the other way as this happened.
The boom was not restricted to hydrocarbons – the value of other Siberian treasures soared. Gold was up 225 per cent, nickel rose by 69 per cent and aluminium by over 30 per cent.13 Because the Russian economy is dependent on the success of these key exports, the commodities ‘super-cycle’ hiked up overall GDP, kick-started industrial expansion and trickled down to the consumer. Economically, this was one of the biggest strokes of luck the country had ever experienced and allowed Russia to achieve what in 2007 the World Bank heralded as ‘unprecedented macro-economic stability’.14
Quickened by the surge in oil prices the government policy of paying off foreign debts, lowering sovereign debt, balancing the budget, building up reserves and liberalizing the economy paid off for ordinary people. For the country as a whole, the economy grew at an average of 7 per cent a year during Putin’s presidency, and government debt was reduced to just 9 per cent of GDP by 2010.15 Foreign investment flooded in, the stock market boomed from just $74 billion in 2000 to over $1 trillion by 2006.16
For normal Russians, the raw materials boom fuelled a consumer revolution. Real incomes rose 140 per cent and unemployment slumped.17 GDP per capita in PPP terms, which had stood at $5,951 in 1999, jumped to $20,276 by 2008.18 Russians living below the poverty line fell from around 30 per cent in 1999 to about 13 per cent in 2008.19 The stock of private housing increased by over one-third.20 Mobile phones and personal computers went from being unknown to ubiquitous. New car registrations increased by two-thirds.21 Globalization brought foreign companies into every (legally permitted) Russian sector and major city, whilst Russian companies entered the markets of almost every foreign country. These facts suggest that it would be surprising if Putin had not been so popular; any politician in his place would have been as popular – indeed one who had built up democratic institutions and fought corruption might have been unimaginably so.
Russians were well positioned to enjoy a strong rise in consumer power. To this day, most have low debt and many own their own homes without mortgages, having ‘inherited’ them from the Soviet state. The jump in real incomes was thus immediately available for shopping. The first major foreign supermarket chains arrived in Russia in 1997, but it was only in the mid-2000s that they proliferated. European giants such as Auchan and IKEA threw themselves into the market earning record profits. Russia’s one IKEA store in 2000 had spawned fourteen by 2011.22 Modern malls were soon present in almost all major cities from Krasnodar in the south to Yakutsk in outer Siberia. The average spend was so much in many of these that foreign investors quickly realized that Russia’s GDP per capita was surely a heavy underestimate with perhaps as much as one-third of the economy still in the shadows. This is without even calculating what Russia’s value might be if money that was being stolen or smuggled out of the country could be counted.
The boom returned Russia into a solvent actor on the world stage. To Moscow’s enormous satisfaction, on 31 January 2005 the government paid off its entire balance of IMF debts, three and a half years ahead of schedule. In summer 2006 the remaining $23 billion debt it owed to its ‘Paris club’ of creditors was paid off. As pro-government commentators crowed from every federal TV channel, the state – which had effectively been in receivership when Yeltsin defaulted in 1998 – was ‘independent’ once again. However, it was not lost on the smartest observers, including Surkov, that this upswing was precariously reliant on commodity prices:
We are not like Kuwait. We are a very big country with a large population. We have stretched wide and we have a very big and costly infrastructure. Besides, we should also bear in mind that we are a northern country. Our expenses are too high. We will be unable to be a prosperous small emirate; we are a great big country, which oil will be unable to feed. We should learn to earn money with our brains.23