Putin Vows to Lift Russia’s Struggling Middle Class
Posted March 1, 2018 4:10 p.m. EST
LONDON — During his annual state of the nation address in Moscow on Thursday, President Vladimir Putin effectively acknowledged that Russians cannot feed their families on restored imperial glory.
In a speech long on economic promises and short on specifics about how to finance them, Putin vowed to lift his country from grinding poverty and limited opportunities.
“Our top priority is to preserve the people of Russia and improve their welfare,” Putin declared. He noted that some 20 million Russians are enduring lives below the official poverty line, a circumstance he branded “unacceptable.”
The solution, Putin said, is to focus on creating large numbers of jobs that pay enough to support middle class life.
“We need to renew our employment system,” he said. “We need to create modern, high-paying jobs and sustainable long-term growth of incomes.”
Putin’s speech resonated as recognition that the international sanctions levied in response to his country’s seizure of Crimea in 2014 and its continued meddling in eastern Ukraine are hurting ordinary Russians.
At the same time, Putin’s persistent focus on building up Russia’s military arsenal has shortchanged efforts to revamp an economy that remains overly dependent on oil and woefully short of investment.
“The way Russia has been avoiding the subject the last few years is to rally around the flag,” said Nafez Zouk, chief emerging markets economist at Oxford Economics, a research institution in London. “Two years later, people are still earning less than they did two years before. Even if there isn’t a real political opposition, Putin doesn’t want his legacy to go to waste. He needs to get the economy back on track.”
In certain important regards, the Russian economy has improved — although this says more about the bleakness of recent times than how robust things are now.
Between 2014 and 2016, Russia was battered by a combination of forces. Oil prices plunged from more than $100 a barrel to less than $30, draining Russia’s coffers. And international sanctions deprived Russian companies and financial institutions of access to capital markets.
The result was a brutal recession that assailed the Russian middle class, sowing joblessness and eroding savings.
Those days are over, with Russia having weathered talk that its economy risked collapse. Oil prices are back above $60 dollars a barrel, while the sanctions have forced Russian firms to wean themselves from what had been an unhealthy addiction to international debt.
Since the beginning of last year, Russia’s economy has been growing again, albeit modestly. The World Bank forecasts expansion of 1.7 percent this year and 1.8 percent in 2019.
But even if growth accelerates, Russia remains in the same troubled patch it has occupied for years, having failed to transform an oil-dependent economy dominated by politically connected oligarchs into one in which private entrepreneurship is allowed to take root.
Fundamentally restructuring the economy would entail laying off workers at uncompetitive, state-protected firms in the oil and gas sector — a course that would yield more unhappiness among the citizenry.
Putin, who promised to cut the poverty rate in half over the next six years, presented a long list of proposed means of spurring economic growth while relieving the middle class of its strains.
Seeking to relieve a persistent housing crunch, Putin declared that mortgage rates must be lowered and salaries increased to enable more people to buy homes.
He said Russia must double its spending on the construction of roads, earmarking more than 11 trillion rubles (about $193 billion) for upgrading and extending the nation’s patchy transportation network. He also promised lawmakers that a bridge being erected between Russia and Crimea would soon be opened.
And he called for increasing investment in education.
Most of these talking points have been heard before — more than once. Experts were dubious that such measures could be financed absent another surge in oil prices.
International sanctions remain, imposed in response to Russian military adventurism in seizing Crimea and intervening in eastern Ukraine. And Putin gave no signs of changing his posture, using his speech to threaten Western nations with a battery of new weapons — including an intercontinental nuclear cruise missile.
Still, the speech’s emphasis suggested Putin is especially keen to shift the conversation to economic revival.
“His speech is a sign that poverty is an increasing problem for Russia that cannot be ignored,” said Per Hammarlund, chief emerging markets strategist at SEB Group, a global investment bank based in Stockholm.
“Putin needs to acknowledge this, and the Russian electorate expects him to try to do something about it.”