One of my biggest pet peeves about news coverage of Russia is a trend I’ve dubbed the Doom-Boom Cycle. The gist is that reports tend to be to the effect that either a) Russia’s economy is teetering on collapse, as is Putin, or b) Russia is roaring back, Putin will personally lead an invasion of the Baltics (riding a bear, naturally), and there is absolutely nothing the West can do. While the cycle certainly makes for interesting headlines, it doesn’t happen to present a particularly accurate picture of just how stable – or not – Russia actually is. So, for this first analytical piece on Bear Market Blog(!), the question of Russia’s stability is probably a good place to start. The short answer is, unsurprisingly, somewhere in the middle (the adage attributed to several Western leaders goes “not as strong as you’d fear and not as weak as you’d hope”). But let’s break this down a bit further.

What’s Making Russia Stable?

1) Putin is very popular and very much in command. 

The Levada Center’s most recent poll of Russia found support for Vladimir Putin at 82% – it’s floated at that level for effectively the whole year. This comes despite numbers for most other branches of government, both national and regional, descending from their post-Crimea highs. In fact, many institutions are now in the red popularity wise. The impression one gets is that Putin has emerged as somewhat of a political deity, sitting up on high and occasionally descending to trifle with the affairs of mere mortals.

In terms of institutions, Putin is as powerful as he’s ever been. Especially with a recent shakeup of Russia’s security system, which has elevated the FSB, created a new National Guard, and which may now birth a neo-KGB, Putin now has personal control over most all levers of power. What he wants done gets done. I’ve read that regional governments watch Putin’s yearly call-in show in terror, hoping he won’t mention their region in specific, or a state project that hasn’t moved along (there are a great many of those). It’s a bit like the eye of Sauron: where it looks, things happen. Elsewhere, maybe not.

2) The economy isn’t doing that bad. 

Russia has a lot of economic problems, and the past few years have indeed seen a recession. But to the average Russian, who likely remembers the chaos and poverty of the 90s, things are still pretty good. See the graph of GDP per capita below.

Putin came to power in just about 2000, and it’s been a fairly consistent upward trend since. Though this graph doesn’t reflect income inequality and the immense wealth gained by oligarchs, the fact remains that the average Russian has prospered under Putin’s leadership. And that includes the recent downturn. Things are better than before, and nobody wants to risk returning to the 90s.

On a less personal level, Russia’s finances are not nearly as bad as widely reported. Yes, the Reserve Fund is being drawn down, but there’s a National Wealth Fund to draw down too after that. And beyond that, Russia has one of the smallest debt-to-GDP ratios of any industrialized country and can (and will) borrow to make ends meet. It’s not ideal, especially for the fiscally hawkish Ministry of Finance, aka MinFin, but it will work. The financial sector doesn’t seem to be at a particular risk of collapse either. Due mostly to the leadership of Elvira Nabiullina, by far the coolest central bank governor in the world, Russian banks are about as stable as they’ve ever been. There are fewer of them – many licenses have been revoked over excessive accumulation of bad debt and other questionable practices – but the ones that are still around remain okay, and beyond a doubt, the Bank of Russia has cleaned up the sector.

3) There’s little risk of systemic political protest. 

As the crisis has set in, there have been more protests in Russia; that’s simply a fact. See the graph below from the Center for Social and Labor Rights, charting average labor-related protests (the blue line is the average from 2008-2013).

We see an uptick in from 2013 through 2015, and what looks like stagnation setting in this year, which is in line with the economy on a broader level: it’s not getting worse, for now. The key point here, however, is that these are economic related protest with very concrete and specific aims. More often than not, the protesters aren’t agitating against Putin, they’re agitating for his intervention in their problem: an increase in pension payouts, a repeal of a mileage tax on truck drivers, etc. Unlike the protests of 2011, there’s not broad anger against the political system as a whole.

The who and where are interesting to look at, too. The 2011 protests were driven largely by an urban professional class that was growing increasingly politically active. That class has withdrawn from/been driven out of politics in a very stark way. Turnout for the Duma elections in Moscow, for instance, fell from 44% in 2011 to 28.62% this year. The areas hit hardest by the economic crisis aren’t St. Petersburg and Moscow anyway. They’re smaller regional centers and single-company towns, and small populations aside, there’s no common grievance to spur a major protest movement in multiple places at once.

Here’s some telling data on protest potential from VTsIOM, in which respondents were asked “If protests broke out in city/agricultural area over a declining standard of living, unjust actions by leaders, or in defense of rights, would you personally take part in them?” 72% said “probably not.” That spike in 2011 (see the orange line) coincided with the protests I’ve referenced above.

4) Russia’s economy is tough, and Russians are too. 

One of my favorite experts, Natalia Zubarevich, described a tendency among Russians to “switch to potatoes” when times get tough. That’s literally what Russians have done in this crisis – consumer data has shown potatoes among the only goods to increase as a percentage of consumption over the past year or so. The point here is that questions such as “How do Russians put up with shrinking real disposable income and the disappearance of Western prosciutto from their supermarkets?” doesn’t do justice to the tenacity of Russians as a group. And many of whom presently view Russia as besieged from outside, a circumstance that has brought out fairly mind-boggling tenacity in the past. A quick aside, but for the prosciutto question, they usually relabel it in Belarus and import it anyway. The Belorussian shrimp industry has really taken off over the past year, which is interesting given that Belarus is landlocked.

Russia’s economy is tough too, though. I could delve into this for a while, but below is a great summation from Clifford Gaddy and Barry Ickes that describes it perfectly:

Were it not so likely to be considered disrespectful, we might describe Russia as the cockroach of economies — primitive and inelegant in many respects but possessing a remarkable ability to survive in the most adverse and varying conditions. Perhaps a more appropriate metaphor is Russia’s own Kalashnikov automatic rifle — low-tech and cheap but almost indestructible.

The financial system isn’t particularly developed or extensive, and the economy as a whole remains dependent on a good that people will continue to need for the foreseeable future. That may spell for trouble later, but that’s a 20+ year problem and not something Putin will likely have to contend with, unless prices crash again for some unforeseen reason.

---

So, is Putin about to be overthrown a la 1918? No, he is not. Russia is not on the brink of social and economic collapse, and I see few threats of either for at least the rest of Putin’s tenure in office, likely through 2024. Things will definitely get more interesting as that date approaches, though.

Stay on the lookout for part two, where I’ll look at what makes Russia less stable. And if you haven’t already, do sign up for the Bear Market Brief!