at approval ratings and GDP growth for President Putin does not immediately tell this story.
In the left panel of Figure 1, Putin’s approval rating in the Levada Center’s surveys is negatively correlated with GDP growth. It is rather unexpected and unusual that a country’s leader becomes more popular when growth is lower. A closer look at the data reveals that the negative correlation is generated by three distinct periods; the first year is when Putin was still relatively unknown at the same time as Russia’s growth rates were the highest since the break-up of the Soviet Union due to the rebound after the 1998 crisis; then Russian growth was hit by the global financial crisis in 2008/2009; and then finally, there is the period of Putin’s approval getting a significant boost following the annexation of Crimea and period of sanctions and counter-sanctions in a time of very poor growth.
Figure 1:GDP growth and approval ratings of Putin.
Source: Levada Center and Federal Statistics service.
Removing these exceptional periods from the left panel in Figure 1, we get the right panel that shows what we can think of as more “normal” quarters of economic and political developments in Russia. All of a sudden, the approval rating for Putin lines up very well with quarterly growth rates and the correlation between the two variables goes from a negative 0.3 in the left panel to a positive 0.7 in the right panel. In other words, Putin’s popularity increases with higher growth like in most other countries. The caveat is of course that when growth turns out to be less than satisfactory, there are other ways for a Russian president to boost his approval ratings.
Again, Russia may be different in the sense that approval ratings and the probability of regime change are less clearly connected than in Western democracies, but it is hard to think that low popularity ratings would not affect the probability of some type of popular or elite movements that challenge the president. Therefore, generating high and sustainable growth is one of the central tools for a president to stay in power in Russia as well. The fundamental question posed in the chapter is whether capital flows and foreign direct investments can help generate more productive domestic investments that in turn lead to higher sustainable growth. In order to analyse the economic–political nexus of growth and popularity ratings, the chapter starts by investigating how Russian growth compares with peer groups and to what extent a regular growth model can be used to understand growth in Russia. The analysis suggests that this is the case and then looks at investments, capital flows and uncertainty to disentangle external factors and domestic policies that have contributed to the developments we have seen in the Russian economy.
What sets this analysis apart from much of the other literature on Russian growth is the focus on uncertainty and the importance of specific policy actions rather than institutions more generally. It also highlights how a serious economic reform programme will contribute to regime stability in the longer run, while external conflicts only have a short-run popularity effect that carries a high price in terms of lost growth opportunities and lower long-term approval ratings.
Growth
Actual growth since the start of transition
Russia’s growth since 1991 has gone through several phases as can be seen in Figure 2. These phases are explained by a mix of fundamental growth drivers, external shocks and domestic policies. The problem for Russian voters (and sometimes also for researchers and policymakers) is to disentangle those changes in their income that are due to a capable leader’s policies from those that are simply the result of chance or a response to external shocks. The strong positive correlation between approval ratings and growth in the right panel of Figure 1 suggests that voters in more normal times rather indiscriminately reward their leader with higher ratings when growth is higher and vice versa even if much of the variation in growth is due to external factors such as changes in international oil prices. However, the global financial crisis in 2008/2009 is an example of people clearly identifying the shock to be external and where the popularity rating of the president did not fall as would otherwise be expected. The political cost of poor economic performance can also be seen in the first decade of transition from a planned economy to a more market-oriented one. This was not a smooth process, but instead growth was negative for many years and that is still reflected in peoples’ views of former leaders such as Gorbachev and Yeltsin.
Figure 2:Real GDP growth.
Source: World Bank.
Russia was not unique among transition countries to experience negative growth in the early years of transition, and both the countries that later joined the EU (EU10 in Figure 2) and the other countries that came out of the Soviet Union (FSU11) had a similar start with declining incomes.2 However, the rebound to positive growth was significantly faster among the EU10 countries than in Russia and the FSU11 countries.
The differences in growth between Russia and the peer country groups may not look so striking, but when growth differences accumulate over several years, the differences in income levels are significant. In Figure 3, the lines are broken in the first, pre-Putin, phase of transition with income levels set at 100 in 1990. By the end of 1999, Russia had lost more than 40% of its initial income level, similar to the other FSU countries but far behind the EU10 group of countries that by then had come back to where they started the transition process in terms of income levels.
Figure 3:Russia and peers GDP index (1990 = 100 then 2000 = 100).
Source: World Bank and author’s calculations.
The second part of Figure 3 restarts the comparison at the time Putin became president for the first time. With 2000 as the starting point, the FSU11 group generated the highest average growth rate, and in 2017, income levels were 2½ times of what they were in 2000. Russia was for a long time ahead of the EU10 countries in terms of growth in this period, but after the very poor growth performance after 2013, Russia was overtaken by the EU10 group as well. Nevertheless, under Putin’s watch, income in Russia had increased by 1.7 times in 2017 compared to 2000, in stark contrast to the loss of 40% of income in the first decade of transition. It is not hard to understand that the arrival of a president that coincides with a shift in economic fortunes of this scale generates ample support in the population and that a narrative of Putin creating order from chaos can take hold.
There are many external factors that affect Russia’s macroeconomic performance and the volatile and unpredictable world market price of oil is of particular importance. Oil prices have explained around two-thirds of Russian growth and account for a similar share of 1-year ahead forecast errors in the recent decades (Becker, 2017a). Over the years, Russian policymakers have adopted policies to mitigate the volatility of oil prices by first creating different versions of oil fund(s) and then abandoning the fixed exchange rate and moving to inflation targeting. Becker (2017a) shows how these
