Putin offers Russia a Potemkin future

Vladimir Putin is certain he will win in Ukraine, because he must. He has left himself no other options, having started a war that’s been portrayed as a fight for Russia’s very survival, one that has redefined national identity and to which he has tied the fortunes of his regime. It’s an existential fight. That may be why he is focused on reinventing the past and surviving the present, while ignoring the future.
Unfortunately for the Russian leader, the future has a nasty way of catching up with the present. Whatever the exact conclusion of his war of conquest in Ukraine — and outright victory is unlikely — it is hard to imagine an outcome where Russia is not isolated and shunned for years to come. The country faces a future of poor quality goods with low safety standards, paltry foreign direct investment and declining real incomes.
For now, Russians are choosing to brush this aside. Opinion polls, unreliable as they are in any autocratic system, suggest growing support for the government — 68% of respondents said in July that the country was on the right track, up from 52% in February. It’s not that today’s problems are invisible, it’s that more people now expect them to pass, and pessimism about the future has decreased. Indeed, most do not expect to see wage delays, pay cuts or job losses. It helps, perhaps, that fewer Russians are looking for updates from the front.
That all matters, because it suggests public backing is conformist, not unconditional — Russians don’t expect to pay a cost. It’s a detail that hasn’t escaped Putin, who has allowed his citizens to be spectators in his war. He’s downplayed the three-pronged invasion of a neighbor as a “special military operation,” has avoided mass mobilization and (by and large) the use of conscripts. He’s preferring to turn to volunteers from distant regions, to outfits like private mercenary company Wagner and even convicts. No wonder propaganda, at fever pitch in the first months, has become a little less loud — far better for citizens to forget the war altogether.
Will reality bite? Eventually, and inevitably.
Yes, the economic fortress has resisted in the face of the initial shock. Sanctions take time, and Russia was prepared, thanks to years of fiscal restraint, plus the West has not been able to really strike where it would be able to impose the most pain — specifically, oil and gas. Moscow is instead squeezing Europe on gas and selling its crude, which matters more to government revenues, to Asia. Gross domestic product dropped a relatively shallow 4% in the second quarter, the first full quarter since the invasion.
Officials now see a decrease of just over 4% for the full year — considerably less than earlier forecasts of more than 12%, which would have marked the steepest decline since the post-Soviet years. But that’s not the good news it’s supposed to be. The second-quarter GDP decline has still shrunk the economy back to 2018 levels. Never mind that the calculation understates the drop in living standards. Unemployment levels have not soared with Western pull outs. That says something about shallow foreign investment and plenty about the role of state-influenced companies, which tend to prefer to cut wages and reduce hours before culling jobs. And even then, there will be pain. Political scientist Ilya Matveev has calculated the number of workers dependent on foreign capital, directly and indirectly, could be as high as 5 million, roughly 12% of the formal workforce. Bank of Russia Deputy Governor Alexey Zabotkin is right that the country will find a new long-term equilibrium: It’s called stagnation. Russia exports commodities, but it imports components for a huge variety of industries as varied as agriculture and autos.

—Bloomberg