The New Tsar (63 page)

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n December 30, just before the new year holidays, Medvedev signed the legislation that changed the Constitution. The most significant change in the country’s political system since Putin’s cancelation of gubernatorial elections in 2004 went from proposal to reality in less than two months. Less than a year into his presidency, it was clear that Medvedev was merely a junior partner in the “tandem” governing the country. Putin might outwardly defer to him as head of state, but he continuously upstaged him. In December, Putin went ahead with his annual appearance at the year-end call-in show, fielding seventy questions carefully screened from around the country. He vowed that the effects of the economic crisis would be minimal, promising to raise pensions and benefits for the unemployed. Putin’s performances undermined Medvedev’s political authority, making it harder for him to tame the bureaucracy that he wanted to change. Medvedev never betrayed his objections in public, but privately he expressed frustration, and his closest aides deeply resented the interference they constantly encountered from the prime minister’s office. Medvedev struggled to enlist supporters in the bureaucracy, but Putin’s loyalists occupied too many places, including within the Kremlin. After the war in Georgia, secret surveys of the Russian military showed the “absolute abysmal regard” commanding officers had for the new commander in chief. The final authority ultimately rested in the White House now, and everyone understood that. In the biting words of one American diplomat, Medvedev was “playing Robin to Putin’s Batman.”
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CHAPTER 20

Action Man

T
he only power plant that heated the town of Pikalevo shut off its furnaces on May 15, 2009. The owner of the plant had fallen in arrears to Gazprom on the order of $4.5 million, and in Putin’s Russia, Gazprom’s accounts always took precedence. Pikalevo, with twenty-two thousand people, was a “monotown,” established in 1957 east of Petersburg, with a single enterprise that serviced the Soviet command economy. It consisted of three interlocking factories that made cement, potash, and alumina, a chemical compound used in the smelting of aluminum. The town’s entire livelihood, in Soviet times as now, depended on the factories. Only now the factories had been privatized into three separate companies that were struggling even before the crisis hit in September. Crippled by the legacy of central planning and a convoluted dispute over prices in the wake of the global turmoil, production in Pikalevo was no longer economically viable.
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The cement factory went first, closing in October 2008 and laying off hundreds of workers. The potash plant shut down in February, followed in May by the alumina factory, which also owned the power plant. Most of the three factories’ 4,500 workers were forced onto unpaid leave or let go. The governor of the region, still known as Leningrad, for it had not changed its name as the city had, appealed to Dmitri Medvedev to negotiate a resolution as early as February, but nothing happened. The shuttering of the power plant turned simmering discontent into a revolt, and the town’s residents took to the streets.

The governor dismissed the protests, saying that the town’s unions were merely fomenting a crisis. Every city shut off the hot water for periods of maintenance, he explained, as if it were a temporary inconvenience. “As for the heat, well, I don’t think it’s needed so much during the summer.”
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On May 20, several hundred residents stormed an emergency
meeting at the mayor’s office, demanding not only their hot water but also their jobs and unpaid salaries. The town’s officials, though, had no more power over the factories than the residents did. Their owners were distant tycoons whose financial problems were far greater than the hardship of one remote town in the north. They included one of the country’s richest men, Oleg Deripaska, an oligarch who had survived the end of the Yeltsin era and now enjoyed a favored status in Putin’s. When the storming of the mayor’s office failed to resolve anything, residents took their protest to the two-lane federal highway running from Vologda to Novaya Ladoga, near Petersburg, blocking the road for several hours and creating a traffic jam said to extend for 250 miles.

The protest was only one of many that had swept the country—from Baikalsk, where workers staged a hunger strike over unpaid wages at a paper mill, to Vladivostok, where protests erupted after new tariffs on automobile imports decimated the sales of used cars from Japan. The Kremlin monitored signs of discontent attentively. Medvedev and his top aides installed a program to track the unrest on their computers, showing troubled regions according to a matrix of measures that included, tellingly, the popularity of the new prime minister.
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Pikalevo was no worse off than the other struggling cities, but the spiraling protests there became so pronounced that they forced Putin to act, or perhaps were singled out to make the point that he would, if necessary. On June 4, Putin went to Pikalevo and summoned the owners of the shuttered factories to meet him there for a public dressing-down that even by his standards was impressively abrasive. “Why didn’t you fix this before?” he scolded them when he met them in full view of the Kremlin’s pool of television cameras. “You ran around like cockroaches when I said I was coming.” Outside, hundreds of residents surrounded the factory where the meeting took place, waiting in the rain for word of what seemed like divine intervention. Putin, wearing a gray raincoat and a shirt unbuttoned at the neck, slouched at the table, seething with contempt. “You have taken these people hostage with your ambition, unprofessionalism, and, maybe, simple greed—thousands of people. It’s absolutely unacceptable.”

He gestured with a short stack of papers, an agreement already completed in advance of his arrival. Had everyone signed it? He stared at the unshaven Deripaska, whose fortunes had been battered by the economic crisis. Someone answered yes, but Deripaska nodded confusedly. There was really no document that needed a signature, but Putin summoned
him to the front of the room anyway, humiliating him before everyone, most importantly the television viewers who would turn on the news that night and marvel at the force of the prime minister’s will. Putin tossed his pen on the papers. Deripaska picked it up and made a pretense of skimming through the text before scribbling his signature. As he turned away, Putin cut him one bit lower: “And give me back my pen.” Outside, the workers began to receive text messages on their telephones. They came from their banks. Their unpaid salaries—more than $1 million—would be deposited by the end of the day. Putin had made sure of that.

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F
or months before, Putin had appeared increasingly detached; he worked more often at the residence at Novo-Ogaryovo than in his newly refurbished office in the government building, the White House. He delegated the day-to-day running of the government to one of his deputies, Igor Shuvalov. The drafting of a new state budget dragged on for months, while bureaucrats awaited decisions that he appeared to be in no rush to make.
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With the performance in Pikalevo, however, he woke to the political threat of the economic crisis—and the prescription for salving it. On the very day Putin swept through Pikalevo, Medvedev warned that while the worst of the crisis had passed, it was not yet time “to open the champagne,” but it was Putin who knew when a little succor was what the people needed.

The spectacle showed that Putin had no desire to release the levers of control—not to Medvedev and certainly not to people massed in the street. Putin’s scolding of the plant owners had been harsh, but he also made it clear that he would not allow the rabble to establish a precedent for the airing of grievances against the government. Deripaska understood the charade, and accepted his public humiliation because he knew it was the cost of his privileged status in the Kremlin elite. He did not even come out the worst in the deal to restart the factories: the main supplier of the material the factory in Pikalevo needed, nepheline, was forced to sell it at a loss. Putin brokered even the details of its supply, delivered by Russian Railways, headed by Putin’s old comrade from Petersburg, Vladimir Yakunin. The supplier, PhosAgro, would soon expand its holdings to include the fertilizer plant that Mikhail Khodorkovsky had been accused of pilfering, Apatit. One of its newest shareholders was the man who had approved Putin’s disputed thesis in 1997, Vladimir Litvinenko. The agreement to reopen Pikalevo did nothing to
solve the underlying problem with production there, nor the lack of demand for aluminum, which was compounded by the economic crisis, but that was not the point. Deripaska had already received billions in credits to help restructure his crippling debt—and even an extra loan to keep production open in Pikalevo. The public dressing-down nevertheless warned other tycoons that they should resolve any crises that could foment public unrest before Putin was forced to add new stops on his angry itinerary. Instead of using the economic crisis as an opportunity to address underlying weaknesses in the country’s economy—which Medvedev would spell out in an online manifesto in September called “Russia, Forward!”—Putin intensified his role as the ultimate dispenser of the country’s resources, punishing those who resisted his vision of how the money should be spent and rewarding those who went along. When the government established a mechanism for distributing funds from the stimulus package in 2009, Putin unilaterally decided which companies would receive them. This was how business worked in Putin’s mind, through connections and deals, not through a liberalized economy where the market would make the decisions.

Putin’s personal control of economic policy caused confusion at times. Even as he swaggered through Pikalevo in May, the Kremlin’s economic advisers were putting the final touches on an agreement with the United States to advance Russia’s stalled bid to join the World Trade Organization. Putin himself had criticized Russia’s exclusion from the WTO and the talks had made progress, but only days later he unexpectedly announced that Russia would instead pursue an economic alliance with Belarus and Kazakhstan and only join the WTO with them as a bloc. The reversal made little sense economically since Russia had far more foreign trade with Europe and the United States than with others. Linking Russia’s bid to a trade bloc that had not even been established would delay membership indefinitely. It also revealed the divisions within the Kremlin. Aleksei Kudrin, still the finance minister in Putin’s cabinet, tried three times to talk Putin out of the announcement that week, but neither he nor Medvedev could prevail.
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Instead of opening up Russia’s economy in response to the global crisis, Putin gave in to populist and autarkic instincts, cheered on by the hardliners who believed that the vagaries of the global market could be, and were being, manipulated to punish Russia. He did so because he believed he had chosen the wiser path to recovery. The economic crisis had been ruinous for Russia, but the Kremlin’s emergency measures had
managed to avert total collapse. By the middle of 2009, the price of oil had risen again, easing some of the pressures on the budget; the ruble regained some of its value, and the stock market began to recoup its losses. By 2010, Russia’s economy was growing, bouncing back in fact with far more vigor than the economies of Europe and the United States. Far from encouraging a fuller embrace of economic modernization, the crisis only convinced Putin that Russia’s economic security lay in the system of control that he had created—and in the power of his will. The dire predictions that Putin’s system, and Putin himself, could not survive the economic and political tumult proved to be greatly exaggerated.

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n September 28, 2009, the chief executive of Gazprom, Aleksei Miller, joined local and regional officials on a hill overlooking the Imereti Valley south of Sochi, the wide fluvial plain that Putin had approved as one of two main sites for the Winter Games, then less than five years away. They were there to break ground on a new power plant, which, when finished, would become the most visible structure on the coastal cityscape, topped with the company’s logo. The necessity of building a power plant underscored just how underdeveloped the region had become. Beloved by Soviet leaders, especially Stalin, who built a dacha there, the resorts had fallen into disrepair even before the collapse of the Soviet Union. With prosperity trickling down to a burgeoning consumer class, millions and millions of Russians were lured instead by inexpensive vacation packages to Thailand, Turkey, and the Sinai, and Sochi became a backwater, left behind and often in the dark.

Having won the Olympics, Putin was determined to return Sochi to its previous glory, the Sochi he remembered from his first visits as a young man in the 1970s. The economic crisis had done nothing to smother those ambitions; in fact, they were an answer to it. With Sochi, he was reviving the legacy of the Soviet megaproject, the gigantic, top-down endeavors that industrialized the Soviet Union. These were the ideological triumphs of Putin’s historical memory—from the Virgin Lands Campaign to boost agricultural output in the 1950s to the Baikal-Amur Mainline, or BAM, in the 1970s. As in Soviet times, the goal was ideological as much as economic, a demonstration of the country’s progress and prestige in the world, even as the projects consumed enormous resources. Sochi became the largest single infrastructure project since the Soviet Union collapsed, though it was not the only one. Putin approved $20 billion to develop Vladivostok in the Far East—including a university
on an island in the harbor that had been a closed military zone and a suspension bridge linking it to the city—in preparation for a two-day summit in 2012 of the Asia-Pacific Economic Cooperation nations. He spent $7 billion to rebuild much of Kazan to hold the 2013 Universiade, a biennial competition that hardly ranked as a major international event but justified an expensive redevelopment plan of the city. Flush from securing the Olympics, Putin drafted a bid to host the World Cup in 2018, promising to build or renovate stadiums in twelve cities, including the one in Kazan that would be used for the Universiade and the one in Sochi that would be the site of the opening and closing ceremonies in 2014. Each of these projects served multiple purposes for Putin, advertising Russia as a great power, providing economic stimulus to a faltering economy, and dispensing the resources of the state to those in a position to profit most.