Last chance? Putin vows – again – to bring economic reform to Russia

In his state of the union speech Thursday, Putin said he would wean Russia from its oil dependency, revive its flagging economic dynamism, and restore its global reputation. But his window may be closing.

With his popularity ratings hovering above 80 percent, and recent parliamentary elections delivering a huge pro-Kremlin majority, Vladimir Putin looks to be at the height of his powers.

But by pledging, in his annual state-of-the-union address Thursday, deep domestic reforms to wean Russia from its oil dependency, revive its flagging economic dynamism, and restore the country's global reputation, Mr. Putin may be putting those powers to the test.

The measures he proposed have been promised before, but analysts say this may be the last chance to start delivering.

Fresh presidential polls loom in 2018. Although Putin has yet to declare, and the Kremlin has many ways to ensure outcomes, he clearly realizes that his sky-high public approval ratings depend heavily on two factors: the impressive public prosperity Russians enjoyed during his first two terms in office; and his ability to fire up patriotism and deflect blame for the economic downturn of the past three years on Western sanctions and adversarial efforts to isolate Russia.

Now, according to Putin's own account, the crisis is receding, Russia's economy is returning to anemic growth, and the obstacles to further development are mostly domestic.

"We have to solve all these tasks in difficult, unusual conditions," he told a huge gathering of Russia's political elite, including both houses of parliament, in the Kremlin's ornate St. George's Hall.

A liberal shift?

"The main reasons for deceleration of the economy are rooted primarily in our domestic problems," he added. "First of all, shortage of investment resources, modern technologies, professional staff, insufficient development of competition, flawed business environment."

He offered little about foreign policy, but what he did say sounded conciliatory. Concerning President-elect Donald Trump's campaign promises of better relations, he took a distinct wait-and-see approach.

The economic revival steps pledged by Putin include making capital available to struggling entrepreneurs, redoubling anti-corruption efforts, converting military production to civilian goods, and a massive state program to boost technological innovation. He also hinted that Russia will be seeking peace and reconciliation with the West as a key component of this policy of home development.

Putin said that while Western sanctions have damaged Russia's economy, they have also acted as a stimulus for some sectors. Agriculture, for example, is booming, he said.

"What Putin outlined was a program that has been drawn up by the liberals in his administration, particularly [former Finance Minister and Kremlin adviser] Alexei Kudrin and [First Deputy Prime Minister] Igor Shuvalov," says Alexei Mukhin, director of the independent Center for Political Information in Moscow. "This has been cooking for some time. It's not just rhetoric, it's a full program of economic reforms, and we can see now that the conservative voices have been defeated, and the reforms will be liberal in their thrust."

Putin assured his audience that the Kremlin war on corruption – marked by the arrest last month of economic development minister Alexei Ulyukayev in the highest-level bribery collar in memory – will continue. Polls show that well over half of Russians regard the campaign against corruption as theater that only serves as cover for score-settling among officials.

"The fight against corruption," Putin said, "is not a show."

Will anything change?

But on his blog, anti-corruption campaigner Alexei Navalny described Putin's speech as empty. "It seems that if he's not talking about war, Putin has nothing to say," Mr. Navalny wrote.

Economists have long argued that Russia needs to diversify its raw-materials-based economy, and dial back the weight of oil and gas exports in funding its state budget, before it can return to self-sustaining economic growth.

But Russia's economy is dominated by Kremlin-friendly "oligarchs" who have little interest in ceding market control to small entrepreneurial competitors. The political elite remains hostile to promoting the emergence of a mass, property-owning small business class that would be likely to start asserting itself in the political sphere.

One small straw in the wind came last year, when hundreds of independent truckers blockaded roads around the country to protest against a new tax. The protests were shut down through a mix of compromise and repression, but the message that social change can bring unwanted political upheaval is hard to miss.

"Sure, Putin would like to improve the business climate, punish corrupt officials and develop high technologies," says Alexei Makarkin, deputy director of the independent Center for Political Technologies in Moscow. "But it was actually a fairly cautious speech, and nothing was said about major structural reforms or establishing independent courts. It was a modern-sounding speech, it suggests there won't be any big political crackdowns, and that's good.

"On the other hand, he still sounds as though he regards freedom as secondary to the consolidation of social unity. It's clear that security and stability are still paramount for Putin."