Publication: Eurasia Daily Monitor Volume: 5 Issue: 148

On a routine trip to Smolensk Oblast last week, President Dmitry Medvedev rather uncharacteristically took a firm stance: “In our country it is very important what signals get sent. The signal has now been sent.” The essence of the message was unmistakable: There should be no doubt about who is in charge. In fact, this message is long overdue, as Russians have become increasingly disappointed in his leadership: According to a Levada Center opinion poll, only 9 percent now believe that the power is in Medvedev’s hands (down from 22 percent in April), while 36 percent are sure that it is in Putin’s hands (up from 27 percent in April); and 47 percent think that they share power equally (www.levada.ru, July 31; Kommersant, August 1). Medvedev has consistently received priority attention in the state-controlled TV channels, but Putin’s tough words and swift decisions prove that he is not content with the role of “second-in-command.”

Pulling the political blanket to his side, Putin quite possibly made a serious blunder at the meeting about the metal industry when he stepped away from the prepared text and lashed out at one company, Mechel, and its owner Igor Zyuzin (Kommersant, July 25). This harsh criticism, which too closely resembled the attack on Yukos oil company five years ago, sent the extra-sensitive Russian stock market tumbling down (www.rbc.ru, July 25). Meeting the next day with German Gref, the Chairman of Sberbank, Medvedev felt obliged to assure that “there is great growth potential in our stock market” and that the president was personally involved in upholding this potential. Putin also saw the need to clarify his position at the government meeting and in his characteristic manner combined some awkward back-pedaling with more poignant comments, so the market dropped to a new low (www.gazeta.ru, July 29; RIA-Novosti, July 30). Medvedev took this opportunity to demand that the law enforcement agencies and authorities make no more “nightmares” for business, drawing a truly presidential bottom-line: “Let it be understood that we must stop acting in this way.”

Technically, Medvedev was not addressing the Mechel issue, as his topic was small business and the many bureaucratic obstacles for its development (Nezavisimaya gazeta, August 1). In fact, however, he understands perfectly well that small business employs only some 20 percent of the labor force and its contribution to the GDP does not exceed 15-17 percent, so it is the business of XXL size that really matters for building a solid political base. One illustration for this over-concentration of economic power can be found in the statistical fact that the richest 10 percent of Russian society officially earn 30.5 percent of the total income, while the poorest 10 percent survive on 1.9 percent (Rossiiskaya gazeta, August 1). The reformatting of the top leadership has triggered many fierce clashes for redistributing wealth and industrial assets, and Medvedev has to assert his ability to determine the outcome, which he remains hesitant to do in most cases, including the “intra-corporate” conflict in TNK-BP, as his aide Arkady Dvorkovich confirmed last weekend (New Times, July 28; www.newsru.com, August 2).

Putin, on the contrary, has acted swiftly and purposefully in securing his new controls and granting large chunks of state property to corporations managed by his cronies. The best example is the final decision on establishing Rostehnologii, a colossal conglomerate created by his loyalist Sergei Chemezov, who now directs the activity of joint ventures in Mongolia and Vietnam, controls the car producers KAMAZ and AvtoVAZ and most of Russian titanium production, and supervises two nice resorts in Sochi (Expert, July 21; Vedomosti, July 14). What is peculiar in this context of mixing of business and state interests is that Putin’s punishment of Mechel was not aimed at facilitating a hostile take-over; he apparently singled out a company that was quite indifferent to the interests of key clans in his reshuffled court (www.grani.ru, July 31). Picking an easy target, he did not mean to trigger panic selling at the stock market that has hurt the capitalization of Gazprom and Rosneft, among others.

Medvedev did not miss his chance to exploit the mistake caused by the characteristic arrogance of his senior partner in power, and, being an apparatchik par excellence, he probably feels a rising demand in both the business community and the bureaucratic pyramid for more predictable leadership. His problem is that in seizing tactical initiative he encounters a widening discrepancy between elite expectations of non-stop “petro-prosperity” and economic reality, where “overheating” spontaneously evolves into a slowdown. Putin’s outburst was, in fact, caused by his increasing irritation over the stubborn inflation that breaks through every administrative barrier and increasingly affects investment and growth (www.gazeta.ru, July 31). The economic policy of redistributing the oil income through state investments has exhausted its usefulness at the stage when many ambitious projects are being launched and plentiful generous promises are being given, so many painful adjustments are pending, but the duumvirs are reluctant to contemplate the political price.

It is entirely possible that the Putin-Medvedev “tandem,” after hitting the first rock, will regain its balance in the coming weeks; but both parties feel the pressure of lobbyists, interest groups, and even opinion polls. They are maneuvering around accumulating problems and implicitly competing with each other in unseasonably hectic public activity avoiding only the North Caucasus where military demonstrations are going cross-purpose with escalating local instabilities (Vremya novostei, July 31). Putin’s grasp on power appears unshakable, but he is objectively in a position where responsibility for all seemingly minor economic setbacks and shortcomings belongs, whatever scapegoats he might appoint among the unaffiliated “oligarchs” and disposable bureaucrats. Medvedev might wait for further mistakes driven by Putin’s deep mistrust of the market and propensity to monopolize authority without delivering coherent management. He might also reflect on the fact that in Russia’s political history, power-sharing arrangements have always been temporary and short-lived. Putin, however, is psychologically incapable of admitting failure and can sharply abandon the “wait-and-see” approach for the behavioral pattern of a cornered animal.