The Tsar and His Business Serfs

Free Russia Foundation and the Wilfried Martens Centre for European Studies are happy to present our new joint report “The Tsar and His Business Serfs. Russian Oligarchs and SMEs Did Not Surprise Putin at the Elections.”

This Paper is written by Ilya Zaslavsky, an expert with the Free Russia Foundation and a Visiting Senior Fellow at the Legatum Institute.

Despite deteriorating economic conditions, the Russian business community has remained loyal to the Kremlin. It has not protested or even questioned Vladimir Putin’s main domestic and foreign policies. A state monopolistic model of the economy had already been in deep crisis before Western sanctions against Russia over Ukraine started and oil prices collapsed. However, both the government and business are reluctant to publicly admit this. Instead, the Kremlin has promised to help small and medium-sized businesses with predictable fiscal policy and relaxed regulation, but it has consistently failed to do so. The entrepreneurs, in turn, have mostly reacted with more austerity and by moving into a shadow economy. As for the oligarchs, the elites have not become divided over the relatively mild Western sanctions, as Putin has managed to keep the wealthiest power brokers at bay through a variety of carrot-and-stick policies.

Large commercial entities continue to rely on state contracts and other government support, while the Kremlin’s business insiders have been finding innovative ways to circumvent Western sanctions. Given the current level of relatively superficial sanctions, the US and the EU will probably have to play a long-term game before the Kremlin changes its aggressive domestic and foreign policies.