Politics and banking in Russia: the rise of Putin

ABSTRACT

We investigate whether lending by the dominant Russian state bank, Sberbank, contributed to Vladimir Putin’s ascent to power during the presidential elections of March2000. Our hypothesis is that Sberbank corporate loans were used as incentives for managers at private firms to mobilize employees to vote for Putin. In line with our proposed voter mobilization mechanism, we find that the growth of regional corporate Sberbank loans in the months before the presidential election is related to the regional increase in votes for Putin and to the regional increase in voter turnout between the Duma election of December1999 and the presidential election of March2000. The effect is pronounced in regions where the governor is affiliated with the regime and in regions with extensive private employment, and less apparent in regions bequeathed with single-company towns, where voter intimidation suffices to get the required result. The results are highly robust.

KEYWORDS:

• Bank
• credit policy
• politics
• Russia

Acknowledgments

We would like to thank John Bonin, Timothy Frye, Laura Solanko, Zuzana Fungacova, Felix Noth, Reint Gropp, Thorsten Beck, Kim Leonie Kellermann, Etienne Farvaque, Jeroen Klomp, Jan Fidrmuc, Lucy Chernykh, Mikhail Mamonov, Anna Pestova, Pierre-Guillaume Méon, Ariane Szafarz, and Hugues Pirotte. We are also grateful for the insightful comments we received from participants at the UAEU-HSE-NYUAD Workshop “Political Economy of Development: Challenges and Perspectives” in Abu Dhabi (30 October 1930–1 November 2018), the Conference on Political Economy of Democracy and Dictatorship in Münster (March 2018), the 20^th Annual Conference of the Society for Institutional & Organizational Economics (June 2016) in Paris, the Joint Meeting of the Slovak Economic Association and Austrian Economic Association in Bratislava (May 2016), the 17^th Annual Research Conference of the Higher School of Economics in Moscow (April 2016), the European Public Choice Society Meeting in Freiburg (April 2016), the ACES/ASSA meeting in San Francisco (January 2016), as well as seminars in Ghent, Helsinki, Brussels, Prague, and Halle.

Notes

1. Fatherland–All Russia (OVR) was formed in 1998. It was disbanded in early 2002 after the merger with Putin’s Unity party in December 2001.

2. In 2000 all governors were freely elected and were protected from central pressure until the constitutional change that became effective in 2004.

3. Note, however, that Yel’tsin also used the loans-for-shares proceeds to massively reduce wage arrears in privatized firms months before his re-election in 1996, suggesting this ex ante mechanism was not entirely new to the regime.

4. Workplace political mobilization is not unique to Russia since the beginning of the transition. Recent works have shown that the same mechanism for mobilizing voters has been observed in, for example, Chile (Baland and Robinson 2008), Bulgaria and Romania (Mares, Muntean, and Petrova 2016), and the United States (Hertel-Fernandez 2016).

5. For example, the 30 November 2007 issue of the Guardian reports such behavior in the days just before the 2 December 2007 legislative election. A spokeswoman of an independent organization monitoring the elections comments that “voters are forced to get absentee ballots under threat of being sacked or being denied bonuses” and that “people are then instructed to vote at their workplace where everything is tightly controlled.”

6. During our observation period, most of Sberbank’s corporate lending by its regional branches went to private or privatized firms. These privatized firms often enjoyed Soviet-era connections with Sberbank (see Berkowitz, Hoekstra, and Shoors 2014). The remaining large government-owned firms were served mainly by Sberbank’s Moscow branch or directly from Sberbank headquarters by a unit created for strategically important projects across Russia. The Moscow branch and project lending unit are excluded from our sample because they cannot be traced back to regional variation.

7. Monthly loan growth variation is very volatile due to obvious technical or practical reasons, for example, the precise timing of a large loan at the end of a month or the first days of the next month. See also reports of FSB influence on Putin’s rise (e.g., Los Angeles Times, 12 January 2000; http://articles.latimes.com/2000/jan/12/news/mn-53274).