the investment rate to 27 per cent of GDP by 2018 (from the current 21–22 per cent), creating 25 million high-productivity jobs by 2020, a 1.5-fold increase in labour productivity by 2018 relative to 2011, and moving up 100 places in the World Bank’s Doing Business Index to 20th position by 2018. Other decrees include a 1.4–1.5-fold increase in real wages by 2018, increased expenditure on research and development (to 1.77 per cent of GDP by 2015, from 1.16 per cent in 2010), and an increase in life expectancy from the current 69 years to 74 years by 2018.

The ‘new old’ president did not explain how these targets will be achieved and how much they might cost, but his policies offer an irresistible rationale for generous public expenditure. The package requires a consolidation of existing government programs and the delivery of new ones that will provide the necessary frameworks for public procurement and investment.

In the 2000s, Russia’s system of government procurement was fundamentally improved by introducing principles of competition and transparency. But the initiative was offset by a public sector offensive, the limitation of competition and the proliferation of non-market behaviour within the wider economy. Elvira Nabiullina — the former minister for economic development, and now an economic adviser to Putin — has estimated the government procurement market in Russia stands at 13 trillion rubles (US$390 billion), or one-fifth of final domestic demand. Data from the Russian Federal Statistics Service suggest that this figure constituted about one-quarter of GDP in 2010–11. Fifty-nine per cent of the total government procurement budget in 2011 was spent in situations where a single supplier was contracted, and competitors were either not interested or not allowed to bid. This is problematic because the anti-competitive nature of government procurement leads to severe market distortions.

One high-profile example is the last presidential ‘award’ that Dmitry Medvedev presented to Arkady Rotenberg, a close business ally of Putin. A decree allowed Rotenberg’s Mostotrest company to be the single contractor for a US$1 billion bid to build a road network around Skolkovo, the future ‘Russian Silicon Valley’ and the heart of Medvedev’s modernisation agenda. Unsurprisingly, newly built roads and bridges in Russia are more expensive than elsewhere.

In Putin’s Russia, the government reinforced its grip on the economy through state corporations that expanded to cover whole industries through mergers and acquisitions. The public sector’s share of GDP is thought to have reached 35 per cent, but this estimate is probably much more conservative than the real figure. Putin’s economy is one of massive public demand and anti-competitive government procurement, inflated production costs and extra profits. Natural-resource exports fuel this economy, and spillovers translate economic growth into moderate improvements in the standard of living and income levels nationwide. But the main beneficiaries are Putin’s inner circle and their ‘single suppliers’. Putin’s inaugural decrees do not signal major changes to this system of governance, as the deregulation exercise is limited to the government’s departure from non-primary sector establishments.

A review of Russia’s ‘Strategy 2010’ — a creation of German Gref, the economic stalwart of Putin’s 2000–08 government — revealed that only 36 per cent of measures proposed for 2000–10 were implemented, and only 3 out of 10 strategic objectives were achieved. Will Putin’s updated program perform better? Former minister of finance Alexey Kudrin has indicated that such decrees would see social commitments rise from 1.5 per cent of GDP in 2012 to 7 per cent in 2018. He also warned against any unsustainable increase in budget expenditure, saying that an oil export price lower than US$80 per barrel would derail Russia’s economy and cause an insurmountable budget deficit. To fully deliver Putin’s new package, the price should be at least US$120 per barrel.

Citizens are becoming more conscious of the biased distribution of benefits and lack of transparency in government finance. Discontent is growing, mostly among the younger generation of urban dwellers, and they are seeking novel, creative ways to put pressure on the government. Lawyer and civil activist Alexey Navalny built his Rospil.info project from scratch as a small-scale facility to legally challenge suspicious public procurement bids. In one year, the project generated more than 8 billion rubles (US$239 million) in voluntary donations and prevented potentially corrupt bids equalling 40 billion rubles (US$1.2 billion). This represents a mere 0.2 per cent of consolidated budget expenditure, but the project is gradually expanding.

Putin’s announcements, and his recent cabinet reshuffle, confirm that his government is not adapting to the dynamic and challenging environment of modern-day Russia. Depressed competition and non-market behaviour are likely to persist as major flaws in Russia’s economy. Meanwhile, self-organised civil initiatives are set to grow and win more supporters.

Kirill Muradov is Research and Education Programs Coordinator at the International Institute for Education in Statistics, Higher School of Economics, National Research University, Moscow.