Gray zone

In 2008, Russian political sociologist Vadim Volkov published an article entitled "State Corporations: Another Institutional Experiment." He argued that by the mid-2000s, rising energy prices allowed the Russian government to accumulate significant reserves. The question was thus how to spend it.

While Putin recognized the necessity of modernizing the Russian economy, he distrusted private businesses and the traditional state apparatus. As a result, a new solution was born, such as state corporations, which were essentially machines for appropriating money, protected from both market competition and government checks and controls.

Within the gray zone, participants operate outside the bounds of market forces and formal regulations.

These state corporations existed in a gray zone that enabled experts and even government officials to amass assets through a process that could be seen as gradual nationalization or covert privatization. Volkov dubbed this "personified state property."

Within the gray zone, participants operate outside the bounds of market forces and formal regulations, making the president's personal connections with the heads of state-owned companies the cornerstone of governance. In Putin's realm, the state comprises a group of "statesmen," bound not by legal formalities but by a shared sense of trust.

Putin's interpretation of "statesmanship" deviates from Weber's ideal of a rational, meritocratic corps of bureaucrats, and instead emphasizes national interests. In pursuit of these interests, any means are deemed acceptable, with little regard for formalities. Unsurprisingly, given the ambiguous nature of national interests, the statesmen frequently use their positions for personal gains.

Parallel budget

Vladimir Putin's skepticism towards formal state institutions becomes evident when looking at the Rosneftegaz company. This secretive energy holding receives dividends from Rosneft and partially from Gazprom, using them to invest in projects across the country. It was not immediately clear who chooses the targets for investment, but in 2016 Putin admitted that the government utilizes Rosneftegaz’s funds as a cash reserve and directs them toward certain endeavors.

This was tantamount to Putin admitting that he lacks faith in his state. To address budget deficits, he opts to establish a second, parallel budget operating within the gray zone of his relationship with Rosneft CEO Igor Sechin and presumably other players as well.

This kind of structure is evident in the emergence of the Wagner PMC; if there is a parallel budget, why not create a parallel army?

Unarmed uprisings

Representatives of the gray area have already taken part in uprisings - albeit not armed - against the Russian government. For example, the heads of state companies (Russian Railways, Rosneft, and Gazprom) refused to publish their salaries, despite being asked by then-prime minister Dmitry Medvedev. In 2015, the government needed to essentially acknowledge its helplessness in the face of Putin’s powerful friends.

Colliding with actors from the gray zone can have disastrous outcomes for the government. For example, the effort to prevent the acquisition of "Bashneft" assets by "Rosneft" cost Minister of Economic Development Alexei Ulyukayev his freedom, despite his stance aligning with Putin's earlier directive to prevent further growth of state-owned assets.

There are similarities to the events that led Prigozhin to start his rebellion.

Ulyukayev's arrest, orchestrated by Sechin with the aid of FSB secret service personnel assigned to "Rosneft," essentially resulted in the privatization of components of the political power structure by a political player who exploited this resource to target a federal minister (and consequently, the state) for personal purposes and interests.

While it did not escalate into a direct power confrontation, since Ulyukayev was the Minister of Economic Development and not Defense, the situation bears some similarities to the events that led Prigozhin to start his rebellion.

Products of Putinism

What motivated Putin to establish this gray area and permit the privatization of profits while burdening the state apparatus with external costs? One explanation is that such a system serves a functional purpose; the prospect of personal gains creates an incentive to act in the principal's best interests. In this case, the principal is the boss: Putin. But the system also incurs costs. These include corruption, theft from the state, a subpar managerial body, the inability to maintain a consistent government agenda, and ultimately, the emergence of cracks in the foundation of the state system, exemplified by the rebellion of a gray-area-figure like Evgeny Prigozhin.

The Wagner Group exhibits features of the "Russian system" with the typical features of private military companies (PMCs) In general, they tend to operate in a gray area that involves corrupt government contracts, informal "old boys networks", international adventurism, and covert operations under the guise of plausible deniability. This gray area also exists to some extent in developed countries, although its significance is much less compared to Russia.

For instance, the subversive activities and exploitative practices observed in Africa by the Wagner PMC share similarities with the exploits of the British PMC Sandline. However, with the onset of the conflict in Ukraine, Wagner assumed another role more commonly associated with American PMCs: recruiting soldiers to partake in large-scale imperialist wars without resorting to general mobilization. Just as the United States faced a shortage of personnel in Iraq and Afghanistan, Russia faced a similar challenge in Ukraine and in both cases PMCs emerged as a solution to address the staffing issue.

Unsurprisingly, private military companies have played a crucial role in the Russian-Ukrainian war. Of course, Wagner possesses characteristics that set it apart. No other country employs PMCs with such a variety of units, such as combat aviation. No other PMC recruits prisoners with a promise of pardon at the end of the contract. No other PMC is financed by corrupt state contracts, runs a propaganda outlet, or maintains a network of tabloid media, used to attack political rivals. In this sense, Prigozhin and Wagner are distinct products of Putinism.

Clan affiliations

The Wagner insurrection exposed the weakness of the Russian state. Behind the monolithic facade of Putinism, there are clans, networks, and corporations that pursue their objectives and are capable of driving the country to ruin and civil war.

Even the security and law enforcement agencies are divided not only along corporate lines but are also influenced by clan-patronage affiliations. The battalion sent to put the Wagner rebellion down were the Akhmat paramilitaries, itself a PMC under Chechen leader Ramzan Kadyrov.

Any efforts to restore order undermine the very foundations of Putin's authority.

One can easily imagine a scenario where conventional military forces are deployed to suppress an uprising, only to discover that they consist of regional volunteer formations, individuals from other private military companies (PMCs) who have been placed under the authority of the Ministry of Defense.

Achieving a democratic transition without causing the state to descend into disarray, with a magnitude comparable to the 1990s, would be nothing short of a miracle.

Putin established this particular state structure to maintain his personal power. Any efforts to restore order undermine the very foundations of Putin's authority, which relies upon the loyalty of his senior associates. This loyalty is not absolute, and the attempt to replace corrupt friends with competent managers could well result in the ultimate act of autonomy: replacing Putin himself.