Sure, it's still a Communist system, but this is a strategy that, at its core, acknowledges a very capitalist principle: the association between work and earnings, and the linking of one's future opportunities to effort. A great many Westerners have been able to use the military and its skills-based training as a springboard to a better life.
The biggest domestic challenge that Putin will have to face is the fact that middle-class Russia still largely votes with its feet. Members of the middle class don't stick around waiting for the next electoral exercise; a lot of them just take off and make a life for themselves elsewhere. The booming Russian energy sector has brought many of them back, along with new foreign talent, but Russia needs a real domestic economy of its own that retains talent.
Moreover, foreign investors are still freaked out by the unpredictability of doing business in Russia, and that will always put Russia at a disadvantage, even vis-à-vis its fellow BRICS developing countries (Brazil, India, China and South Africa). All the due diligence in the world can't negate a sudden targeted move by the Kremlin against a company or sector. Russian leadership has a tendency to alienate even its close friends, shutting off gas flow in response to a wind shift in the political climate. It's this unpredictable schizophrenia that hurts Russia and its international competitiveness. Maybe once Russian leadership figures this out, it can worry less about making unsavory friends -- like those currently running Syria and Iran.
If I were Putin, I'd want to put Syria's Bashar al-Assad and Iran's Mahmoud Ahmadinejad in the back of a Tonka dump truck headed for Siberia. Come on, Vlad -- you know you want to. Sometimes the worst part of doing business is dealing with the jerk clients.
P.S.: Love the new face, Vlad. It makes me want to go jump on a mini-trampoline in the backyard.