Russia Can't Grow and Steal at the Same Time
27 November 2013 | Issue 5264
The Kremlin's two key goals are to maintain political power and to enrich the ruling elite. At best, economic growth is the third-ranking goal, and it contradicts the two primary aims. Logically, the current Kremlin policy leads to economic stagnation.
Political analyst Yevgeny Minchenko captures the new system best with his concept of Politburo 2.0. This is no vertical of power but an old-fashioned feudal system, where the ruler functions as an arbiter or godfather between nine major lords: three private businessmen from St. Petersburg, three top state enterprise managers and three leading state officials. This system of rule is reminiscent of Soviet leader Leonid Brezhnev's Politburo in 1980, which stood out for its petrification. It can maintain political power for a long time, but it cannot be reformed. Such a system can only collapse.
During Russia's growth spurt from 1999 to 2008, growth was generated by the market reforms of the 1990s, ample free capacity, rising oil prices and redundant human capital. By 2008, the free capacity had largely been exploited, and the oil prices have leveled out at $100 to $120 per barrel with some fluctuations. No significant market reforms have been carried out since 2002.
From 2010-12, the growth rate moderated to 4 percent. A major cause of the lower growth was that the government bailed out the worst big state and private corporations during the crisis in 2008-09, so that they crowded out more productive companies. Arguably, the growth came from two sources: human capital and international economic integration.
Persistently, economic growth has come from the private sector, consisting of tycoons, small and medium-sized businesses and large foreign investors. The old oligarchs are now tightly circumvented. They are allowed to sell their companies to the state — when the state so desires — at a price determined by the state, but they are not allowed to buy other big companies, only medium-sized firms. Therefore, the biggest tycoons have little choice but to take their money out of the country. They have ceased being an entrepreneurial force.
The small and medium-sized enterprises are checked from all sides. Many have hit a glass ceiling and sell to the country's wealthiest businessmen for whom the glass ceilings are so much higher. Small enterprises are facing tougher taxation and government extortion, and hundreds of thousands have chosen to close down this year. The announced amnesty of 100,000 dubiously jailed businessmen dwindled to 1,000. President Vladimir Putin is now advocating harder tax repression of private firms through the Investigative Committee, which of course will aggravate corruption and further enrich officials of that agency. As the total number of enterprises declines, competition diminishes and productivity stagnates.
Paradoxically, the happiest companies in Russia may be large multinational corporations producing in the country. They roll in with their high technology and enjoy minimal competition, which drives up both sales and prices, though admittedly costs increase as well. Yet, their share of Russia's economy remains tiny, so they do not contribute much to economic growth.
Management consultants point to the shortage of good managers as the greatest bottleneck in the country's economy, followed by roads. The thieving at the top makes it impossible to build roads, so corruption is the key problem.
Until recently, much of the growth could be ascribed to skillful new managers moving to more poorly managed companies. With state companies expanding their dead hands over the economy, this process has gone in reverse. When bought TNK-BP, one of Russia's best-managed big companies, Vedomosti reported that 90 percent of the 1,600 employees in the TNK-BP headquarters left, presumably many of them emigrated. Instead, Igor Sechin, an apparatchik without management experience, took over Rosneft and imposed his micromanagement.
Similarly, Russia adopted many liberalizing laws to enter the World Trade Organization, which helped open up the economy to more global competition. When Russia finally joined the WTO last year, this process also went into reverse. The Customs Union with Belarus and Kazakhstan is a harebrained protectionist scheme that will damage the Russian economy through trade diversion and by compelling the Kremlin to pay large subsidies to other countries that agree to participate.
Russia's economic problems are not financial. The budget remains close to balance and will be so even with a falling oil price because of the novel floating exchange rate. Although the current account surplus has dwindled, it is still in surplus, and Russia's international reserves are impressive at more than $500 billion.
Any fiscal or monetary stimulus would only cause higher inflation and more illegal immigration because Russia's economy is working at full capacity. Unemployment is low at 5 percent, while inflation remains a concern at 6 percent. Russia's investment rate is too low at 21 percent of gross domestic product and probably much lower in reality because of the extraordinary kickbacks. Russia needs to fight its top-level corruption before it can start building roads.
Unperturbed, at each of his many crisis meetings about falling economic growth, Putin proposes another mega investment that will undoubtedly aggravate corruption.
As long as the president pursues an anti-growth and pro-corruption policy, no economic growth is likely.
Anders Åslund is a senior fellow at the Peterson Institute for International Economics in Washington and author of "Russia's Capitalist Revolution."
Read more: http://www.themoscowtimes.com/opinion/article/russia-cant-grow-and-steal-at-the-same-time/490264.html#ixzz2m3ad8EZo
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The Moscow Times - Opinion | August 5, 2013 - Putin's Problem of Irrelevance - By: Steven Pifer
Mr. Putin
29 Comments to NYT Editorial:
And at some point we must ask whether our extending NATO eastward and seeking to bind former Soviet components separately to the West enhances our security and prosperity or theirs, or if it only further antagonizes and pushes Russia away. Shouldn't the ultimate goal of our policy be to bring Russia fully into the West? And are we likely to be able to do so if we keep making moves that, were the equivalent done to us, would be seen as hostile actions? Do we really wish to push Russia even closer to China? Shouldn't our main geopolitical goal be to detach Russia from China? So why should we take actions that make that impossible?
Do your duty!
Let these countries make their ties
And don't you go intrudi!
today we face common humanitarian survival issues that transcend historical insecurity issues that are less relevant today.
russia's greatest security will come from developing the potential of its impoverished people who have great potential with the aid of its vast resources; it will not come by bullying its neighbors. this is true for all countries.
Russia is not clinging to the past. Today, most every country does what it does for energy resources, which is trying to be globally controlled through carbon credits, and if not, countries take on more drastic measures.
Russia uses State controlled oil and gas instead of other countries leveraging Russia’s resources. There is little difference externally between what Russia does and what the American government does. Both Russia and the US uses threats, sanctions, and wars, however while Russia is doing it for their State owned enterprises of oil and gas. America is doing it for corporate greed and power, which economically is destroying the country from within.
An example of this clash is in Syria. Saudi Arabia is backing the rebels in Syria, with covert plans to install their own puppet government in Syria, which will allow the Saudis to control the flow of energy (a gas pipeline) through the region. Saudi Arabia, is putting pressure on the US to support the rebels through threats of cutting off their friendship and oil. Turkey, wants to pipe it from Syria on to Europe. Qatar, the largest source of natural gas in the world wants to pipe the gas from the Persian Gulf to Europe. France, who wants to pay less for gas, is also putting pressure on the US to support the rebels, while Russia wants the Assad regime to block the flow of natural gas out of the Persian Gulf into Europe, thus protecting its own national profits from Gazprom.
Thus, #1, if one wants freedom of choice, then first disband NATO and the missiles pointed Eastward.
The Times must put the issue into global historical context. Has the US allowed Latin America for decades to exercise the same freedom it calls for with respect to former Soviet republics? Just now, new of Princeton meningitis omits the fact that Cuba has vaccines for this specific Type B, which are not allowed here because of the trade embargo.
Thus, #2, if we want diplomatic openness, start at home, US policy, rather than be hypocritical and pretend selflessness.
Finally, Putin in fact is enlarging Russia's diplomatic role, as in his move to bloc US bombing of Syria. I applaud that act. Russia, along with China, Japan, Brazil, and emerging Third World industrializing nations, are defining a NEW multipolar global context, so that the US cannot act unilaterally in its hegemonic posture and aims.
Thus, #3, if the US seeks global comity, let it renounce and desist from intervention and targeted assassination. Then perhaps world opinion, including Putin, will listen.
The same is already forming with India, China and other asian nations and, The U.S., Canada and South America are looking for the same cooperation.
Any EU person may work in any other EU country without extra permits albeit, America does not have that agreement with the EU and it's ridiculous.
Paving the way for economic cooperation should be our goal.
Apparently that was on the agenda already until this phone stuff got in the way.
National behaviors consistent since the 1500s should be viewed with some skepticism, I would suggest. Russia ought to be able to let go of fears based on horsemen riding across the steppe.
Born too late. After the Soviet Union was recognised as a vast Potemkin village with a huge nuclear arsenal and lines for everything including bread.
One of his major goals is to restore as much of the Soviet Union as possible, so far without using the formidable Russian military might.
Let’s hope it will remain this way.
Putin is an ex KGB former communist party leader, who seeks the former greatness of the era or the 1950's, 60's & 70's which proved to be the ultimate failure. It was not Marxism is was a perverted Communism , it was not socialism, it was a military industrial state, without consumer goods, unlike the U.S.
Putin is asking for help in the Olympic security issue regarding terror, It is in all our interests to keep the Olympics safe, but not to prop up Putin, just make that perfectly clear.
Putin will be long gone when the gas runs out, and it will, Russia will one more time will have been left out in the cold, by selfish leaders of little vision, cold, drunk and hungry.
The Editorial Board is quite willing to impose extreme limits on any future Palestinian State, and to an large extent on anybody in reach of Israel, all for the security of Israel despite its power. Well, the Russians feel the same way, for similar reasons.
The Russians live in an open steppe, and have been invaded and slaughtered across it repeatedly for longer than recorded history, including Hitler's atrocities. From that experience, they have some very specific demands on neighbors in order to feel safe, maintained since their wars with neighbors in the 1500's. They have not changed, and they will not change.
If you admit those same type of demands for Israel, if you admit the Monroe Doctrine which kept European powers away from the US for the same reasons, if you admit Britain's concern for the Low Countries across from it from Louis XIV through the world wars, then you must admit the same for Russia.
That is as much freedom as they will ever give their neighbors. There are no other choices on offer, and no other nation with the power to protect itself does any less according to its own circumstances.
Any other nation which aspires to push into that space next to Russia will meet the same things as would any nation that pushed into Gaza or the West Bank, or which pushed into the Western Hemisphere (Cuban Missile Crisis) or which rolled over Belgium (WW1 with Britain).
What is actually under threat is Russia's own sense of regional superiority. Its leaders and many of its citizens are upset by their loss of international prestige and a lack of gratitude by their neighbors for what many Russians consider as economic and military support, but many in the neighboring countries now see as a history of domination.
Without a doubt all major powers are eager to maintain influence in what they see as their spheres of influence. But just because history is full of instances of bullying masquerading as ensuring security and defending one's own legitimate interests does not justify Russia threatening its neighbors for its political and economic choices.
Russia has an equally long and bad history with their neighbors, ask any Ukrainian, Pole, Finn, Armenian or well you get the idea. They had an empire in the past and want another today. The Russians were only invaded a few times from the west before they built the Brest Fortress system. They have been invaded many times from the east, there is nothing like the Brest Fortress on the Eastern side of Russia. Putin would be Tzar by rebuilding the old Russian Empire as did Lenin after the revolution.
The issues between Russia and its 'Near-abroad' nations, in the 21st century, are really about a clash of national ambitions. One side seems to seek imperial advantages (for domestic consumption?) over its neighbors more suited to the 19th century, while the other side (the Near-abroad states) seek no further advantage than increasing economic opportunities for their people.
PS: oh, and "not free to...threaten their neighbor"...Really? Are any of the Near-abroad, or even the EU itself, 'threatening' Russia? Perhaps only in the sense that Russia cannot simply do as it pleases to those nations without comment or even consequences from other nations. It is, after all, no longer the 19th century.