Заметки пессимиста

Краткое бездоказательное эссе на английском языке
19 ноября 2007 года.

Russia

Socio-economic hangover is looming
(A pessimist’s view)

The last eight years of the contemporary Russian history is mostly viewed now as the “Putin era” meaning that he so influenced Russian society and economy that others even whisper of Soviet Union spirit resurrection. And maybe this opinion looks good if you look at Russia from outside. Let me offer you a different view that may help an interested reader to paint a different Russia picture.

One can’t possibly argue that Russian economy is doing better than 10 years ago. However what are we talking about? Large state-owned monopolies like “Gazprom” or RAO “UES”? After a corrupt and unfair privatization of the Yeltsin era followed another even less fair and definitely more corrupt redistribution of wealth under current President Putin.
We are not here to discuss his personality features but nobody argues that most of the political elite in this country has been directly appointed by President and are either his close allies/friends from St.Petersburg (including former neighbors from his dacha community) or “other services” appointees. This new, we can’t say team, but rather “wave” was left out of the Yeltsin era privatization and for the past eight or so years they have been “catching up” by either making businessmen sell their assets at unfair prices to this new wave or directly taking possession and sending previous owners to exile or prison.
Another measure to seize control of the economy was by introducing representatives of State into governing boards of all or nearly all corporations and redirecting their profits into either federal budget (lesser part) or pockets of certain bureaucrats (greater part). As a finale there’s currently a trend to convert some of the Federal Ministries into state-run corporations. Does this bring any tangible effect on the economy? Has corporate governance been improving lately? Are Russian corporations more transparent than they used to be 10 years ago? Less corrupt? I hate to be a pessimist but the answer to all of these questions is definite “no”. At the same time is the Russian economy in a better state now than 10 years ago? So why would someone do this to his own country?

Probably this question has no clear-cut answer right now; however we can try to see some of the aspects.

First and foremost driving force for any actions the current administration undertakes is the desire for personal enrichment. The corruption became norm in this country only in recent years. It is not even a problem in the current day Russia – it is a modus vivendi. Certainly the grass was greener in the Soviet era, but even then corruption was deterred by the communist party discipline. Not any more.

Politics as part of the social environment ceased to exist. Politicians are still allowed to speak, but no free elections or access to media is here. The second largest by far party, the Communist Party is steadily loosing their electorate to Russia United Party simply because there’s no difference between those, let alone weak rhetoric Communists operate for the poor.

World oil deficit greatly contributed to the wealth of the current Russian elite wave. Hi oil prices on the world markets and smoldering local wars/conflicts around the globe are responsible for skyrocketing profits of the Russian budget. One of the Russian statesmen of the past once admitted that “Russia has no friends, only national interests”, but he certainly did not mean that Russia only has enemies. However, this is what happens now. Former allies, even Soviet republics once loyal to the Kremlin realized that this country is no longer a good friend or even a good neighbor. Even Belarus and Iran are unlikely to be considered loyal allies. China is no one’s friend and it would be stupid on anyone’s part to think of them as a friend or ally.

We can’t deny that stability which followed Putin’s enthronement 8 years ago had established a poor but understandable set of rules for businessmen and certain areas of economy are booming now. Although this country almost totally depends on foreign technologies in hi-tech area some consumer goods start to be locally produced. A lot of nicely packaged new initiative in the hi-tech are like creation of the state-run “Nanotech Corporation” and dumping several billions of Russian taxpayers’ money into it is widely acknowledged to be extremely ineffective and no tangible impact is even expected.

As we said earlier the proceeds from hi oil prices have been “sterilized” by pouring “excess” export profits into Stabilization Fund (reaching almost 450 billion USD by now). Certainly, there are no clear rules or guidelines on the use of this Fund and general perception is that this money has been specifically collected to be abused by the few rather then spent on something more useful for the country as a whole.

The influence of security services is now very visible at all levels. As one of CEOs of a western investment bank in Moscow (a Russian national though) has put it in a private conversation with me: “The Komsomol times revived. Now any hi-level businessmen may be called by the authorities and given orders he has to fulfill unless he wants to loose his job or freedom or both. Removing people from their position by bureaucrats has never been easier.”

State-run corporations established clearly depreciate the role of the Federal Government. All the Federal Government is left with is monitoring inflation and providing minimum retirement pensions to the poor. Fundamental science neglected, space programs not directly connected to the defense programs abandoned. The only strata of the Russian society which have been feeling better over past years are military (to include militia, and different incarnations of law enforcement agencies).

Having said all of the above, let’s try and make some conclusions staying within the pessimistic scenario set forth from the very beginning (for optimistic scenarios I kindly refer you to the official Russian press and President Putin’s statements, please):

- Russian economy lies in ruins except for certain islands of foreign capital run plants of Mars candy-bars and popular Ford Focus cars etc.
- Investments into fixed assets maintained at a minimum required level if at all
- Infrastructure development has been neglected even from the Soviet times and nothing changed so far
- Education & Science are on decline and deterioration
- The bureaucratic stratum of the society has grown exponentially and is now by several magnitudes larger than in the Soviet Union with all of its fifteen republics together. This creates some sort of marginal consumer demand in the economy however will not last long
- Banking sector poorly regulated and for most part still intransparent may be looking at its first Russian-era loans non-repayment crises soon.

So, a pessimist’s definition of this country reads like this: Russia is now a country of overwealthy bureaucrats and military men (together with other quasi-military and law enforcement agencies) with unfair and corrupt economy and court system surrounded by a dozen of non-friendly nations and China.



Footnote: During his meeting with the Russian Chamber of Commerce this week President Putin announced that Russia is not aiming at establishing a “state-run capitalism” neither will allow the state-owned corporations monopolize most of the Russian economy (http://www.lenta.ru/news/2007/12/11/corp/) The mere fact that President Putin decides to dwell on this topic is a signal that this process is already happening.

Disclaimer: my goal was to give an impression of what is going on in the present day Russia and not provide any deep analysis based on economic and social statistics. Although I am positive most of my views can be supported with realistic figures if need be.