Structural Problems

18996347_303Ahead of the 2018 Presidential election in Russia, Vladimir Putin has ordered a review of the economic problems facing Russia today.  Among the leading names to present proposals at the international ‘Gaidar Forum, Russia and the World: The Choice of Priorities’ was that of Alexei Kudrin.

Mr. Kudrin was the former Russian Finance Minster, having served from 2000-2011 until he was fired by the then, President Medvedev, for voicing concerns about upcoming Russian military investments.  Recently, in 2016 he was selected by President Putin to become the Deputy Chairman of the Economic Council for the Russian President and the chairman of the Center for Strategic Research – a think tank that analyzes policy recommendations for the Kremlin.  After his firing in 2011, Alexei Kudrin is considered somewhat of an ‘outsider’ in Russian politics, and a very small counter balance to the military hardliners in the Kremlin today.

According the World Bank, Russia is on track to grow by a meager ~1.4% in 2017 and 1.7% in 2018.  Furthermore, if Russia’s economic models were to remain the same, it is predicted that the growth rate would remain around 2% for the upcoming decade.  But according to Kudrin’s reforms, Russia could achieve a 4% growth rate in the same time if his proposals were implemented.  Kudrin proposed the following:

  1. Reform the legal system so it does not favor the Russian state and give the legal system greater transparency to bolster investors’ confidence of a freer and more fair economic market
  2. Invest public funds in the tech industry and also introduce reforms that encourage private investment. The exponential growth in the tech industry is overwhelming Moscow’s ability to effectively grow the sector, and the Russian tech industry requires more autonomy to flourish or at the very least remain a peer competitor abroad
  3. Break up state-run monopolies
  4. And the most important reform –reduce the state’s role in the economy. Currently Moscow’s economic policies do not encourage growth.  If any of Russia’s 12 economic regions grow financially, Moscow reduces that state’s subsidies and even taxes those regions more in order to finance government projects which may or may not affect the prospering region, resulting in capital drainage away from these regions.  As it stands today, the various regions in Russian are more prone to achieve minimal growth and continue to receive government subsidies.

According to Kudrin, the inability to reform in 2017 will be reminiscent to the 1970s and 1980s, when the Soviet Union also failed to implement sound reforms.  A clear warning that, just like the Soviet Union, the inability to resolve these problems may result in a tectonic political shift.  And of course given  Putin’s willingness to crackdown both at home and abroad in order to reduce the autonomy of unhappy and progressive political and economic thinkers, it is more likely than not that Putin will refuse to implement Kudrin’s reforms.

In fact, why would Putin even consider changing course right now?

By all accounts, 2016 was one of Vladimir Putin’s most successful years.

  • He encouraged and actively funded extreme nationalistic parties across Western and Central Europe.
  • He successfully protected his Middle Eastern ally, President Bashar al-Assad.
  • He is supporting new Russian friendly regimes in countries like Libya, all while the Western liberal democratic order is in decline and disarray.
  • And despite his flailing economy, Putin’s victories abroad have kept his approval ratings near an all time high, 84%.

But the longer the price of oil continues to slip, and the further Putin is backed into an economic inevitability, the more likely it will become that he lashes out to retain his strongman, autocratic leadership and approval rating by normal Russians.

It is likely that Putin never desired to implement vast structural reforms, but instead to offer the illusion of choice and a variety of opinions in the Kremlin by hiring Kudrin.  Although some of his reforms like investments in technology may be acted upon, the fundamental shifts required to increase Russia’s future economic growth rate are less likely to be implemented.  This is especially true if one considers the last time a Russian leader implemented large liberal economic reforms like those under Gorbachev in the final years of the Soviet Union ‘perestroika’ and ‘glasnost.’

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1 Response to Structural Problems

  1. Interesting that Putan is still identified at 84% approval rating while the government is only ranked at 34%. Is this the same as our Presidential rating compared to our congress rating?

    Like

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