Tag Archives: economy

Governing Russia

Putin has spoken. The Russian constitution needs some tweaking, he told legislators in his annual address to the Federal Assembly yesterday. Restrictions on how often someone can be president will remain, thus clearing up the question of whether Putin will stay on as president after 2024 – he won’t. But, under the changes Putin proposes, the Prime Minister will henceforth be appointed by parliament not the president, an amendment which should shift power towards the legislature. All this would have to be approved in a national referendum, but still it got the pundits buzzing.

In reality, though, this wasn’t the main focus of Putin’s speech, and while it’s what got the headlines it wasn’t what struck me most about what the Russian president had to say. What hit me was how he was to a large degree repeating stuff he’d said before and how this indicated the extreme limits of his power. Most notably, Putin started off with a long exposition of Russia’s demographic problems and the need to find ways to support families with young children so as to encourage parents to have more kids. This had been the main thing he’d talked about last year, at which point he had unveiled a series of financial measures to try and resolve the demographic problem. What were the results? Well, if this year’s speech is anything to go by, last year’s measures had no effect at all. In fact, the birth rate actually fell! Perhaps the most revealing section of Putin’s speech to me was the following segment, in which he said:

The most sensitive and crucial issue is the opportunity to enrol one’s child in a day nursery. Earlier, we allocated funds from the federal budget to help the regions create 255,000 new places in day nurseries by the end of 2021. However, in 2018 to 2019, instead of 90,000, 78,000 new places were created, out of which only 37,500 places can actually be provided to kids. Other places are unavailable simply because an educational licence is still not obtained. This means that these nurseries are not ready to enrol children.

Why do I find this so interesting? Because it shows very clearly that there’s a world of difference between making policy statements and even transposing those statements into specific policies with assigned budgets, and actually putting those policies into effect, let alone achieving the objectives for which the policies were created. Supposedly, Putin is all-powerful; the state is highly centralized; the leader just has to wave his wand, and the system obeys. What the statement above shows is that this isn’t the case. Putin can issue whatever instructions he likes, but that doesn’t mean that it’s done.

This isn’t an isolated case. In the past, I’ve noted how other issues keep cropping up year after year in Putin’s speeches, indicating that all his decrees on the issue in question have resulted in naught. For instance, in a 2016 blogpost, ‘The Limits of Power’, I talked about Putin’s complaints that his orders on economic deregulation had not been carried out.  Just a couple of weeks ago, I came across another reference somewhere (unfortunately I can’t remember where) to a speech Putin recently gave calling for a ‘bonfire of regulations’. The fact that he felt a need to demand this yet again is quite striking.

A similar story can be seen in the case of the key economic policy of the past couple of years, namely billions of dollars which have been assigned to infrastructure spending. It promises a lot, but as numerous reports have demonstrated, only a fraction of the assigned money has been spent, in part because bureaucrats are afraid of the scrutiny they’ll come under once they start dispensing a lot of cash.

And then there’s this story from Intellinewsa few days ago:

Russia is suffering from a crisis of confidence that is visible in the extremely high dividend payments (owners take cash rather than invest) and extremely low corporate borrowing, which is the other side of the same coin. The government understands it needs to do something about boosting investors’ confidence in the economy, but while the draft version of a new investor protection law was very radical, the version that was submitted to the Duma was so twisted by state-owned enterprise lobbying that everyone hates it and it is very unlikely to be passed.

In this case, what we see is one part of the Russia state lobbying another part of the state in order to undermine what a third part of the state (the government) wants to do. In circumstances like this, it’s remarkable that anything gets done at all.

In short, governing Russia is a tough business. The ship of state doesn’t always go where the pilot wants it to. This is, of course, hardly a uniquely Russian problem, but the Russian response to it has not always been successful. Historically speaking, when faced with the sort of difficulties mentioned here, Russian rulers have tended to try to bureaucratize and centralize, thereby reinforcing autocracy, Another response has been to find reliable people to whom large powers are then delegated as sort of autocratic plenipotentiaries. At the start of yesterday’s speech, Putin suggested that perhaps Russia needed to move in the other direction. As he put it:

Our society is clearly calling for change. People want development, and they strive to move forward in their careers and knowledge, in achieving prosperity, and they are ready to assume responsibility for specific work. Quite often, they have better knowledge of what, how and when should be changed where they live and work, that is, in cities, districts, villages and all across the nation.

If the proposed constitutional changes help prod Russia in that direction, they may well prove to be worthwhile. But don’t hold your breath.

UPDATE: Within seconds of posting this, news arrived that the Russian government had resigned, with Prime Minister Medvedev citing the proposed constitutional changes as the reason. I will ponder my response over the next 24 hours.

Book review: Russia’s Response to Sanctions

Do sanctions work? More precisely, have the sanctions imposed on Russia in recent years worked? Given the growing tendency of Western states to resort to economic sanctions against countries they dislike, these are important questions. In the case of Russia, sanctions are the main tool used by the West to express its opposition to Russian foreign policy, and more generally to the ‘Putin regime’. Discovering whether they are achieving their supposed objectives (whatever those may be) should be a priority for students of international affairs, as well as for politicians.

According to the University of Birmingham’s Richard Connolly, however, ‘do sanctions work?’ is the wrong question, or at least it’s a question that can’t be answered until other questions have been answered, most notably ‘what is the effect of sanctions on the targeted country?’ And to answer that question you have to consider other ones, such as ‘how exactly do sanctions impact the targeted country?’ That in turn requires one to investigate in depth the political and economic structure of the target to understand how it operates and how it responds to external pressure. Every country is different, and operates according to a set of ‘intricate relations’ between the state, its citizens, and the various institutions within it. As yet, however, studies of the sanctions imposed on Russia have not sought to take these into account, leading to simplistic analyses. As Connolly says in his new book Russia’s Response to Sanctions, ‘Policymakers and other public figures prone to making hyperbolic statements about the state of the Russian economy today, and then using those statements as a basis for formulating policy and attitudes towards the country, often appear to do so without the aid of even a rudimentary understanding of Russia and its economy.’

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Continue reading Book review: Russia’s Response to Sanctions

The limits of power

Vladimir Putin gave a short speech on Wednesday at the opening of the Russian State Duma, in which he said a couple of things which I found worthy of note. I’ll write about the second in a separate post tomorrow, but the first was the following statement.

In order to put the economy a new trajectory of growth, we must remove the legislative barriers which stand in the way of developing competition, the flow of investment, and the introduction of modern technologies, and must guarantee the balanced development of Russia’s regions, of the northern and far eastern territories.

Legislation will be introduced in the State Duma concerning support for entrepreneurship and individual initiative. This will include strengthening the legal protection of business from pressure exerted by unscrupulous employees – unfortunately, these still exist – of the regulatory bodies.

This supports my previous analysis that, economically speaking, Putin’s instincts are largely in favour of the free market. Having strengthened state control over the energy sector during his first presidency, and having thereby assured a steady stream of revenue for the state coffers, he sees further development of the economy as dependent upon small businesses. This requires a degree of deregulation. As he said in a speech in December 2014: ‘It is essential to lift restrictions on business as much as possible … It is crucial to abandon the basic principle of total, endless control.’

The speech also reveals that these deregulatory instincts are not having much impact in practice. In his December 2014 speech, Putin drew attention to the burden businesses faced from regulatory inspections. A year later he reiterated the need to create better conditions for business, but he also complained that although all the necessary decrees had been issued to reduce the regulatory burden, they were having no effect. Regulators were continuing to harass businesses. The fact that Putin today once again felt the need to talk of removing ‘legislative barriers which stand in the way of developing competition’ and of ‘strengthening the legal protection of businesses from pressure exerted by unscrupulous employees of the regulatory bodies’ provides further evidence that past decrees have not been wholly effective.

In short, Putin’s statement contains an important clue about why the Russian economy is struggling. Year after year, the president outlines a similar vision. He issues decrees. The Duma passes laws. But down on the ground nothing very much changes. For all the talk of Russia being an autocratic state, its leader’s power is remarkably limited.