Streetwise Professor

January 17, 2013

Ivan is Working to His Potential

Filed under: Economics,Energy,Financial crisis,Politics,Russia — The Professor @ 10:46 am

One of the most ambiguous, and often damning, phrases in a school or performance review is “works to his potential.”  Left unsaid is just what that potential is, and the comparison of performance to personal potential, rather than to the performance of peers, is often a polite way of communicating that that potential is rather low.  The quintessential way to damn with faint praise.

This came to mind when reading about a spat between Medvedev and a high ranking official at the Russian central bank.  Medvedev is pushing for 5 percent growth:

“The government’s main aim is to reach steady economic growth of at least 5% [a year], and achieve stable growth of Russian citizens’ wellbeing,” Mr. Medvedev said

But Central Bank first deputy chairman Alexei Ulyukayev rained on that parade, and delivered the devastating “works to potential” performance review:

We at the central bank of the Russian Federation assume that in Russia… economic growth roughly matches its potential.

That growth, mind you, is in the 3.5 percent range.  4 pct would be a major achievement.

This is rather pathetic for a country at Russia’s stage of development, and is a far cry from the pre-crisis growth rate.  In part, this reflects moribund world economic performance.  Europe is continuing to stall. China is on another sugar high, but the pressing need to transition from an investment-and-export-driven model will result in a decline in growth rates there as well.  The US is bumping along, and the impending Health Care Cliff and continued fiscal policy uncertainty will serve as drags on growth.

But it also reflects Russia-specific factors, and is in fact a damning verdict on Putinism.  Two other speakers at the conference where Medvedev and Ulyukayev spoke, Alexi Kudrin and my friend Sergei Guriev, pointedly said that Russia’s institutional deficit were the major drivers of its mediocre potential:

But Sergei Guriev, an influential economist and government adviser, warned in an op-ed Wednesday in the Vedomosti daily newspaper that the Kremlin is in danger of falling short of its targets for improving the investment environment because of slow progress on privatization and other moves to liberalize the economy.

Former Finance Minister Alexei Kudrin, who was also at the conference, warned that lack of reforms means “there are no grounds to achieve economic growth of more than 4% for the next five to seven years.”

Mr. Kudrin, who lost his job September 2011 over a disagreement with Mr. Medvedev over a sharp rise in social and military spending, blamed the lack of reforms on the government, which prefers “to throw in money to resolve problems and rely on oil prices,” he said.

Putin’s purgatory, indeed.  The mania for stability, the fear of change, the vested interest of the elites in the existing system, and the stasis that inevitably occurs with an aging leadership will conspire to throttle any “moves to liberalize the economy” and to encourage throwing oil money at problems.

Meaning that Russia’s potential for growth is nowhere near 5 percent.

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