Streetwise Professor

November 7, 2013

The Russian Economic Ministry Channels SWP

Filed under: Commodities,Economics,Energy,History,Politics,Russia — The Professor @ 1:34 pm

For years-probably going on 7-I have argued that Russia was in for a long period of economic stagnation.  I referred to Putin’s Hamster Wheel From Hell, on which Russia would just continue spinning.

This prediction was based on my belief that Russia’s “natural state” politico-economic system was inimical to sustained growth.  Yes, the country could experience Cocaine Blues spurts of growth (“took another shot of cocaine and away I run”)-with the Russian economic cocaine being black and gooey instead of white and powdery-but the fundamental institutional deficits would continue to hold it back.  Indeed, the rent seeking and redistributionist policies that resource wealth sustain were-and are-a detriment to the country’s long term prospects.

I stopped writing about Russian stagnation so much, well, because I didn’t want the blog to stagnate along with them 😉  What new was there to say?

Today the Russian Economics Ministry released a forecast that echoes what I’ve been on about all these years:

Russia acknowledged for the first time on Thursday that its economy would lag global growth over the next two decades, setting the stage for an era of stagnation that could threaten President Vladimir Putin’s grip on power.

Economy Minister Alexei Ulyukayev forecast that Russia’s economy would grow at an average rate of 2.5 percent during that period – down from an earlier 4 percent and half the rate Putin targeted before his return to the Kremlin last year.

The downward revision casts Russia as the poor relation in the BRICS group of large emerging markets that includes Brazil, China, India and South Africa. The ministry expects the BRICS to grow at a 5.2 percent clip during that time.

With the ministry expecting global economic growth to average 3.4-3.5 percent, the outlook threatens to make a mockery of Putin’s oft-repeated pledge to lift Russia into the world’s top-five economies by the end of this decade.

And it is still based on an oil price forecast many analysts view as over-optimistic, showing just how much Putin’s Russia, the world’s largest oil producer, relies on not only high, but rising, oil prices to prosper.

Over-optimistic.  Too funny.

Note this isn’t a forecast about a year to two.  This is a forecast that extends to beyond Putin’s departure (likely, anyways, but not absolutely certain-which is symptomatic of the problems).  It is a damning verdict on Russia’s fundamental structural and institutional flaws.  From their own mouths.

One bank analyst sarcastically remarks: “Stagnation is starting to look like a policy goal in Russia.”  Actually, there is much truth in this remark, as I also noted in my writing on this subject going back to ’06-’07.  Autocratic systems like Russia’s that exist to redistribute rents in order to maintain political control and stability hate economic dynamism.  It creates new sources of wealth that can be used to challenge existing power structures.  It creates new groups of individuals, of middling means, who aspire for greater liberties and a political voice.

Meaning that given the choice between stagnation and control on the one hand, and dynamism and a lack of control on the other, Putin and the siloviki will choose stagnation in a heart beat.  Stagnation is a policy goal.  Stagnation means that those are on top stay on top, profiting wildly from their parasitism.  And that, ultimately, is the point.

Until it all falls apart.  Which it will.   The system is strong, in its way (note the utter demoralization of the opposition), but it is brittle.  Dynamic societies can adapt to big shocks.  Stagnant ones not so much.  They tend to shatter into little pieces instead of bending and adapting in response to big shocks.

I’ll sit here patiently waiting for all those soi-disant “Russophiles” who criticized, and at times ridiculed, my earlier prognostications as the product of a Russophobe mind to explain to me how the Economic Minister is similarly Russophobic.  Because he’s just saying what I’ve said for years. Some people are slow learners.  And some are no learners.  Which means I’ll probably be waiting a long time.

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  1. Wow, into the top five economies? Did he really say that? That would imply overtaking Germany *after* whatever growth Germany produces in the same period. It would imply raising Russia’s GDP from $2trn, about 80% of the UK’s, to over $3.5trn, an increase of 75%. The guy is delusional. He has spent too much time daydreaming in the Kremlin Palace pretending to be the Tsar and Stalin all rolled up in one. He doesn’t realise that he’s really Brezhnev.

    Comment by jon livesey — November 7, 2013 @ 3:05 pm

  2. @jon. Yes, yes he did say that. More than once. And you took the word out of my mouth (or way from my fingertips, literally speaking): delusional.

    The amazing thing is that so many inhaled or injected the same hopium that VVP was using. Not just in Russia, either.

    The ProfessorComment by The Professor — November 7, 2013 @ 3:13 pm

  3. If one is in power, and stagnation means no change – what is the point of changing? to argue that Putin is a Nationalist or a Russian chauvinist is an insult to the patriotically or racially unbalanced. they at least have goals: demented though they may be. Economic failure is not failure, if Vlad is still OK. Snowden et al are little more than a really cheap bread and circus act for the media.

    This reveals the true depth of Putin’s nihilism: power for power’s sake, with no goal but self aggrandizement ( as long as the actions needed do not threaten his rule). His rule has been reduced to what Martin Mull described as the Midwestern habit of chatting: something to bridge small gaps in life, like having nothing to say for a minute, to somewhat longer periods, like between birth and death.

    It is true that most stagnant societies are fragile – but they need an outside push to collapse. For various historical reason, Russia may be able to resist outside shocks better than most. Indeed anything from the outside would at least temporarily strengthen regime, as WWI did for the Tsar in the first year of the war (the Tannenberg disaster was overwhelmed by the victory over the Austrians, one from which they never really recovered). such shocks would have to be enduring or at least have some serious tenor to affect Vlad – this being the measure of all things of course.

    Indeed Vlad seems to be in a position where the continuing demoralization of his population is a good thing – hopeless people don’t fight, only those that are angry and have no choice fight. Revolutions occur when things have been getting better, and there is a crisis. Not the case in Russia, I am sorry to say.

    Instead, vodka is still there, enough money comes in to buy off those that need to be bought, throw some money at the Narod, and keep a creaking military that can resist such powers as Georgia, the Ukraine and Turkmenistan.

    The point that the Russophiles fail to grasp is that within the constraints listed above, Vlad has no reason to improve Russia, quite the opposite. He and his cronies benefit from a one crop economy (easy to steal) a demoralized population, directing their anger into scapegoating foreigners. Russophiles are thus more like accomplices than partisans, at best useful idiots, at worst deluded fools.

    Comment by Sotos — November 7, 2013 @ 3:15 pm

  4. @Sotos. I agree completely. Hence the utter irony of the term “Russophile.” With such friends, Russia doesn’t need enemies. Though its rulers will always find it necessary to invent them.

    The ProfessorComment by The Professor — November 7, 2013 @ 4:38 pm

  5. Don’t worry! The melting ice caps will save the day!

    More seriously, Russia is brittle but will withstand any shock the world can throw at it, or it can throw at itself. Only as usual, its survival will exact a terrible cost on its citizens, after which they will say “never again! We must be strong!” And the whole thing starts again. It’s as if they’ve never heard the story of the reed and the oak tree.

    Comment by Tim Newman — November 7, 2013 @ 5:19 pm

  6. I agee with Tim’s post but if oil falls to say $30/ bbl I doubt the politics in Russia will remain stable. Their will not be enough scratch to sufficiently satisfy the greed of the government kleptocrats and the slight downward trickle will be teduced to zero. As Tim points out the cycle will complete.but until the rule of people is destroyed rule of law will not find purchase.

    Putin will be looking for the exit long before $30 q

    Comment by pahoben — November 7, 2013 @ 6:42 pm

  7. @Tim & @pahoben. It depends on what you mean by “survive.” I don’t think what you are calling survival is different from shattering into little pieces. When it happens, not all Russians will perish. Russia will continue as an entity with a government. It will not stay in a completely horrific state forever. So in those senses, it will survive and withstand. But “the terrible cost [exacted] on its citizens” is what I meant by shattering. Another revolution, or Time of Troubles. A period of chaos.

    And yes, the cycle will continue.

    The ProfessorComment by The Professor — November 7, 2013 @ 6:53 pm

  8. I agree with what Tim wrote as well. Russia still looks like a giant subjectively, because of their victory in 1941-45, but that war played to Russian’s strengths. Russia had oil and Germany did not. Churning out vast quantities of tanks and planes is what Russia was good at.

    It’s the after the war period, when patriotic discipline gradually began to decline, and it proved impossible to introduce the kinds of economic incentives the West has, that made it almost impossible to become a modern consumer society and to make the jump into high tech, except in the narrow field of isolated and heavily Government funded military tech.

    I’m an admirer of Russian culture, I read Russian, and I have lived there, but the Russia I see today reminds me of the last years of the Russian Empire. A small number of people making vast amounts of money in opaque ways while others exist in deep poverty.

    There is plenty to criticise in the West, but Western capitalism has learned the trick of making sure that the “masses” have an adequate life and a decent life expectancy. I really don’t think Russia has learned that bit of wisdom yet. What happened in 1917 can happen again, as Tim implies.

    Comment by jon livesey — November 7, 2013 @ 7:40 pm

  9. @Professor There will be no revolution for the time being but further activation of the Russian skinheads. Last Monday they were officially sanctioned (liberals don’t get such permits) to march in one of the districts of Moscow with a slogan “Russia for Russians” – mostly very young men and clearly not acting per their own initiative but being cultivated by some powerful forces in Russia in preparation of the days to come… First, it seems to me that some energy is deemed to be in need to be “let out” and, second, the image of the “internal enemy” is being projected more forcefully…

    Comment by MJ — November 7, 2013 @ 7:47 pm

  10. @Tim & @pahoben. It depends on what you mean by “survive.”

    I mean the country will still exist, but it’s not a place you’d want to be in. The Russian people are incredibly resilient.

    Comment by Tim Newman — November 7, 2013 @ 7:50 pm

  11. Having been, on business of peddling luxury durable goods, to all the BRIC countries; they have more in common than differences. Rent seeking to a high art; inequality brought on by crony capitalism rather than merit; and bureaucracy that is opaque in the extreme. Brazil’s former president once said in an interview that what he envys about Britain is the lack of corruption. I had a Brazilian tourist guide explain endemic corruption to me, just before I witnessed it first hand. India’s economy is no longer the growth market due to corruption and rent seeking ( yes, much the same thing). Don’t get started in China.

    Point being, the BRICs aren’t the wave of the future the Tom Friedmans and Nick Kristofs (to name my “fave” idiots of NYT) would have us believe.

    The Pilot

    Comment by The Pilot — November 7, 2013 @ 9:34 pm

  12. Yes, yes he did say that. More than once. And you took the word out of my mouth (or way from my fingertips, literally speaking): delusional.

    Comment by S/O — November 7, 2013 @ 9:48 pm

  13. I think S/O has stumbled upon the economic version of “Olympic golds per head of population”, so beloved of Australian sports ministers who made unwise predictions.

    Comment by Tim Newman — November 8, 2013 @ 2:57 pm

  14. @Tim-Pretty much. There are major difficulties in making comparisons of income/output across nations. PPP has some advantages conceptually, but involves many difficulties in implementation. Most notably, it is virtually impossible to update frequently, meaning that the relevant data is out of date.

    More interesting to me is that S/O seized on the “5th biggest economy issue” raised in the comments rather than the stagnation hypothesis that is the focus of the post, and which he dismissed when I raised it years ago. He’s actually the poster boy for the self-styled Russophile who attacked those criticizing Putinism and Russia’s long run prospects as Russophobic attacks. But like I said in the post, not holding my breath for an acknowledgment that predicting stagnation is not a product of Russophobia, but a reasonable conclusion based on an analysis of Russia’s objective condition.

    I wonder if Ulyukayev is a closet Russophobe.

    The ProfessorComment by The Professor — November 8, 2013 @ 5:52 pm

  15. Meaning that given the choice between stagnation and control on the one hand, and dynamism and a lack of control on the other, Putin and the siloviki will choose stagnation in a heart beat. Stagnation is a policy goal. Stagnation means that those are on top stay on top, profiting wildly from their parasitism. And that, ultimately, is the point.

    Wasn’t aware that stagnation was a policy goal for Poland and the Czech Republic and Estonia and, well, pretty much everyone in Europe.

    Comment by S/O — November 9, 2013 @ 12:27 am

  16. And I wasn’t aware you cannot tell a difference between Poland, Czech Republic and Estonia on one hand and Rusia on the other, comrade S/O. Russia is an autocracy ruled by a single man, who changed constitution to stay in charge pretty much for rest of his life. Speaking about Czech Rep. where I live, we do have massive corruption like Russia and many, many other problems common among the post-communist countries, but we are still a liberal democracy – when bad stuff happens, government gets blamed and they will lose next elections. Which is exactly what happened here – right-wing government did massive cuts which led to a larger recession in recent years than other countries in Central Europe suffered. Combine that with bunch of scandals and the two right-wing parties can be happy they even made it into Parliament. In Russia, it seems Putin will be voted into power as long as he can ride on bears and hunt tigers shirtless, even if the country was burning meanwhile. And it does not really matter whether he gets into power through forged elections or because Russians share with him his delusions.

    By the way, some years back you have promised to write some amazing book on Russia, West, or something else, somewhere here in the comments. How is the work going? Let me assure you that the day I will find a copy of your book in National Library in Czech Republic, I will throw myself under first tram I will see.

    Comment by deith — November 9, 2013 @ 4:37 pm

  17. Interesting that S/O mentions Estonia. Russians love to bash the Baltic countries, probably still smarting over their decision to cut loose from Russia and do what they wanted to do in the 1930s – be independent states, not Russian vassals. Usually they sneer that the Baltic stats have no oil, still labour one under the impression that lots of raw materials is the key to riches.

    Now I did a tour of the Baltic capitals in December, and was back in Vilnius last month, and the one thing that struck me was that despite the diminutive size of each place and their undoubtedly piddling economies compared to Russia, the region is an order of magnitude less of a shithole than Russia is. True, the flood of EU money would account for some of that, but far more money is coming in from Norway, Finland, Denmark, and Sweden and people don’t tend to fuck each other over as a matter of course as they do in Russia: the levels of trust and cooperation amongst the population is obvious. I’d say these have a far greater effect on the economy than pure size of amount of oil produced.

    In short, if what I saw in Estonia last December was stagnation, I’d take it every time over what I saw in Russia during the biggest period of growth in the country’s history. Even the Russians I knew who live, or used to live, in the Baltics couldn’t believe the state of Russia when they went there. And we can be sure that the Baltics will boom once the rest of the global economy picks up, whereas Russia will be lagging behind indefinitely, always falling way short of its potential and coming up with the same old, tired excuses each time.

    Comment by Tim Newman — November 9, 2013 @ 5:29 pm

  18. Irrelevant blather and strawmen that, as per usual for the SWP Hive, don’t address the concrete points I make, which simplify down to: If stagnation in Russia are the fruits of Chekist tyranny – as opposed to, you know, pretty much all of Europe being in the proverbial gutter – then what does that make East-Central Europe, whose economic performance is even worse?

    Comment by S/O — November 9, 2013 @ 8:05 pm

  19. Let me assure you that the day I will find a copy of your book in National Library in Czech Republic, I will throw myself under first tram I will see.

    I’ll make sure to send them a copy.

    Comment by S/O — November 9, 2013 @ 8:07 pm

  20. @S/O. You are the last person-ever-who should dare to bring up addressing points. Spare me. What was your response to me calling you out on the fact-fact-that Russian officials have endorsed the stagnation hypothesis that you so vehemently denied over the years? That you claimed was the fantasy of Russophobes?

    To play the whataboutism game. To bring up fucking Estonia and Poland. Which, of course, haven’t engaged in Putinist flights of fantasy about growing 5-7 pct per year, becoming leading world economies, etc. Talk about avoiding addressing points.


    You haven’t been stung by the SWP hive. You’ve been stung by reality. Admit it.

    Deal with it. Man up. Acknowledge it.

    But of course, I ask way too much.

    I am currently taking odds on Deith having to throw himself under a tram. Initial quote: 1 million to 1.

    The ProfessorComment by The Professor — November 9, 2013 @ 8:54 pm

  21. It’s been about a year since I suggested it might be time for you to acknowledge the correctness of my demographic projections.

    The crickets are still chirping. Actually, scratch that; crickets are pretty civilized. More like a buzzing wasp swarm venting spleen and fury.

    You can’t have your cake and stuff your face with it too.

    Comment by S/O — November 9, 2013 @ 9:27 pm

  22. It’s been about a year since I suggested it might be time for you to acknowledge the correctness of my demographic projections.

    How is that “arctic progress” coming along, then? Is Murmansk the new Singapore yet?

    Comment by Tim Newman — November 9, 2013 @ 10:35 pm

  23. If stagnation in Russia are the fruits of Chekist tyranny – as opposed to, you know, pretty much all of Europe being in the proverbial gutter – then what does that make East-Central Europe, whose economic performance is even worse?

    Aside from what SWP said, the difference is that the stagnation in E.Europe is largely (but not entirely) cyclical; in Russia, it is quite obviously structural. In this regard, Russia is much like most oil producing nations: more dependent on the oil price than the economic cycle, and whose economy outside oil and gas production remains outdated and unreformed. The reasons for Russia’s stagnation are far more serious and difficult to resolve than those of the Czech Republic, for example. Put simply, the Russians have never had to reform their economy because the oil price has done enough to deliver GDP growth. The other European nations did not have this luxury.

    Comment by Tim Newman — November 9, 2013 @ 10:45 pm

  24. “Concrete points” of yours:
    Stagnation in Russia < Russia is a kleptocracy/autocracy/tyranny or whatever.
    Stagnation in Europe < …has to also be a result of the fact European countries going through stagnation are kleptocracies/autocracies/etc. too?

    I don't get how someone who deduces and analyzes stuff the way you do can study at university.

    And regarding the book you fantasies about writing, please, pretty please, do not bother sending it to our National Library, they will not accept it. Send it to me instead, I will gladly read such a marvel of human thinking. Considering we all know its genre, I have already made a space for it on my shelf between Pratchett's Discworld and Tolkien's Middle-earth.

    Comment by deith — November 10, 2013 @ 6:29 am

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