Paul
Goble
Staunton, June 18 – Even when the
Russian economy recovers from its current recession in a year or so, economist
Yakov Papp argues, it will remain in recession unless and until the Kremlin
changes its approach to the economy, an approach that has already added to
Russia’s current difficulties and makes “significant growth” in the future
“impossible.”
But the senior specialist at the
Moscow Institute for Economic Forecasting says, there is a chance the Kremlin
could correct things. After all, “there are many examples when an authoritarian
regime has changed its economic policy 180 degrees.” No change in personnel or
“even in rhetoric” is required (profile.ru/rossiya/item/97772-perejti-k-rostu-pri-sokhranenii-nyneshnej-ekonomicheskoj-politiki-nevozmozhno).
He tells Irina Fedotova of “Profile”
that in order to see what must be changed, however, it is necessary to
recognize the mistakes Moscow has made in economic policy and to understand how
those mistakes, however tactically justified, have proven to be strategic
disasters for the country’s economy, compounding rather than countering the
impact of sanctions.
According to Papp, the Russian
leadership sent several “very poor signals” in 2012 that meant that the Russian
economy would have been in trouble even if there had been no sanctions regime:
it nationalized several major companies thus reducing the willingness of
foreign and domestic investors to put money in the Russian economy.
Then, later, it tried to prevent the
devaluation of the ruble for too long and thus was confronted by a far larger
fall over a shorter period. And, worst
of all in the wake of sanctions, it pushed the idea of “import substitution,” “the
very worst economic step that could have been proposed.”
The idea spread in Moscow that “as a
result of the market transformations, we had become “too open” and needed to
quietly shut ourselves off” once again.
That reflected a mistaken judgment that the 2008 crisis was not an
ordinary economic event but reflected “the failure of the Western economic
model,” Papp says.
In addition, many in Moscow came to believe
that the US was reindustrializing and that Russia should follow course. But the
Russian government failed to understand that what the US was doing was not a
return to the past but rather building on the business model of Silicon Valley.
Indeed, the revolution in oil extraction was part of this.
Few in Moscow understood or understand
even now, Papp continues, that “not a single country in the world by making use
of import substitution has broken out of the developing world in to the
developed one.” And they have not understood that openness to the world
economy, not closing oneself off from it is the necessary path forward to
development
Papp says that Moscow’s policies of
import substitution have been especially pernicious in the information
technology areas. Russia has numerous good programmers, but if they are cut off
from contacts with the outside world, they won’t keep up and “this sector will
rapidly degrade.”
Another mistake the Russian
authorities have made was to have chosen to launch an anti-corruption drive
exactly now. Fighting corruption is a
good thing, but because the government is so involved in the economy, Papp
says, the anti-corruption effort has left many officials gun shy about taking
risks – and that too has hurt the economy.
What should happen instead, is the
reversal of all these policies and the formation of new ones based on the
understanding that “now, we are a small open economy” and that “in a market
economy, priorities are set by private business and the task of the government
is support them.” Instead of import substitution, Moscow should support exports
in the non-petroleum sector.
If the Russian government does not
make these changes, the future for the Russian economy will be bleak, even when
the sanctions regime ends.
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