In 1998, at the time of defauls, the Russian stock market fell 80 percent, the ruble fell 84 percent, “and all our bureaucrats … took the money they had and converted it into hard currency. “When the market collapsed, they bought shares at three cents on the dollar. The very same thing is happening now.”
Moreover, Zhukovsky adds, after the coming collapse “the American, European or Chinese investors will come.” They too will take advantage of the low prices just as they did in 1992 and 1993
Even if oil prices were to rise to 70 dollars a barrel, that would not be enough to prevent a further decline in the Russian economy. And given that the actual price will be much lower, that decline will be very steep indeed. As prices fall to 40 dollars a barrel, Zhukovsky says, Rsusia will discover “a third bottom” and then “a fourth” and so on.
Russians need to recognize that the low oil prices are not the product of “a conspiracy of the US and the Arabs against Russia.” Instead, they are the result of an Arab effort to drive down the price so that the latest technological innovations in extraction technology the Americans have will not be profitable.
Russia isn’t part of the equation for either, Zhukovsky says, but this also means, the basic trend won’t change anytime soon. Moreover, if Russia sits and does not make fundamental change, the new oil extraction technologies will in fact be “a death sentence” for the Russian economy.
Russia’s only change to “move forward” is to focus on scientific and technical progress, to behave as the Chinese have done gradually shifting into ever higher tech areas rather than relying on the sale of natural resources or minimally processed goods. But that is not what the Russian government is doing.
As a result, Zhukovsky says, the middle class in Russia is being liquidated. Several years ago, it formed 19-20 percent of the population. Now, it is falling toward six percent. One measure of this: In 2013, 18 to 20 percent of Russians said they could by a car; in 2014, that figure had fallen to 12014 percent; and now, it is 8 to 9 percent.
What must happen, the economist argues, is that Russians must invest in their own development, not reduce spending on food or especially on the education of their children because the latter “are the only hope for the future in this country with its destroyed pension system and economic crisis.”