Moscow Fighting Wrong Kind of Inequality, Zubarevich Says

Paul Goble

            Staunton, November 15 – With transfer payments from center to regions, Moscow is fighting regional inequality driven at least in part by the fear that if it doesn’t, there is a risk that the Russian Federation will disintegrate, Natalya Zubarevich says; but it should be fighting inequality between Moscow and everywhere else and among social groups.

            In a major address to the Adam Smith Conference in Moscow, the Moscow State University specialist on regional economics says that in Russia, “weak regions regularly receive subsidies from the federal budget but life in them doesn’t change” and won’t until they find “their own competitive advantages” (lenta.ru/articles/2018/11/14/neravenstvorf/).

            That will be possible only if the central government allows the regions both more freedom of action and greater control over the money they earn and taxes they control. Otherwise, Moscow and the oil-producing regions will grow but all others will lag behind and hold back the development of Russia as a whole.

            Still worse, Zubarevich continues, the lack of the opportunities that such a shift would make possible means that in the regions, people do not yet think about developing the kind of competitive advantages that would allow them, and with them, the country, to become drivers of the economy. Instead, the periphery remains paternalistic in its attitudes.

            “Russia’s problem,” she says, “is not in inequality” of the regions but in the existence of “a gigantic middle, which doesn’t move or change because of “poor institutions and the lack of obvious advantages,” conditions that will continue until Moscow loosens its hold on the regions rather than tries to make all of them equal while doing little about social inequality.

            Around the world, countries which are trying to catch up with the most advanced economies and polities “bet on strong regions” but also work to reduce inequality of incomes in the population. Russia today does just the reverse, Zubarevich continues; and then people are surprised that the system doesn’t escape from poverty over all and develop more rapidly.

            And a major reason that is the case is that many in Moscow fear that if some regions race ahead and others lag significantly behind, something that will be true if controls and interregional transfers are reduced, that in and of itself will create the conditions for the disintegration of the country.

            Overcoming that fear and taking the steps necessary to allow for development won’t be easy, the regional specialist says; but that is the only way that Russia has a chance to move forward toward a better life for succeeding generations. Otherwise it will have a rich capital city and poverty almost everywhere else.

            Meanwhile, there are three other pieces of dispiriting economic news from Russia this week:

·         First, it was reported that last year, Russian flagged merchant ships carried only 3.5 percent of the seaborne imports and exports from the country, down from 53 percent in 1980 and a share equivalent too what it was at the start of the 18^th century.  The loss of earnings from that decline is  equivalent to all the money Moscow earns from foreign arms sales (newizv.ru/news/economy/12-11-2018/tsifra-dnya-torgovyy-flot-rossii-vernulsya-v-nachalo-18-veka).

·         Capital flight is accelerating.  According to official statistics, 42.2 billion US dollars have left Russia in the first ten months of this year, up from 14 billion US dollars in the same period a year earlier, with 10.1 billion US dollars occurring in October alone. Russia is on track to see up to 66 billion US dollars of capital flight for the year as a whole (kommersant.ru/doc/3798385  and finanz.ru/novosti/aktsii/rossii-grozit-samy-masshtabny-ottok-kapitala-s-2014g-grafik-1027719294).

·         Moscow is currently fixated on “de-dollarizing” the Russian economy, but a far larger problem, economist Khazbi Budunov, editor of the Telegram Channel Politeconomics, says, is falling domestic demand as people have less money to spend and are less willing to invest given the darkening economic picture of Russia under sanctions (eadaily.com/ru/news/2018/11/14/glavnyy-risk-dlya-rossii-ne-krah-dollara-a-padenie-sprosa-ekspert).