Russian System Seeks to Cut Cost of Labor as Much as Possible to Have Money for State and Elites, Prokofyev Says

Paul Goble

            Staunton, April 11 – All talk about raising the standard of living notwithstanding, Dmitry Prokofyev says, Russian bosses and the Russian state behind them “have no motivation for a growth in consumption” because their business “doesn’t depend on the domestic market” and because the lower consumption is, the more money is left for the bosses and the state.

            There is a limiting factor to this drive to suppress consumption, the Moscow economist continues. It is the danger that those below will ultimately revolt. But finding the minimum level of consumption possible that will avoid that is something that can be established only by trial and error (novayagazeta.ru/articles/2019/04/11/80173-zarplaty-stali-nedostoynymi).

            Naturally, Prokofyev continues in his Novaya gazeta article, “this policy of the bosses is justified by the best of intensions, the desire to ensure industrial growth … but the medicine which the bosses are using to cure that and the low productivity of labor turn out to be almost worse than the disease itself.”

            Like their Soviet predecessors, Russian managers and the state try to keep consumption as low as possible so as to have as much money for their own purposes which sometimes include state goals like military buildups but now also are dominated by the desire of managers to enrich themselves and to send money abroad for safekeeping.

            The Russian leaders know it is important not to push too far: After all, the Soviet Union collapsed less because of the decline in oil prices than because people could no longer purchase what they had money for. Thus, ensuring that their incomes do not go up is a way to limit social unhappiness because then people can’t buy and the shelves stay full.

            Keeping wages or at least what they can purchase as low as possible allows the bosses to take in more money in part for their own purposes and because of the nature of the Russian system for the state to do so for its purposes since it controls no less than two-thirds of the economy, Prokofyev continues.

            Statistics bear out that this is what bosses and the state behind them are doing. Over the last year, profit for the economy as a whole rose by a third. That money was supposed to go for investments, but instead, investment fell to the lowest level in the last six years and capital was shipped abroad at an unprecedented rate.

            This is all happening, Prokofyev says, because “inspire of the fantasies of the bosses, Russia is not an industrial but a trading country.  It was that under the Rurikides and Tsar Ivan. And the percentage of trade in GDP in Soviet times was twice as high as the similar figure for the United States.”

            “Of course, the bosses would like to see industrial complexes instead of trade malls,” because that would make it even easier to extract resources from the population. “But the problem is that investment in trade or services requires confidence in the growth in the role of the potential customers. If there is no such growth, there won’t be any investment.”

            That is where Russia is today, the economist says.

            Consequently, the bosses and the state will continue to seek ways to extract ever more money from the population by holding down wages, boosting the pension age, or increasing direct or hidden taxes because the bosses believe that spending by individuals is wasteful while spending by them or the state is important.

            In Soviet times, the state boosted its income and kept consumer demand low for most goods by selling vodka. Now, the Russian authorities are using mortgages in much the same way – and that is why housing costs in Russia are so much higher than they are in other countries similarly situated. If people have to pay a lot for housing, they have less money for other things.

            All this reflects the fact, Prokofyev says, that “the Russian bosses objectively do not have any motivation for an increase in popular consumption;” and consequently, “to hope for pay increases is quite senseless” whatever officials declare. To change that will require a wholesale change of the system.