Tuesday, November 19, 2013

Window on Eurasia: Russia Can Escape Crisis Only by Ending Hyper-Centralization, Zubarevich Says

Paul Goble

            Staunton, November 19 – Russia’s regions are overwhelmingly in a deep crisis, the result of a confluence of factors that can be overcome only by ending “hyper-centralization,” restoring budgetary federalism, and somehow reversing the “degradation” and rapacity of the Moscow elite and its faith in gigantist projects, according to Natalya Zubarevich.

            In a speech at the Urals Federal University and a subsequent interview to Znak.com, Zubarevich, who teaches at Moscow State University and is internationally recognized as a leading expert on Russia beyond the ring road, paints a disturbing picture of a country in deep and longterm crisis (znak.com/urfo/articles/18-11-16-07/101512.html).

            The proximate causes of this crisis in the regions, she suggests, are “the stagnation of the economy, the lengthy call in investments (down two percent from last year and seven percent from pre-crisis 2008), and the destabilization of the budget.

            Those in turn reflect, Zubarevich argues, declining demand for Russian exports, primarily oil and gas, ”the concentration of investment in big projects like the Olympics, the reduction of assistance to the subjects under conditions of stagnation, and the complete lack of transparency of this assistance.”

            And exacerbating those problems is the increase in pay to government employees at Vladimir Putin’s order but “in violation of the budgetary code and without full compensation of the spending of the subjects of the Federation.  Because the regions have to meet unfunded liabilities from Moscow, they can’t increase spending on education, culture, health and housing.

            As a result, Zubarevich says, as of August 2013, 60 percent of the subjects were running a deficit, and only three – Moscow, St. Petersburg, and Sakhalin were running surpluses.  “The summary debt of the regions and municipalities has reached on average 25 percent of their incomes not counting transfer payments.”

            During the first seven months of 2013, a third of the regions had no growth at all, and half suffered a serious decline, especially in the North West, Siberia, and part of the Middle Volga. It is time to stop talking about the end of the crisis: “the investment crisis has not ended; the decline of 2009 has not been overcome.”

            Moscow’s faith that super-projects like the reconstruction of Vladivostok for the Asia-Pacific economic summit or the building of the Sochi Olympiad is misplaced.  Such projects will  not have “a multiplier effect.” Instead, the money will be spent but will produce few returns.  There won’t be “a Sochi Number Two in Russia” because there is no money for it.

            Russians living in major cities are more aware than other that “the administrative machine I working ever less effective: money is being spent without effect.” On the periphery, Zubarevich says, “there is a general sense that no one will help you” and that you have been left adrift.

            Such attitudes will only intensify, she suggests, over the next four to five years largely as a result of the inertia of developments up to now.  But unlike many analysts, Zubarevich does not see this leading to the disintegration of the country unless Moscow leaders behave even more irresponsibly than they have in the past.

            “If the authorities are seized by the stupid notion of giving the federal disticts even more economic resources and complete control over their territories,” she says, the situation could get out of hand: “Conflicts of eight or nine subjects with the center could be serious, but conflicts of 83 subjects with the center will not happen.”

            There is a reason for this: “Horizontal integration in the Russian Federation is prohibited” and can occur only under the auspices of the Presidential Administration. Anything outside that is “a violation of conventional norms.” That doesn’t mean, however, that there aren’t going to be regional conflicts. People in the regions vary widely.

            To move forward, Zubarevich argues, Russia must take “one very difficult but very necessary” step: It must “give more authority to the federal subjects and municipalities” and Moscow must allow them more freedom of action.  The current system is out of balance: there is branch effectiveness but the territorial side has been forgotten.

            To restore the situation, the Moscow scholar continues, there must be a two-stage process of decentralization, first to the regions and then to the municipalities, rather than a general grant to the latter in the hopes of controlling the former. And there must be a recognition that the entire country isn’t going to move forward all at the same time: it is too diverse.

            It is far from clear that the powers that be in the center will be capable of this at least in the near term, Zubarevich suggests. “The capital elite has degraded to the point” that those who want to do something are sitting on their hands and those who don’t are carving out places just for themselves.

            That reflects the lack of competitive elections. The same is true of governors, few of whom have been elected as a result of Putin’s reform. But it is nonetheless the case that the governors are “closer to the people, and the people in the regions are cleaner.” Unlike the Muscovites, they still think that Russia is their country and they need to develop it.

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