Thursday, December 31, 2015

Mental Crisis at Home Not Sanctions behind Russia’s Economic Malaise, Yakovlev Says

Paul Goble

            Staunton, December 31 – The loss by members of the Russian elite of a positive model for the future is a more important factor behind the country’s current economic malaise than the fall in the price of oil or the imposition of sanctions and counter-sanctions, according to Andrey Yakovlev, a senior analyst at Moscow’s Higher School of Economics.

            And if the Kremlin does not come up with a positive scenario for the future soon, he suggests, elite expectations of a catastrophe will be transformed into a self-fulfilling prophecy” (

            “The current situation in the Russian economy is a clear illustration of the ways in which a crisis in people’s heads leads to a crisis in reality,” Yakovlev says.  Indeed, “one of the main results of 2014-2015 is that any idea about an ideal model of the development of the country, which the elite had in the early 2000s finally disappeared.”

            That was the product of developments going back more than a decade.  In 2007, the notion that “an economically strong Russia could aspire to participate in the administration of the world” formed the basis of Vladimir Putin’s Munich speech and reflected the choice of many in the government in business of a kind of South Korean model.

            But the crisis which began in 2008 “showed that this was not the case.”  More than that, it showed that the power vertical was not nearly as functional as many thought. And that in turn led in the fall of that year to the collapse of the expectations of many in business and in the state about the future, a collapse that continues to this day.

            This lack of confidence led on the one hand to a new wave of capital flight and on the other to ever harsher government pressure on business as the regime tried to make up for its losses.  That in turn contributed to the eight percent fall in Russia’s GDP in 2009, but it became obvious that both sides had less and less room for maneuver.

            “The main goal” of Putin’s anti-crisis policy at that time was “the support of social stability,” and to that end, he increased pensions and budgetary spending so that even though the GDP was falling, personal incomes in most cases were not, Yakovlev says.

            In 2009-2011, Dmitry Medvedev made an effort to change things and to restore a dialogue with business, which pointed to the formation of “a new contract between the authorities and business – investment and economic growth on the basis of successful mid-sized companies in exchange for an improvement of the business environment.”

            These measures “gave a definite effect, but the political events of 2011 and the reaction of the authorities to them turned out to be much more significant for economic actors.”  From their perspective, the power vertical was beginning to shake; and Putin’s political mobilization of the population did not moderate those concerns.

            And thus, “from 2012 on, various branches of the powers that be, in particular the economic block of the government and the force agencies in essence were conducting mutually exclusive policies which only intensified the negative expectations in the elite” and led to even more capital flight.

            This split in the minds of the elite was no accident, Yakovlev continues. “It arose fromteh loss by the current power elite of a vision of the future. All our state propaganda of the last three years has been about the past,” and the elite feels it does not have any “positive idea which it could propose to society.”

            In many respects, he says, this situation resembles the one the Soviet Union found itself in 1968 after sending forces into Czechoslovakia and freezing reforms at home, two actions which marked “the ideological defeat of the USSR.” But this divided consciousness wasn’t restricted to the political elite: it has affected business and the opposition as well.

            Russia has the basis for a strong and rapidly growing economy, according to Yakovlev, but what is preventing that is “above all a deep distrust between business and the authorities.” Neither has a clear sense of what the future should be and each distrusts the ability of the other to come up with one.

            There is precedent for the two sides coming together and reaching an agreement. It happened in the early 2000s and was close to happening after 2009.  But the situation now is more difficult and any outcome will depend on the judgment of the force structures about whether “the military-political ambitions of Russia are unrealizable without a sufficient economic base” and whether they can offer a detailed “’model of the future’” for Russia.

            “We are now at a fork in the road,” Yakovlev concludes. For a certain period, Russia can avoid making a clear choice, but “such balancing itself generates negative expectations and therefore it can hardly last for a long time” because the longer it lasts, the more these expectations are likely to become “self-fulfilling prophecies.”

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