Putin’s Power Failure: He's had Time and Resources to Transform Russia but has Failed to Do So, Inozemtsev Says

Paul Goble

            Staunton, January 12 – Vladimir Putin has had the time and resources “to transform Russia if not into the next China then into a new Emirates by laying the foundations for economic growth over several decades,” Vladislav Inozemtsev says. But he didn’t do so and as a result, these years for Russia were and remain “lost.”

            The Moscow economist says that “the country is being ruled by a man who talks a lot but does practically nothing concrete,” having relied “for more than a decade” on income from rising oil and gas prices.  And how, he says, Putin can’t even come up with plans to stimulate business or inspire citizens (rbc.ru/opinions/economics/12/01/2016/5694b0229a79473841558e1f).

            Inozemtsev outlines the reasons for this damning conclusion in an essay on the RBC portal today, reasons that are especially compelling because most of them are not the opinions of this or that opposition commentator but rather are facts and figures published by the Russian government itself.

            Putin has been in power for 16 years now, the economist says, and as a result, he and Russia enter his 17^th year in even worse shape than anyone could have imagined.  Average pay in Russia if converted into dollars is now at the level of 2005. GDP has been falling and will continue to fall. And 280 billion dollars of capital has fled abroad over the last three years.

            The only thing going up is the military budget. It has increased in ruble terms by 7.5 times and in dollars by 4.4 times; and at the same time, “the bureaucracy has finally been converted into a ruling class with hundreds of new heraldic devices.” Russia now is involved in two wars, which have alienated its neighbors and led to sanctions from the major powers.

            For most of his 16 years in power, Putin benefitted from rising oil and gas prices; but instead of using the earnings to transform Russia, he and his regime took the money for themselves and left Russia and the Russian people in even worse shape than many of them had been before he came to power. Now with oil prices falling, all that is becoming clear.

            Russia is producing less gas now than it did in 1999, even though Qatar over the same period has increased its output by more than seven times. Two years ago, Rosneft bought TNK-BP for 55 billion US dollars, but now Rosneft itself is evaluated as being worth only “about 34 billion.

The only place where there has been any real growth as opposed to growth as a result of rising prices for raw materials has been in the non-state sectors.  Under Putin, it has been the state rather than anything else that has been “the brake.”

Countries that experience a sudden burst in income either from rising world prices for their raw materials or because of increased production almost invariably invest in infrastructure, almost all countries that is except for Putin’s Russia, Inozemtsev points out.  Over the last 16 years, Russia hasn’t put in place a single kilometer of contemporary high speed rail.

During the last two years, it has built 1200 kilometers of new roads annually, “four times less than was the case in 2000,” the first year of Putin’s power.  In a similar war, Gazprom figures show that the country has managed to increase the level of gasification of Russian villages by 0.1 percent to 65.4 percent over the last 16 years.

At that rate, Inozemtsev says, “the task of complete gasification will be fulfilled at the start of the 22^nd century.” Russian ports are handling fewer goods than they did earlier, and cargo on the Northern Sea Route today is lower by a lot (130,000 tons as against 460,000 tons) than it was when Putin came to office.

What has Putin offered Russians? “Only beautiful promises,” which keep being repeated each year and whose fulfillment is pushed off ever further into the future.

Putin has made the country more dependent on petroleum exports. In 1999, oil, oil products and gas formed 39.7 percent of all exports. By 2014, they made up 69.5 percent. But those who live by oil prices can die from them as well, especially if the economy is dependent on export earnings to make its way rather than on domestic production.

But despite all the money that poured into Russia for a time because of this oil and gas boom in exports, “no industrial transformation took place in Russia: in the course of all the Putin years, it was and remains the only one of the emerging markets where the growth of industrial production lags behind the rate of GDP growth.”

Putin’s Russia is overwhelmingly dependent on imports in many sectors, and “if our ‘partners’ want to achieve the complete collapse of the Russian economy, it is sufficient for them to prohibit the import into the country of these supplies.” Meanwhile, pensions, education and health care have all been cut back or allowed to deteriorate.

And in foreign policy, the 16 years of Putin have not brought much to celebrate. His actions have transformed Ukraine from a friend to an enemy and driven away most of the former Soviet republics. He has begun a military operation in Syria only to discover that it will take more money than Moscow has.

This is not a record anyone should be proud of or that Russia can afford to see continued for much longer.