Tuesday, October 25, 2016

Putin’s Control of the Russian Economy Prevents It from Developing, Inozemtsev Says

Paul Goble

            Staunton, October 25 – Since coming to power, Vladimir Putin has sought to restore the dominant role of the state in society and the economy but in the process has created a system which represents “the complete denial of all those principles and goals which a contemporary market economy has” and thus of its chance to grow, according to Vladislav Inozemtsev.

            In an article in “Vedomosti,” the Moscow economist argues that the Putin system, something he describes as “the new abnormality,” does not allow for “competitive, effectiveness, openness, development [or] technological renewal;” but at the same time it is likely to survive for some time (vedomosti.ru/opinion/articles/2016/10/23/662063-novaya-nenormalnost).

            As a result of Putin’s action, Inozemtsev says, “the state really restored its positions both both in politics and in economics … Even those companies which were formally private are considered by the authorities as instruments subordinate to their will” and the siloviki are now “the main economic newsmakers.”

            In seeking to overcome the diktat of the oligarchs, Putin swung too far in the opposite direction and established a system in which the bureaucracy controls the economy so thoroughly that people in business are almost completely dependent on the authorities and can pursue a policy “not so much of development as of survival.”

            Competition has disappeared not only because the largest companies in Russia occupy a far greater share of the economy than such firms do in other countries but because the state guarantees that they won’t be challenged by new entrants in their areas, something that guarantees their loyalty but blocks innovation, Inozemtsev continues.

            It is likely, he says, that in a short time, “attempts at competition will be considered an attack on the holy of holies.” Consequently, the best private businessmen can do is to seek a niche, develop good relations with the relevant bureaucrats, and seek to promote the Kremlin’s agenda.

            That strategy entails a change in the meaning of profits. They are a source of personal enrichment rather than a means for investment. It also means that Russian firms should stop thinking about the international market and limit themselves to the Russian one alone, however limiting and destructive that is.

            “For survival,” Inozemtsev says, “independent entrepreneurs must limit to the maximum their sphere of activity to Russia (or in particular extreme cases to the countries of the Eurasian Economic community) and not try to imagine that they [still] live in the globalized world of the 1990s.”

            That prescription, he suggests, doesn’t point to anything good in the Russian economy; but it may be the best that private businessmen can do for the time being. That is because “history shows that when the compass swings too far in one direction between liberalization and stratification,” it moves constantly and even more strongly in the opposite direction with time.

            And business people must remember that “although the order which has been established in Russia has every chance to hold on for long years, it nevertheless will not be eternal, and therefore the main task of present-day domestic private business is to survive this era of ‘new abnormality.’”

            That is “very important” for Russia’s future, Inozemtsev says, “because the main cause of the insanities of young Russian capitalism of the 1990s was the complete absence of any experience in entrepreneurship. To preserve those who were able to swim out of its whirlpools is the most important task of the next decades.”

            If they can survive, he says, that will provide the basis for “moderate optimism” in the long term about Russia’s prospects.

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