Sunday, December 31, 2017

Forcing Repatriation of Funds Won’t Solve Russia’s Economic Problem, Gontmakher Says

Paul Goble

            Staunton, December 28 – Many including some in the Kremlin believe that forcing oligarchs to repatriate the money they have sheltered abroad will go a long way to solve Russia’s economic problems, Yevgeny Gontmakher says; but they are wrong: far more will have to happen for any money returned to make a major difference.

            That is because unless the Russian economy and the Russian polity are fundamentally changed, the economist continues in an interview given to the Znak news agency, the money may come back to Moscow but it won’t be used in ways that will prevent the Russian economy from falling ever further behind those of other countries (

            Despite what the Kremlin claims, Gontmakher says, the Russian economy is lagging behind and will continue to do so unless the Kremlin takes steps to free entrepreneurship by guaranteeing private property now and end other archaic forms.  Indeed, he argues, unless the regime does so, Russia may soon find itself in a position where it can never catch up.

            “Freedom of entrepreneurship, protections for private property, independent courts, and strictly legal arrangements for the law enforcement organs in our life” aren’t the threats some see but rather the guarantees of economic growth in the new economy, and consequently, Moscow must move in that direction on all fronts.

                Nearly all problems from income inequality to stagnating growth have their roots in the absence of these features of rapidly growing economic system, Gontmakher continues.  And unless things change, the economy won’t grow and any new injection of funds will only lead to a growth in the “shadow” sector of the economy.

            The problem is wider than just the business community, he argues. Ordinary Russians may support the state as their economic provider; but “on the other hand, people view [the state as it currently exists] very negatively becaue they instinctively feel its ineffectualness.”  That must change and can only change if the state improves conditions across the board.

            For example, Gontmakher says, the hierarchical and authoritarian system in Russian schools now means that the pupils who turn to the Internet know more than their teachers who overwhelmingly do not even know how to go on line.  According to statistics, “only 16 percent of teachers know how to use computers.”

            The Kremlin won’t solve problems like that by forcing oligarchs to return money now invested in the West. “Potential investors must be certain that their money will be secure if they begin to invest in real economic projects.” Otherwise the money will be wasted and held only until it can go abroad again where that possibility is real.

            The same thing can be said of another Kremlin favorite “solution” – a rise in oil prices, Gontmakher says. That will bring more money to Moscow but it won’t help the economy modernize and grow by itself. Instead, it will only add to the shadow sector and thus reinforce the current economic malaise. 

            Putin believes that he has the support of the workers as far as reforms are concerned given that polls show many employees oppose robotization as a threat to their positions. But that is to misread why they feel what they do. Ludditism is a universal and not just a Russian phenomenon, and what people really fear is losing their jobs.

            Neither the population or the regime understands that the fourth industrial revolution other countries are going through will bring new but very different jobs and that both groups will benefit if they seize the opportunity as other countries are doing.  But that requires not just more money or a technological revolution but a humanitarian one as well.

            Over time, this revolution “will force us to change the economy” as much as many oppose any change now. Unfortuantely, “there is still no recognition in Russia that if we do not begin to adapt to new conditions, they we may be thrown on the dust heap of history once and for all.”

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