Paul
Goble
Staunton, October 2 – Russian
officials are saying all the right words about making the country more
attractive for investment, but the Kremlin is taking action which means those
words won’t be realized and that the post-Soviet NEP ending as its Soviet predecessor
did, with the triumph of the siloviki and a state economy, Vladislav Inozemtsev
says.
The Russian economist says the gap
between words and actions in this sphere is only growing but that the facts on
the ground and not the words are what are going to determine the future (openmedia.io/news/mozhet-li-rossiya-stat-investicionno-privlekatelnoj-pri-soxranenii-nyneshnego-rezhima/).
No
one today would dispute the idea that Russia’s attractiveness as a place for
investment is “about zero,” Inozemtsev says.
Six years ago, before Ukraine, 94 billion US dollars flowed into Russia
as investment. Last year, in contrast, 23.1 billion US dollars flowed out, one
of the signs of disinvestment.
But
there are others as well. Since 2014, “more than 200 fooreign companies” have
shut down in Russia, he continues; and last year, 2.15 times as many Russians
firmed closed as opened (rbc.ru/economics/06/06/2019/5cf7bc9b9a79474f236c46a3). And as that has happened, the role of the
Russian state in the economy has shot up.
According to Inozemtsev, there are
two reasons why the investment climate in Russia isn’t going to change anytime
soon whatever those seeking more money from the West say, the first is “purely
economic;” the second is completely political.
The economic reason arises from the
fact that “Russia which demonstrated in the first decade of this century a
powerful recovery was not able to shift to stable development.” Instead it
continued to rely on the sale of raw materials to get money to purchase
manufactured goods from abroad.
The fall in prices for oil,
sanctions and devaluation of the ruble all made the impact of this failure to
shift directions more serious with investors taking out their money either
directly or via expanded dividends and the population seeing its income decline
for the last six years in a row.
Given all this, Inozemtsev
continues, “investing in this market is equivalent to insanity.” Unless growth
resumes, that won’t change; and without it changing, a shift those in the
Kremllin do not appear interested in, there won’t be growth, “a vicious circle”
from which Putin’s Russia can’t escape.
The political reason is this: “The system of power Putin has built is based
on the principle of the conditionality of property: it is guaranteed only to
those who follow the rules of the game
the Kremlin establishes.” For the first
decade, things more or less worked, but “beginning in 2012, the situation changed.
The regime lost its legitimacy both among its own citizens and in the international
community.”
Under these new conditions,
Inozemtsev says, the siloviki either seized businesses directly or imposed
their managers on them; and the Kremlin had little basis for opposing them
because it needed their loyalty and as
the economy slowed and then contracted, this was the only way to purchase it.
“In essence,” he continues, “we are
at a point like at the end of the 1920s: NEP has ended and targeted repressions
are occurring, repressions which in the future will have to be replaced by the
destruction of entrepreneurs ‘as a class.’” In such a system, no one can expect
anyone to invest.
Now, the authorities “understand
that economic growth of five or six percent a year, which would return the
country to ‘the Putin consensus’ of the first decade of his rule which was
based on a rapid rise in the standard of living is impossible.” In this situation, those in power need the
loyalty of the siloviki who can demand a high price.
As a result, Inozemtsev concludes, “the
post-Soviet NEP is coming to an end just as the Soviet did, with the triumph of
the siloviki and of a statist economy.”
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