Saturday, March 21, 2020

Economics and Politics are Separate and Hostile Realms in Russia, Inozemtsev Says

Paul Goble

            Staunton, March 15 – “The economy doesn’t influence political processes in Russia,” Vladislav Inozemtsev says; and politicians, both because of their hostility to business and the control the security services have over it can’t take the steps necessary to free up the economy and allow it to grow. Instead, the regime focuses on extracting ever more money from it.

            The recent change in the government, the Russian economist says, was “a correct measure” because it signaled that there was a desire to hold someone accountable for past failures, but the new regime just like the old one “cannot unleash economic growth” as that would require freeing the economy from the siloviki, something now “impossible.”

            Consequently, the economy is unlikely to improve significantly anytime soon; but, as this is critical, Inozemtsev suggests, “serious political changes” have not been and will not be “provoked by economic difficulties” (

            But what the regime is doing has serious negative consequences as far as the economy is concerned. “The powers are constantly increasing tax collections,” and that appears to be one of the main reasons for the appointment of the new prime minister who had been quite successful in doing that in his earlier position.

            “For me,” Inozemtsev says, “it remains a mystery why the Kremlin devotes such great importance to this: for taxes are money collected in the final analysis from effective businesses and handed out to bureaucrats who supposedly are in a position to invest this money more effectively.”

            But such tax collections don’t lead to economic growth. Rather the contrary. If Putin would consider what his “friend Donald” Trump has done, he would act differently. Trump unleashed economic growth not by collecting more taxes but by cutting them. That is an axiom around the world “but just not in Russia.”

            There, the siloviki want the money and their influence on the economy is not something the Russian government can do anything about. The only thing it can hope for is a growth in export earnings, and these are increasingly at risk because of changes in the international marketplace.

            In this situation, the most optimistic projection for Russia is growth in the 1.0 to 1.5 percent range; and the most pessimistic, a decline that could send personal incomes down 15 to 20 percent, Inozemtsev says. But even this is unlikely to have major political changes at least in the short and medium term.

            On the one hand, the Kremlin plans to continue to exploit Russian fears of a return to the 1990s to ensure basic support for Putin’s remaining in power. And on the other, it is eliminating things such as municipal elections which could become the basis for political mobilization against it.

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